Time for a Turnaround:
Facing Fiscal Reality
in New York State
Citizens Budget Commission
Summary
I.
A pattern of high spending growth – combined with recent
revenue losses – has put New York State into the worst
fiscal condition in decades
II. We have exhausted the capacity of our traditional solutions
– taxing our way out of the problem, borrowing to cover
operating shortfalls, and/or burdening local government by
pushing costs down – which would both damage the state
and leave the structural problems unsolved
III. Meaningful spending cuts and more strategic investment of
limited resources are the only responsible course of action
Fiscal Reality #1 - For a quarter century New York State
spending has been growing steadily
New York State Operating Fund Disbursements, New York State Personal Income and
U.S. Consumer Price Index , 1984-2009
(indexed, 1985 =100)
400
Avg. Annual
Growth 5.4%
300
200
Avg. Annual
Growth 4.8%
State Funds
Disbursements
NYS Personal
Income
Avg. Annual
Growth 2.9%
U.S. CPI
100
0
1985
2009
Sources: State of New York, Office of State Comptroller, United States Department of Labor, Bureau of Labor Statistics,
Consumer Price Index, All Urban Consumers (CPI – U), United States Department of Commerce, Bureau of Economic
Analysis, Regional Economic Accounts, State Annual Personal Income
Fiscal Reality #2 – Nearly two-thirds of the budget goes to
school aid, Medicaid, and employee salaries and benefits
New York State Operating Spending by Major Category ($ in billions)
$92.2 B Fiscal Year 2011-12 Cash Disbursements
Other Local
Government
Grants
(Including Aid to
Municipalities),
$6.5, 7%
Contracts and
Supplies for
State Agencies,
$4.8, 5%
State Employee
Salaries, Wages
and Benefits,
$17.0, 18%
Social Services
Local Aid, $3.4,
4%
Other Education
Local Aid, $5.3,
6%
Debt Service,
$6.0, 7%
Health and
Mental Health
Local Aid
(Medicaid,
Mental Hygiene,
Aging,
Insurance),
$23.7, 26%
School Aid,
$22.7, 25%
School Aid
Medicaid
Employee Compensation
Total
Percent of Budget
$22.7
$19.7
$17.0
$59.5
64%
Higher
Education Local
Aid, $2.8, 3%
Source: New York State Division of Budget, Fiscal Year 2010-11 Financial Plan, Mid-Year Update, November 1, 2010, p.26.
Fiscal Reality #3 - Personal Income, Sales/Use, and
Business Income Taxes equal 65% of the base
State Operating Revenues by Major Category
$75.8B Fiscal Year 2009-10 Cash Receipts
Miscellaneous
Receipts, $19.5,
26%
Personal
Income Tax,
$34.8, 46%
Other Taxes,
$2.4, 3%
Business Taxes,
$6.8, 9%
Sales and User
Taxes, $12.3,
16%
Source: New York State Division of Budget, Fiscal Year 2010-11 Financial Plan, Mid-Year Update, November 1, 2010.
The big taxes have shrunk – Down by 16% from two years
ago and up 5% from last year
General Fund Tax Collections for Three Major Taxes* April to
November – Current Fiscal Year Compared to Previous Two Years
$30,000
$27.1B
Down 16%
$25,000
$21.6B
$22.7B
$20,000
Business Taxes
$15,000
User Taxes
PIT
$10,000
$5,000
$0
2008-09
2009-10
2010-11
Source: New York State Comptroller and New York State Division of Budget
Notes:*Personal Income Tax adjusted for State-City offset payments
Fiscal Reality #4 - Revenues are shrinking but spending is not
Projected Spending in the “Big 3”
1.
Medicaid
•
Expected to grow by 39% in four years, adding $5.8B to the gap
•
Per beneficiary spending 70% above the U.S. average
2.
Employee compensation costs
•
Expected to grow by 19% in four years, adding $2.8B to the gap
•
Salaries are 35% above the U.S. average, and fringes are
comparatively generous in key ways
3.
Education aid
•
Expected to grow by 30% in four years, adding $7.3B to the gap
•
Per pupil spending is 65% above the U.S. average
Medicaid Spending
Growth of 39%
70% above U.S
Planned Spending on Medicaid
Fiscal Year 2009-10 to 2013-14
Per Beneficiary Spending – NY vs. U.S.
