Size of surplus key piece in state-budget jigsaw
By SHERRY HALBROOK
Opening volleys in the state’s annual budget wars have followed the usual pattern, with the initial debate centering on how much money the state has available to spend.
Historically, state leaders have been unwilling to begin negotiating where to spend until they agree on how big a tab they can afford to run up.
In his $83.6 billion Executive Budget proposal for fiscal 2001-02, Gov. George Pataki forecasts the state will have $1.4 billion left over at the end of fiscal year 2000-01 on March 31.
This
surplus is attributed mainly to the strong national
economy and the resulting increases in state
personal-income tax, sales tax and miscellaneous
receipts, and tax revenues largely from the record
profits generated by Wall Street. Dems: state surplus bigger
Democrats in the state Assembly contend the governor is underestimating New York’s budget surplus for the fiscal year just ending, saying it is nearly $2.4 billion.
The governor proposes to keep the entire surplus in reserve to “…remain the nation’s tax-cutting leader and safeguard existing budgetary commitments in the event of a significant slowdown in the national economy.”
But his critics claim the governor just wants to sock it away this year, so he can spend it next year when he will be up for re-election.
Surplus earmarked
If you accept the governor’s projection of $1.4 billion for the fiscal year ending this March, the state currently has total reserves of approximately $3.9 billion.
The governor is already looking to use some of this reserve in the coming year.
For instance, he proposes to spend all of a $1.2 billion “Tax Reduction Reserve” set aside previously to help pay for the cost of the STAR school tax reduction program this year.
But he would earmark $1.3 billion from his projected fiscal 2000-01 surplus for a new “Fiscal Responsibility Reserve Fund.”
And he would take another $80 million of the new surplus and add it to the “Tax Stabilization Reserve Fund,” commonly referred to the “rainy day” fund. The new influx of cash would bring the total for this fund to $627 million.
If all of the governor’s estimates are accepted and his proposals enacted, the state should end up with approximately $2.4 billion of its current reserve funds left by this time next year, according to PEF’s chief fiscal analyst, Tom Cetrino.
Caution: Budget gaps ahead
The state has some justifiable reasons for wanting to hold back some cash reserves when the economy is strong, according to Cetrino.
The state’s Financial Plan forecasts that New York’s economic growth is expected to slow in 2001.
The plan predicts a modest 2.6 percent increase in cash receipts for all state governmental funds.
Not only may we have seen the last of the end-of-year surpluses, in a few years we could see a reversion to budget deficits, he cautions.
“The state faces structural budget gaps of $2.49 billion in fiscal 2002-03 and $2.923 billion in fiscal 2003-04,” Cetrino says.
A slowing economy isn’t the only reason state revenues are expected to drop in coming years. Tax cuts that the state enacted years ago are scheduled to get bigger over time.
“These future budget gaps would result mainly from the back loading of already enacted tax cuts and expected decreases in personal-income-tax and business-tax receipts,” Cetrino says.
For example, in fiscal 2001-02, these previously enacted tax cuts will reduce state revenues by an estimated $13.3 billion. Those same tax cuts will undermine state revenues by $14.3 billion in fiscal 2002-03 and by $15.4 billion in fiscal 2003-04.
“These estimates don’t include the $530 million in new tax cuts that the governor has proposed in the fiscal 2001-02 budget,” Cetrino says. “This $530 million cost will occur if and when all the proposed new tax cuts are fully implemented. The largest of these tax cuts are $300 million in targeted tax incentives for upstate New York businesses and a new $230 million Co-STAR program which will reduce county property and New York City personal-income taxes for income-eligible senior homeowners and farmers.
“These budget gaps are based on the state’s economic forecasts of slower growth in the next two fiscal years,” Cetrino says. “But the gaps will be significantly larger if the state’s economy experiences a sharper slowdown than the Executive Budget forecasts.”
On the other hand, Cetrino says, so far, the economy has kept state finances much healthier than forecasted.
Reserves can be good
All in all, Cetrino says he tends to agree with Pataki about the need to hold onto some of the state’s current surplus, but fears it will be used up quickly as phased-in tax cuts undercut state revenues in the next few years.
“The governor’s proposal to keep more than $2 billion in reserve seems prudent,” Cetrino says, “because the projected $2.9 billion structural deficit for fiscal 2003-04 assumes spending will go up by only 1.1 percent that year for state operations, and it includes nothing for new pay hikes after the current employee contracts expire April 1, 2003.”
This past year, the governor tapped the state’s reserves to cover unbudgeted pay raises and employee- health expenses.
The governor spent a total of $1.93 billion more over the past year than was anticipated in the enacted 2000-01 budget.
All but $338 million of the unbudgeted spending came from reserve funds and was used to pay for employee-pay raises and other benefits in the new collective-bargaining agreements, and to reduce the state’s debt payments.
Another $250 million in spending resulted when the sale of the Medical Malpractice Insurance Association brought in less money than expected. And the remainder of the budget overrun was primarily due to higher costs for litigation, state-employees’ health insurance, and Medicaid.