Bigger Gap, Smaller Cuts?
FISCALWATCH MEMO January 29, 2003

Faced with New York State’s worst fiscal crisis in a generation, Governor George E. Pataki is nonetheless proposing smaller percentage spending reductions than he called for in his first two budgets.

The Executive Budget for 2003–04, which begins April 1, would reduce general funds spending by 2.9 percent. In the more inclusive state funds category, which includes dedicated tax and fee revenues, spending would decline by just 0.1 percent.

But as illustrated in the chart below, the Governor proposed bigger spending cuts in both spending categories in his 1995-96 and 1996-97 Executive Budgets—even though projected budget gaps at the beginning of Pataki’s tenure were considerably less than half as large as the nearly $12 billion shortfall he has projected through next year.

Proposed Executive Budget Spending Reductions

Pataki’s latest financial plan is able to close a much bigger budget gap with much smaller spending cuts because it also includes $1.3 billion in tax and fee increases, plus at least $3.3 billion in non-recurring “one-shot” financing gimmicks, consisting largely of bonds backed by the state’s share of national tobacco settlement revenues. By contrast, the Governor’s first two budgets called for substantial net tax cuts and held one-shots to a much lower level.

If Pataki’s latest Executive Budget was as restrained as his original plan for 1996-97, his second fiscal year in office, proposed general spending in 2003-04 would be reduced by an additional $1.2 billion and proposed state funds spending would be $2.4 billion lower. If the 2003-04 plan had matched the less ambitious spending reduction in Pataki’s first budget, the proposed general fund for next year would be $210 million lower and state funds spending would be about $60 million lower.

All things considered

The comparative spending picture is a little more complicated when it is broadened to include the all-funds budget, which includes federal grants as well as state taxes and fees. By this measure, Governor Pataki’s budget calls for a spending reduction of $126 million, or 0.1 percent—on the surface.

However, these figures are misleading due to a change in the Governor’s method of accounting for special federal aid targeted to World Trade Center disaster costs, mainly in New York City. The 9/11 funds were originally treated as a “pass-through” and thus not reflected in spending totals for the current budget. At the request of the comptroller, they have been added back to the total. This has the effect of raising disbursements for 2002-03 and lowering them somewhat for 2003-04.[1]

When World Trade Center funds are backed out of the total, it appears that all funds spending under the Governor’s proposal would total $89.96 billion in 2003-04, compared to $89.25 billion in 2002-03. That represents an increase of 0.8 percent—roughly on a par with the 0.7 percent all funds hike Pataki proposed in 1995-96 and the 0.4 percent increase he proposed in 1996-97.

Bottom-line implications

The spending figures in the Governor’s Executive Budget traditionally are viewed as the floor for further negotiations with the Legislature, which invariably seeks to restore spending cuts and to reduce politically unpopular fee or tuition increases.

Thus, given past precedents,[2] general fund spending in the next budget could end up growing by anywhere from roughly $100 million to $1.5 billion—or more. The final figure will depend on how much the Legislature insists on adding to the proposal. This, in turn, will hinge on the Governor’s willingness to use the line-item veto to enforce his call for no further broad-based tax increases, beyond the tax hikes he has already proposed.

Notes

  1. The accounting change is explained in more detail on pages 13 and 292 of Appendix II of the 2003-03 New York state Executive Budget.
  2. For example, the budget finally enacted by the Legislature in 1995-96 cut general fund spending by 2.2 percent and increased state funds spending by 0.1 percent. The following year’s enacted budget allowed for increased general fund spending of 0.7 percent and decreased state funds spending by 0.6 percent.

POSTED: JANUARY 29, 2003

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