DIVISION OF THE BUDGET
DAVID A. PATERSON, GOVERNOR
April 28, 2009 CONTACT: Jeffrey Gordon
DIVISION OF THE BUDGET RELEASES ENACTED BUDGET FINANCIAL PLAN
Budget Agreement Closes $20.1 Billion Budget Gap, Largest in State History
Reduces Multi-year Budget Deficit by More Than 70 Percent
The Division of the Budget today released the State’s official 2009-10 Enacted Budget Financial Plan, which includes updated information on the gap-closing plan, federal stimulus recovery funding, State revenues, State spending, out-year deficits, the State workforce, and other financial indicators.
The 2008-09 Deficit Reduction Plan and 2009-10 Enacted Budget closed a combined $20.1 billion deficit and reduced New York’s multi-year deficits by more than 70 percent. Additionally, State Operating Funds spending, which reflects spending financed by State taxpayer dollars, increased by 0.7 percent – the smallest increase in 14 years.
“This year’s budget represented a first step in the difficult process of putting New York back on sound fiscal footing,” said Governor Paterson. “The fiscal crisis we confronted over the last 14 months was years in the making, and it will take more than a single budget to get our State’s financial house in order. But the long-overdue reforms we instituted in this budget will provide a solid foundation as we meet the challenges ahead.”
The 2008-09 Deficit Reduction Plan and 2009-10 Enacted Budget closed a combined $20.1 billion deficit ($2.2 billion in 2008-09, $17.9 billion in 2009-10) that was equivalent to 37 percent of 2008-09 General Fund receipts. This represented the largest budget gap in State history, nearly twice as great as the one that the State addressed in 2003-04 ($11.2 billion).
The $20.1 billion General Fund gap-closing plan included the following components:
Spending Reductions ($6.5 billion). The State’s gap-closing plan included $6.5 billion in spending reductions. The largest of these are implementing an over $2 billion record health care savings plan that better targets New York’s resources toward primary and preventative care; delaying a scheduled funding increase for school districts by maintaining Foundation Aid at 2008-09 levels in 2009-10; extending the full phase-in of Foundation Aid from four to seven years; eliminating the STAR rebate program ($1.6 billion) while preserving the original $3.5 billion STAR exemption program; instituting a workforce reduction plan of 8,690 positions; and other actions.
Revenue Actions ($5.4 billion). The State’s gap-closing plan included $5.4 billion in General Fund revenue actions. The largest of these are instituting a temporary, three-year personal income tax increase on high-income taxpayers ($4.0 billion); increasing an assessment on utility companies ($557 million); promoting environmental protection by expanding the bottle deposit law to include bottled water beverages and authorizing the State to retain 80 percent of all unclaimed deposits ($115 million); eliminating all itemized personal income tax deductions besides charitable deductions for high-income taxpayers ($140 million); reforming the State’s Empire Zone action ($90 million); and other actions.
Extraordinary Federal Aid ($6.2 billion). The State utilized $6.2 billion in federal stimulus funding to help address its record budget deficit. This included $5 billion in flexible Federal Medical Assistance Percentages (FMAP) reimbursements and $1.2 billion in funding that the federal government mandated must be used for education restorations. Additional substantial stimulus “pass-through” aid, such as money for infrastructure projects, county FMAP aid, drinking water improvements, and many other purposes will also be expended as part of the State budget. This pass-through aid does not provide fiscal relief, but counts toward All Funds State spending. A more detailed discussion of federal stimulus funding is included below.
Non-recurring Actions ($2 billion). The budget agreement limits non-recurring actions to $2 billion – approximately 10 percent of the overall gap-closing plan. Major non-recurring actions include delaying a scheduled Medicaid cycle payment by one day ($400 million); increasing the business tax prepayment to make the timing of payments consistent with other tax collections, without increasing a taxpayer’s overall liability, ($333 million); transferring resources from the New York Power Authority ($476 million), and other actions.
An itemized listing of gap-closing actions is available at the Division of the Budget’s website at www.budget.state.ny.us.
