August 11, 2008
CONTACT: Jeffrey Gordon


$1 Billion in Current Year Savings To Guard Against Further Revenue Reductions; Combined with $1.6 Billion in 2009-10, Savings Would Cut Next Year’s $6.4 Billion Budget Deficit by Over 40 Percent

In the face of deteriorating economic conditions and declining revenues, Governor David A. Paterson today released a comprehensive $2.6 billion budget savings plan for consideration by the Legislature reflecting savings of $1.0 billion in 2008-09 and $1.6 billion in 2009-10. If these savings were enacted in full, the 2009-10 budget deficit would be cut from $6.4 billion to $3.7 billion, a 41 percent reduction.

“On April 1, 2009, in just 232 days, we will have no other choice but to reduce spending and close a $6.4 billion budget gap. And if the economy continues to worsen, the spending reductions I have proposed will be necessary to help ensure the current year’s budget remains in balance,” said Governor Paterson. “Either way, the longer we fail to act, the more painful and limited our choices will be.”

On July 30, Governor Paterson called a special emergency economic session of the Legislature for August 19, during which he asked the Assembly and the Senate to make $600 million in 2008-09 reductions. He also imposed a hard hiring freeze and cut state agency spending by an additional $630 million in order to address a potential shortfall in the current fiscal year.

Governor Paterson continued: “As I said last month, my goal is to reduce spending in the 2008-09 budget by at least an additional $600 million. Today I have provided the Legislature with over $1 billion in current-year savings options as we begin a productive dialogue and work together toward the goal of ensuring the state’s fiscal integrity.”

Governor Paterson’s plan includes the following components:

Components of Governor Paterson’s Spending Reduction Plan
  2008-09 Savings 2009-10 Savings
Reduce Local Assistance Spending by 6 Percent Across the Board $250 m $420 m
Reduce New and Enhanced Executive and Legislative Programs by 50 Percent $132 m $56 m
Targeted Medicaid/Health Savings $506 m $1,042 m
Reduce Executive and Legislative Member Items by 50 Percent $100 m $0 m
Reduce CUNY Funding by 7 Percent to Achieve Parity with SUNY $51 m $51 m
Total $1.04 b $1.57 b

Reducing Local Assistance General Fund Spending by Six Percent (Savings: $250 million in 2008-09, $420 million in 2009-10): This reduction would be taken against all unspent local assistance funds, except for school aid, welfare, Medicaid, child welfare, youth detention, and special education.

Reducing New and Enhanced 2008-09 Executive and Legislative Programs by 50 Percent (Savings: $132 million in 2008-09, $56 million in 2009-10): This reduction would apply to new and enhanced programs or initiatives in the 2008-09 Enacted Budget proposed by either the Executive Branch or the Legislature. In a time of fiscal difficulty, Governor Paterson has stressed the need to focus state spending on the core mission and services of each state agency and limit expenditures on new programs.

Reducing Member Item Spending by 50 percent (Savings: $100 million in 2008-09, $0 million in 2009-10): Consistent with his proposal to reduce new initiatives, Governor Paterson has proposed a reduction of 50 percent for all Legislative and Executive Branch member item spending authorized in the 2008-09 Enacted Budget.

Reducing Medicaid Spending (Savings: $506 million in 2008-09, $1 billion in 2009-10): Citing the need to both address this year's fiscal difficulties and make a down payment on next year's deficit, Governor Paterson has proposed a series of proposals to contain the growth of Medicaid costs by continuing to focus reductions on the growth in payments to institutions in ways that will not impact patient care. These savings initiatives would reduce 2008-09 Medicaid spending growth by more than half from 4.0 percent to 1.7 percent. Further details are provided below.

Reducing General Fund Support to the City University of New York (CUNY) by Seven Percent to Achieve Parity with SUNY Reduction (Savings: $51 million in 2008-09, $51 million in 2009-10): Under Governor Paterson’s July 30 administrative savings proposal, the State University of New York (SUNY) must implement a seven percent General Fund spending reduction. Because CUNY is funded through local assistance rather than state operations, it was not impacted by the Governor's savings proposals issued in July. Governor Paterson is proposing to implement a commensurate reduction for CUNY to achieve parity with SUNY. Neither institution will face a reduction from its tuition or other non-General Fund revenues.

“Just like families across New York facing difficult economic times, our state government needs to scrutinize its spending carefully and acknowledge that we simply cannot afford everything we want or everything we counted on when we thought we had more money,” Governor Paterson said.

Governor Paterson has put forward several proposals to further control state Medicaid spending, which is the largest area of the budget. These actions would produce $505.7 million in savings during the current fiscal year and $1.0 billion in 2009-10.

State Funds Medicaid spending was projected to increase by 4.0 percent in 2008-09. If these proposals are implemented, growth would total only 1.7 percent. If no actions are taken, Medicaid is projected to grow by $1.7 billion in 2009-10, which represents 27% of next year's projected budget gap.

Pharmacy Reimbursements ($13.5 million): Savings would be realized by increasing steps taken in the current year's budget to bring New York's costs more in line with acquisition costs. This will involve taking advantage of discounts on diabetic supplies ($1.9 million) and reducing reimbursements to pharmacies for prescription drugs provided through the Medicaid and EPIC programs from Average Wholesale Price (AWP) minus 16.25% to AWP minus 17% ($8.6 million). Additionally, consistent with the practice of many other states, New York would expand the Medicaid Preferred Drug List to include anti-depressants ($3.0 million). In all cases, doctors would retain final decision-making power concerning pharmaceutical treatments.

Hospitals ($99.4 million): The state would implement an across-the-board Medicaid hospital reimbursement rate reduction of 7 percent on a half-year basis in 2008-09 and 3.5 percent on a full annual basis in 2009-10 ($62.1 million). It would also eliminate the hospital trend (inflation) factor on a half-year basis for the 2008 calendar year and on a full annual basis in the 2009 calendar year ($14.7 million). Additionally, a 0.70 percent assessment on hospital revenues, which was in place in prior years, would be reinstituted ($22.6 million).

Insurance Industry ($120.0 million): To ensure that insurance companies contribute their fair share of budget savings, the proposal increases the covered lives assessment on this industry by $120 million, from $920 million to $1.04 billion.

Nursing Homes ($169.4 million): The state would eliminate the nursing home trend factor on a half-year basis in calendar year 2008 and on a full annual basis in 2009 ($29.4 million). Supplemental grants to public nursing homes that are no longer necessary because of increased federal and state reimbursements from alternative funding sources would be discontinued ($35 million). The proposal also reduces 2008 transition payments to nursing homes, delays the implementation of nursing home rebasing, and caps state funding for these institutions at $230 million ($50.0 million). It additionally implements an across the board nursing home rate reduction – equivalent to 4 percent in 2008-09 and 2 percent annually thereafter ($55 million).

Home Care ($45.5 million): The savings proposal eliminates the home care and personal care trend factor on a half-year basis in calendar year 2008 and on a full-year basis in calendar year 2009 ($17 million). It also encourages efficiencies in Certified Home Health Agencies and Long Term Home Health Care Programs by reducing reimbursements for administrative costs and implementing other savings measures ($20.6 million). Additionally, the state would implement an across-the-board reduction in home and personal care reimbursement rates of 1 percent ($7.9 million).

Other Actions ($57.9 million): Other actions include reducing the Medicaid Managed Care and Family Health Plus state premiums by 1.45 percent ($35.7 million); reducing managed long-term care premiums by 1.0 percent ($5.5 million); and eliminating the cost-of-living-adjustment for early intervention providers who deliver non-Medicaid services ($16.7 million).