$8,840
$20.9B
$5,187
$15.0B
Federal
Stimulus
2009-10
2013-14
Source: New York State Division of Budget, 2010-11 MidYear Update, November 1, 2010.
U.S. Average
New York
Source: U.S. Department of Health, Center for Medicaid
and Medicare Services, State Data Files, Federal Fiscal
Year 2008
Employee Compensation Spending
Growth of 19%
Unusual Features
Planned Spending on Employee Compensation
Fiscal Year 2009-10 to 2013-14
• One of only three states to allow OT
• Among only 4% of systems with member
contributions in the 1-3% range
$17.5B
Pensions
$14.7B
Pensions
• Lower retirement ages; high disability rates
Health Insurance
Health
Insurance
Salaries
& wages
• Only 5 other states pay any of Medicare
Part B premiums for retirees – only NY pays
100%
• NYS retirees pay 10 and 25% of premiums
for single & family coverage; public sector
norm is 50% for both
Salaries and Wages
• Wage increases of 13.4% 2007 to 2011
2009-10
2013-14
Source: New York State Division of Budget, 2010-11
Mid-Year Update, November 1, 2010.
School Spending
Growth of 30%
65% above U.S.
Planned Spending on School Aid
Fiscal Year 2009-10 to 2013-14
Per Pupil Spending – NY vs. U.S
$15,981
$31.6B
$24.3B
$9,666
ARRA
STAR
School Aid
2009-10
2013-14
Source: New York State Division of Budget, 2010-11
Mid-Year Update, November 1, 2010.
U.S.
New York
Source: U.S. Census Bureau, State and Local
Government Finances, 2007
Fiscal Reality #5 – This combination of steep projected
spending increases and declining revenues produces
daunting budget gaps
New York State
Projected Operating Budget, Next Four Years
($ millions)
Significant Budget Gaps Loom
millions of dollars
$80,000
$75,000
General Funds Disbursements
$70,000
General Fund Receipts w/Net Transfers
$17,232
$14,644
$65,000
$60,000
$9,026
$55,000
$50,000
$45,000
$40,000
2010-11
2011-12
2012-13
Source: New York State Division of Budget, 2010-11 Mid-Year Update, November 1, 2010.
2013-14
Fiscal Reality #6 - Raising taxes is not the answer
 Taxes have already been raised significantly – Last year’s
budget included $8B in measures to increase revenues and
this year’s included $1B
 The Tax Foundation ranks New York #49 among states on its
business climate index naming the state among the ten
states whose tax systems “are the most inhospitable to
economic growth”
 Census data show that our combined state and local tax
burden per $1,000 of personal income is 35 percent above
the U.S. average – NY ranks as having 3rd highest burden
among states
Fiscal Reality # 7 - Passing costs to local governments is
not an option – New York’s local tax burden is the highest
in the nation – 74% higher than average
Local Tax Burden Per $1,000 Personal Income
New York Compared to the U.S. Average
Fiscal Year 2008
$90
$80
$80
$70
$60
All Other, $45
$46
$50
$40
$30
$20
$10
Medicaid, $8
School
Spending, $27
$0
NYS
Source: U.S. Bureau of the Census, State and Local Government Finances, 2008
U.S.
Fiscal Reality #8 - Our $60B in debt will put us close to the
debt cap - NY owes $11B from prior borrowings to cover
deficits
New York State Supported Debt Outstanding
Fiscal Year 2009-10 and 2014-15
Debt Cap
$70.0
$60.0
$ Billions
$50.0
$40.0
$30.0
$60.5
$67.0
$20.0
$10.0
$0.0
2009-10
2014-15
Source: New York State Division of Budget, Fiscal Year 2010-11 Financial Plan, Mid-Year Update, November 1, 2010. Office
of the New York State Comptroller, Report on the State Fiscal Year 2010-11 Enacted Budget, September 2010.
Agenda for a Turnaround
 Reject tax increases or borrowing to fund operating expenses
 Reduce State spending
 Improve management of limited resources (e.g. procurement
reform, performance metrics, IT innovation, agency &
program consolidation)
 Adopt new, strategic approach to investment that promotes
economic growth and infrastructure modernization