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Both the final 2006-2007 State budget and the process that produced it are severely flawed, creating uncertainty and potentially serious problems for the State and the local governments, school districts, non-profit organizations and people who rely on it, according to a report issued Tuesday by State Comptroller Alan G. Hevesi. The process began badly with a $110.6 billion Executive Budget that would have increased spending more than two times faster than revenues over three years, continued to rely on debt and non-recurring resources or "one-shots," and created a $7.8 billion two-year gap in 2007-08 and 2008-09.
The Legislature's $112.5 billion budget made matters worse by increasing spending growth and the use of debt and one-shots, creating a two-year gap as high as $13.2 billion.
The Governor's vetoes and subsequent decision to not spend much of what the Legislature overrode still leaves a $112.3 billion budget and a two-year gap of $9.8 billion, making it clear that there is no basis to the claim that the vetoes are aimed at holding down spending.
About $3.0 billion in Financial Plan risks - potential spending increases and revenue shortfalls - could increase the two-year gap to as much as $12.8 billion.
The Governor's decision to decide for himself the constitutionality of the Legislature's actions, rather than allowing the courts to appropriately make that decision, destroys any appropriate balance in the budget process.
"A budget must not only be on-time, it must also be prudent. Instead, the Governor and Legislature in separate actions have produced a budget with spending growing much faster than revenues, increasing rather than limiting the use of debt, and greater use of one-shots that plug today's budget holes while increasing future gaps. That's a formula for severe problems in the future," Hevesi said.
"In addition, the chaotic process has created uncertainty about what is or is not in the budget, causing potential problems for the many entities that receive aid and payments from the State," Hevesi said. "Although New York's budget process has been criticized over the years for its contentiousness, delays and poor fiscal practices, the Governor's unprecedented actions this year have served to weaken an already flawed system and produce an even worse result."
The report documents how the budget gap grew:
The process began with a $110.6 billion Executive Budget that over the three-year period covered by the 2006-07 proposed Financial Plan increased General Fund spending by 21.3 percent, while increasing revenues by only 9.1 percent, which led to an estimated $7.8 billion two-year gap.
Absent a legislative Financial Plan at the time of enactment, the Comptroller estimates that the $112.5 billion budget passed by the Legislature would increase spending nearly 30 percent over the next three fiscal years, while receipts would grow by only 14 percent.
The $112.3 billion final budget, after the Governor's vetoes and decisions to fund with reappropriations a number of items that he vetoed, will create a two-year gap of $9.8 billion.
The gaps projected for 2007-08 and 2008-09 assume spending growth of 8.1 percent and 5.9 percent, respectively, while revenues are projected to grow 1.0 percent and 4.7 percent.
The Executive Budget proposed spending $110.6 billion in 2006-07, an increase of $6.3 billion, or 6.0 percent, over the previous fiscal year. The final budget total of $112.3 billion represents an increase of $8.0 billion, or 7.7 percent, over last year. This is nearly three times growth in the rate of inflation projected for 2006-07.
On March 30, Budget Director John Cape sent a letter asking the Comptroller not to wait to complete his normal comprehensive analysis, but rather to immediately join the Executive's dispute with the Legislature about the actual size of the budget. In that letter, Cape claimed that the Legislature's Enacted Budget totaled $115.5 billion. In this report, the Comptroller's Office has determined that DOB's $115.5 billion included items that were never actually in the budget passed by the Legislature and that the Legislature's budget was actually $112.5 billion.
The report also notes:
--Non-recurring resources. The State's structural balance is severely affected by the use of nonrecurring resources. The Executive Budget relied on approximately $2.1 billion in one-shots to balance the 2006-07 Budget. The Enacted Budget accepted the bulk of these and added another $1.1 billion, for a total of $3.2 billion in non-recurring resources, including $1 billion from the sale of WellPoint stock, $258 million in prior year surplus, and $200 million in fund sweeps.
--Increased use of debt. The Legislature increased debt by an enormous amount. The Executive proposed new capital spending of approximately $1.8 billion. The Legislature rejected $275 million of the Executive's increase and added a remarkable $13.4 billion for a net increase of $13.1 billion in new State and local debt over the Executive's proposal. The Legislature's actions, coupled with the Executive's proposals, will increase State and local debt by nearly $15 billion. Of this amount, $10.1 billion will be funded directly with State resources either through debt service or Building Aid. (Before these actions, New York State already had the second highest combined State and local debt per capita at $2,509 per person.)
The report also analyzes this year's budget process, which produced an unprecedented imbalance in the relationship between the Governor and the Legislature:
The Governor vetoed 202 items totaling $2.9 billion, justified 36 of his vetoes on constitutional grounds and said he would not implement them regardless of legislative overrides.
After the Legislature passed supplemental or clean-up legislation to address the Governor's concerns and provide spending authorization, the Governor vetoed many of those provisions as well, citing constitutional concerns, bringing the total number of vetoes to 207.
In order to initiate negotiations with the Executive, the Legislature omitted more than $1.3 billion in funding for Temporary Assistance for Needy Families and Environmental Protection Fund spending. Instead, the Executive said he would refuse to negotiate and would use prior year appropriations to support spending money this year in these areas.
"We've entered uncharted territory where New York State has moved from dysfunctional to chaotic," Hevesi said. "Historically, the judicial branch resolves constitutional debates. However, in an unprecedented move, through language contained in many veto messages, the Executive has bypassed the court and the fundamental principle of separation of powers. These far-reaching actions not only change the intended spending for the current fiscal year, but nullify prior fiscal year spending agreements without input from the Legislature or any public debate."
The Comptroller's 2006-07 Budget analysis, released in February 2006, highlighted the ever-increasing practice by the Executive of proposing numerous legislative changes in the guise of budget language. The effect of this practice is to allow the Executive to make law using the budget process rather than the appropriate method of introducing bills into the Legislature and to eliminate the Legislature's ability to modify or amend proposed laws, a traditional role for a legislature in any balanced system. As predicted in the report, these proposals increased the contentiousness of budget deliberations between the Executive and the Legislature.
This year, the Comptroller's Office released a comprehensive fiscal reform agenda to strengthen New York's fiscal management practices, including legislative and constitutional, as well as procedural changes. Adoption of these measures, some of which do not require legislation, would enhance financial reporting, increase transparency of financial transactions and provide a framework for understanding the true fiscal issues facing the State. For example, it would require the Legislature to provide a financial plan detailing the effect of its changes to the Executive Budget. To date, the Legislature has yet to provide any Financial Plan to the public, thereby hindering a thorough analysis of the intent of its actions on the Executive's proposal.
"This year New York State enacted on on-time budget for the second year in a row. Process is important, but so is the final product. In addition to implementing an on-time budget, responsible fiscal policy must be first and foremost. Properly managing the State's finances requires an effort to save for the future, execute long-term planning to ensure revenues match spending, and, critically, reduce the State's debt burden. Abandoning shortsighted budgeting for multi-year fiscal discipline will not only improve the State's financial standing immediately, but will also have a favorable effect for future generations. This budget ignores fiscal discipline and long term consequences," Hevesi said.
To see report, www.osc.state.ny.us/reports/budget/2006/enactedbudget06_07.pdf 5-23-06
© 2006 North
Country Gazette
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