Multi-year Budget Gaps
The Enacted Budget reduces the State’s multi-year deficit by over 70 percent from $85.2 billion to $24.6 billion. Prior to budget actions, the State’s General Fund budget gaps totaled $2.2 billion in 2008-09, $17.9 billion in 2009-10, $20.4 billion in 2010-11, $21.9 billion in 2011-12, and $22.8 billion in 2012-13. After budget actions, the financial plan is balanced in 2008-09 and 2009-10, and the State’s out-year deficits were reduced substantially to $2.2 billion in 2010-11, $8.8 billion in 2011-12, and $13.7 billion in 2012-13.
Extraordinary Federal Aid
Overall, the State budget included a combined total of $12.6 billion in extraordinary federal aid in 2008-09 ($1.7 billion) and 2009-10 ($10.9 billion). As directed by President Barack Obama and Congress, New York had to spend this aid as soon as possible in order to help stimulate the economy and preserve critical services. It could not be used to retire debt or fund the State’s Rainy Day reserve.
This stimulus funding consists of two main components: flexible State FMAP funding and“pass-through” funding over which the State had limited discretion.
The flexible State FMAP funding totals $5 billion over the next two years ($1.3 billion in 2008-09 and $3.7 billion in 2009-10). FMAP aid represents increased federal Medicaid reimbursements, which reduce the State’s share of General Fund Medicaid costs dollar for dollar and provide general fiscal relief.
This $5 billion in fiscal relief through increased FMAP reimbursements was used in the following manner: $1.3 billion to reject certain proposed tax and fee increases; $1.2 billion to address revenue deterioration; $1 billion to restore proposed health care reductions, $750 million to address increased Medicaid caseload in a difficult economy, $328 million to restore New York City’s Aid and Incentives for Municipalities payment; $282 million to address a shortfall in the HCRA account; $126 million to restore proposed reductions to human services programs serving our most vulnerable citizens; and $38 million to restore proposed reductions to mental health programs.
New York will also receive $7.6 billion ($440 million in 2008-09 and $7.2 billion in 2009-10) over the next two years in federal “pass-through” money. While the allowable uses of this aid are specifically prescribed in federal legislation, these funds pass through the State budget and count as All Funds spending. This funding includes the county share of FMAP relief ($440 million in 2008-09, $1.4 billion in 2009-10); funding mandated to be used for education restorations ($1.2 billion in 2009-10); Title I and IDEA funding that is sent directly to school districts ($850 million in the 2009-10 fiscal year); State and local highway grants ($459 million in 2009-10); funding for clean water and drinking water projects ($287 million); weatherization programs ($263 million); and others.
A full listing of federal stimulus funding in the State budget is available at the Division of the Budget website at www.budget.state.ny.us.
The State Operating Funds budget, which represents spending financed by State taxpayers, is projected to total $78.7 billion, an increase of $574 million or 0.7 percent – the smallest increase in 14 years. This compares to current services State Operating Funds growth before budget actions of $10 billion or 12.8 percent.
The General Fund budget, which represents spending from the State’s main operating account, is expected to total $54.9 billion, an increase of $301 million or 0.6 percent. This compares to current services General Fund growth before budget actions of $9.0 billion or 16.4 percent.
The All Funds budget, which includes all State spending, including federal aid and capital, is projected to total $131.9 billion, an increase of $10.4 billion or 8.5 percent. The increase in All Funds spending is primarily related to federal pass-through aid ($440 million in 2008-09 and $7.2 billion in 2009-10) and costs from increased Medicaid caseload ($532 million in 2008-09 and $1.4 billion in 2009-10) – both of which are extraordinary expenditures related to the current economic downturn. Taken together, these two factors represent approximately 80 percent of the increase from 2008-09, with the remainder resulting primarily from increased capital expenditures from prior year commitments.
“Federal stimulus funding provided the state a soft landing as it transitions to a new fiscal reality, but much more needs to be done to get our fiscal house in order,” said Governor Paterson. “This year we took the first step toward implementing reforms that will make our State government more cost-effective and accountable, and we must continue the important work of reining in State spending in the future.”
In 2009-10, the overall State workforce is expected to total 190,335, a decrease of 9,581.
The Enacted Budget includes $54.5 billion of debt, an increase of $2.8 billion from 2008-09. This primarily reflects commitments made in prior years.
The gap-closing plan did not utilize any of the State’s $1.2 billion in rainy day reserves, which remain fully intact.