New York’s Governor Lacks Powers Other States’ Executives Use to Balance Budget in Midyear, Rockefeller Institute Report Finds

State’s volatile revenue stream makes fiscal crises more likely; strengthening governor’s impoundment power could help New York deal more effectively with future gaps

Albany, N.Y. — Strengthening and clarifying the governor’s power to keep the state’s budget balanced after enactment by the Legislature could help end recurring fiscal crises that harm essential public services, according to a new report from the Rockefeller Institute of Government.

New York’s governor, unlike chief executives in many other states, lacks authority to make across-the-board spending cuts when needed to maintain fiscal balance, Institute Deputy Director Robert B. Ward writes in the report, Gubernatorial Powers to Address Budget Gaps During the Fiscal Year. In New York, longstanding informal agreement between the Legislature and the governor’s office permits use of such impoundment power only for state agencies’ operating expenses, which represent one-quarter of state-funded spending. States such as Massachusetts, Maryland, Minnesota, Ohio and Oregon allow chief executives to restrain expenditures more broadly — including aid to local governments and school districts, and Medicaid.

Even the existing impoundment power in New York is based only on longstanding informal agreement between the executive and legislative branches — with little or no statutory basis — and thus could be subject to legal challenge, according to the report.

“Legislation and/or constitutional amendment could usefully clarify the status of this existing gubernatorial power,” Ward said. “Extending such authority beyond agency operations would enhance the state’s ability to deal effectively with coming budget gaps and avoid further shifting of current costs into the future.”

Both Lieutenant Governor Richard Ravitch and state Assembly Speaker Sheldon Silver have proposed expanding the governor’s powers to address midyear budget gaps. The Rockefeller Institute report is one in a series prepared for the Lieutenant Governor’s project to develop proposals that would lead New York to structural budgetary balance.

New York State faces budgetary challenges greater than any in recent decades, the report notes. The state’s inability to fully close a midyear budget gap in fiscal 2009-10 resulted in some $2 billion in liabilities being rolled over into the 2010-11 fiscal year — “the functional equivalent of the state borrowing from itself,” according to the report. For the foreseeable future, gaps between planned expenditures and projected revenues are extraordinarily large, and significant imbalances will likely remain even after the national economy recovers fully from the recent recession.

Adding to the problem is the state’s increasing dependence on the personal income tax, which has made the state’s revenue stream more volatile, Ward writes. That, in turn, increases the chances that midyear budget gaps will become more frequent, even when annual budgets appear to be balanced at the time they are adopted.

"Albany’s inability to manage such imbalances has led to repeated fiscal crises that harm school districts’ and municipalities’ ability to plan effectively, degrade services from maintenance of parks to processing of tax refunds, and reduce public confidence in government," Ward writes.

In considering proposals to expand the governor’s impoundment authority, the report suggests, state leaders may wish to consider questions including:

• How would broad impoundment authority be triggered in any given year?
• Would the impoundment power cover aid to school districts and local governments, as is the case in many other states?
• Would such authority be limited to a certain percentage of appropriations?
• Should notice to the Legislature be required before spending reductions take effect, to allow the opportunity for legislative-executive action before executive-only impoundment?
• If the chief executive has only strictly limited authority to reduce expenditures, how can the state respond if available cash is depleted — as the Budget Division and the Office of the State Comptroller have predicted may happen this year?

For a full copy of the report, visit www.rockinst.org.