Institute Forum

Summary: A Five-Year Plan to Eliminate New York's Structural Deficit? April 19, 2010

Senate, Assembly Leaders: We’re Open to Negotiations on Budget Reform

While New York’s Senate and Assembly majorities have proposed differing approaches to long-term budget reform, negotiations and compromise are likely to produce agreement on major elements, leaders from the two houses told a Rockefeller Institute forum on April 19.

For more:

Lt. Gov. Ravitch’s Five-Year Fiscal Plan

Audio of April 19 Public Policy Forum

Video of Senator Krueger
Video of Assemblyman Farrell
Video of Q&A Session 1

Video of Elizabeth Lynam
Video of E.J. McMahon
Video of Frank J. Mauro
Video of Q&A Session 2

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The two houses have both embraced moving from budgeting on a cash basis to a budget system in keeping with Generally Accepted Accounting Principles (GAAP). Further agreement may emerge in areas such as a two-year budget cycle and new authority for governors to reduce spending in response to midyear fiscal crises, Senator Liz Krueger and Assemblyman Herman D. Farrell told the forum.

Shifting to GAAP budgeting is among the major recommendations in the five-year financial plan submitted by the state’s Lieutenant Governor, Richard Ravitch, to reform New York’s budget system. Such a move also drew support from independent experts who joined Senator Krueger and Assemblyman Farrell at the event. The speakers differed in their opinions on other aspects of the Ravitch plan, including the concept of borrowing to close current budget gaps and the creation of an independent financial control board.

The lieutenant governor’s plan, which was produced with research assistance from Rockefeller Institute fiscal policy experts, would require the state to achieve and maintain structural budgetary balance. According to the plan, the state’s current structural budget gap — the gap that will remain even if the economy improves — stands at $13 billion. The plan’s recommendations include, among other things:

Senator Krueger, chair of the Senate Committee on Budget and Tax Reform, outlined the Senate’s budget reform proposal, which also includes a shift to GAAP-based budgeting and a later start to the fiscal year, though the Senate version marks that at June 1 to give school boards time to plan based on what they are likely to receive from the state. The Senate proposal also calls for a biannual rather than annual budget; creation of a Legislative Budget Office modeled after the federal Congressional Budget Office, and for an analysis and scheduled sunsetting of tax exemptions and credits. Those recommendations are presented in S.7160, S.7284, S.7259, S.4526, S.5221C and S.7347.

Assemblyman Farrell, chair of the state Ways and Means Committee, summarized the Assembly plan (A.10408). It would promote elimination of the state’s structural deficit over five years, create an independent Financial Review Board and allow issuance of up to $2 billion in bonds to balance each of the coming three years’ budgets.

Both lawmakers stressed that the state must preserve spending on education while balancing its budgets.

Farrell said the state often projects future deficits that do not materialize, but the current picture is different. “We are in deep trouble,” he said. “The numbers are there. It’s got to be a three- to five-year solution.”

Senator Krueger said she and her colleagues are open to most elements of the Assembly package. Assemblyman Farrell noted the Assembly has previously proposed two-year budgeting, similar to a major element of the Senate plan.

“We are all talking GAAP budgeting, which I think is one of the real wins that can come out of this process,” Senator Krueger said.

Three independent experts — Elizabeth Lynam, deputy research director of the Citizens Budget Commission; E.J. McMahon, director of the Empire Center for New York State Policy; and Frank Mauro, executive director of the Fiscal Policy Institute — also commented on the Ravitch plan.

Lynam questioned whether taxpayers are getting the quality of services to match the amount of spending on both education and health care. On the whole, she said, the Citizens Budget Commission supports the five-year financial plan, but wants to be sure that the state is not allowed to borrow money to close its budget gap without putting other reforms in place.

“We felt that the temptation would be great for the Legislature to avail itself to the $2 billion in annual deficit financing, and not pick up the rest of the package that included some reforms that the CBC has long advocated for many, many years,” Lynam said. 

The CBC would also like spending restrictions imposed in any budget reform plan, Lynam said. The Lieutenant Governor’s proposal calls for a balanced budget, but does not dictate whether balance be reached through revenue increases or spending cuts. After years of watching the state spend more than it takes in, Lynam said CBC would like the proposal to include “some definition that some of the balance must come from more sustainable spending.”

McMahon said the five-year financial plan includes a number of valuable proposals, including new authority for the governor to address midyear budget gaps by reducing expenditures unilaterally. But he opposed new borrowing.

“The notion of tying limited deficit financing to permanent fiscal reform is a decent idea,” McMahon said. “But the problem is the plan simply doesn’t ask enough of the Legislature in exchange for this potentially significant, not to mention costly, concession.”

McMahon also said that he is against the creation of an independent review board. If the governor needs the power to reduce spending, a system should be created to do so without the approval of “an appointed priesthood of experts,” he said.

In addition, he said he would like to see a permanent cap placed on state spending, as has been suggested in other proposals. He called for an amendment to the state Constitution to create that cap.

Mauro said he would prefer to see a pay-as-you-go requirement added to the plan, requiring the state to finance expenditures with available funds, rather than borrowing. He strongly agreed with the idea of the creation of a large cash reserve for the state.

Mauro questioned some estimates and assumptions in the Lieutenant Governor’s plan, including that $5 billion to $5.5 billion of New York’s deficit is caused by recession-related revenue declines or spending increases. Mauro suggested that the figure is much higher, stating there was a $12 billion difference between personal income tax forecasts at the end of 2008 and 2009.

“There has to be a real effort of detangling what the structural deficit is from what the cyclical deficit is,” Mauro said.

He also said there are currently important differences between how the state Division of Budget and the Controller’s office account for revenues, specifically citing federal funds for health expenditures.

He called for a greater contribution from Wall Street firms, by way of changing tax rules for credits and deductions, for example, as a way to close the current deficit, rather than rely on borrowing.


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The Nelson A. Rockefeller Institute of Government, the public policy research arm of the State University of New York, conducts fiscal and programmatic research on American state and local governments. It works closely with federal, state, and local government agencies nationally and in New York, and draws on the State University’s rich intellectual resources and on networks of public policy academic experts throughout the country.