Institute Forum

"Budget Outlook for 2011" Summary November 18, 2010

Budget Director: N.Y. Must Cut Spending, Reconsider Services

Three years of major budget gaps — and the prospect of even larger gaps in years to come — suggest that state officials may be forced to reconsider the extent of services that New York can support, according to state Budget Director Robert L. Megna.

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Audio (Full)

Video: Robert L. Megna
Mr. Megna's slide presentation

Video: Q&A session

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Megna told a Nov. 18 forum at the Rockefeller Institute that the gap between state revenues and expenses is estimated at $9 billion to $10 billion in fiscal year 2011-2012, or the equivalent of one in six dollars of projected General Fund revenues. The estimated gap rises even further, perhaps as high as $17 billion, two years later.

The reason is simple, he said: New York spends more money than it collects in taxes. Before the economic downturn in late 2008, he said, the state had been able to camouflage this unsound financial practice because a robust economy had boosted state revenues — especially taxes on profits in the financial sector.

But while the economy is growing again, it is not expanding quickly enough to close the currently large and ever-widening budget gap, Megna said. The state is collecting taxes from a smaller pie of corporate profits and personal income than it was drawing from three years ago.

“We do believe the economy has bottomed out and is growing,” he said. “But it is growing from a much smaller base.”

Further, he said, state expenses have increased as the economy has led more people to seek public assistance, including health care. Health reform legislation enacted earlier this year should give New York a break on health insurance costs for certain residents who may obtain insurance from the federal government, Megna said — but that won't happen until 2014. The cost of paying state retirees, among other things, has also gone up as the value of the state’s pension fund and other securities have decreased along with interest rates.

“It’s going to take us, I think, a long time to get back to where we were,” Megna said of the state’s fiscal condition.

The state could close the budget gap by raising taxes. But that is a politically difficult option, Megna said, and one that Governor-elect Andrew Cuomo has already said he opposes. Because the state, unlike the federal government, is not permitted to operate with a deficit, state leaders will be forced to examine what services New York can actually pay for, the budget director said.

“We are in the position now where the state is going to have to decide that there are certain things that it’s not going to be able to do anymore the way it’s been doing them in the past,” Megna concluded. “The numbers just don’t allow it.”


ABOUT THE ROCKEFELLER INSTITUTE OF GOVERNMENT

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.