Institute Forum

Summary: Changing the 'Basic Landscape’ of New York’s Budget May 26, 2011

Changing the ‘Basic Landscape’ of New York’s Budget

Megna: Spending caps for Medicaid and school aid fundamentally reshape fiscal future

New York’s adopted budget for this year restructures “the basic landscape” of the state’s fiscal future, Budget Director Robert L. Megna told a May 26 Rockefeller Institute forum. At the same time, Megna said, success of the plan depends on implementation of key elements — including a cap on Medicaid spending — that pose lingering challenges for policymakers.

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The state entered the current budget cycle facing projected gaps of $10 billion in fiscal 2011-12, just less than $15 billion in FY 2013, and more than $20 billion in FY 2015. The enacted budget brings the current year’s financial plan into balance — mostly by reducing projected spending levels — and cuts the outyear gaps by more than 75 percent.

“The governor’s view was, ‘I don’t just want to solve an ’11-’12 problem. How do we get past this cycle of living with these mammoth budget gaps from year to year?’ ” Megna said. The outcome of the budget negotiations showed that a governor’s “willpower” can make a dramatic difference, he said.

Baseline spending from the state’s own revenues would have jumped by 12.6 percent this year, from $84.4 billion to $95 billion, absent any changes in previously existing law, according to figures from the state Division of Budget. Such increases over the next three years would have brought the state-funded spending level to just under $113 billion in fiscal 2015. Changes adopted by Governor Cuomo and the Legislature will limit such growth to 3 percent this year, with fiscal 2015 spending now projected at $97.5 billion. The largest elements of the gap-closing plan include $2.7 billion in cuts from projected 2011-12 spending levels for Medicaid and education, and $1.6 billion in reductions for state agency programs this year.

At Governor Cuomo’s insistence, the budget includes statutory language that imposes spending caps — what Megna termed “reasonable constraints” — on Medicaid and K-12 education spending. The Medicaid provision limits future spending growth to the long-term average growth in the medical component of the Consumer Price Index, which the Budget Division estimates at 4 percent. Future growth in aid to public schools will be limited to the average increase in statewide personal income, also estimated at 4 percent. Both the Medicaid and education spending limits will remain in place permanently, unless changed through future legislation.

The budget also gives the Governor authority to impose certain controls on Medicaid costs in the current fiscal year. Some changes implemented under such executive “superpowers,” as Budget Division staff term them, require federal approval. Megna identified that process and uncertainties regarding other steps to implement the Medicaid spending reductions as among key risks to the financial plan.

State employee fringe benefits represent the proportionally largest growth in spending this year and in each of the following three years, Megna said. Costs for pensions, health and other benefits are projected to rise about 7 percent this year, and by higher percentages in fiscal 2013 and 2014.

Megna cautioned that, even though outyear gaps have been reduced, “We’re going to have to find further efficiencies” to balance revenues and expenditures in future years. State agency operations and local assistance programs other than K-12 education are among potential targets, he said. The state may also need to follow the advice of former Lieutenant Governor Richard Ravitch and identify some new mechanisms to institutionalize structural balance, Megna added.


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.