Proposed Spending Hike One Of Pataki’s Biggest
FISCALWATCH MEMO January 22, 2004

Despite New York State’s continuing fiscal problems, Governor George Pataki’s 2004-05 Executive Budget features one of the largest proposed spending growth rates of his nine-year tenure. And in all probability, the Legislature will add even more to this amount before the budget is finally adopted.

State funds spending (excluding federal aid) under Pataki’s budget would rise by $3.3 billion, or 5.5 percent, according to the Governor’s official “adjusted” figures[1]. This is the second largest state funds spending hike Pataki has sought—exceeded only by his 1998-99 Executive Budget, which called for a whopping 8.5 percent state funds spending increase after three years of extraordinary fiscal restraint.

The 5.5 percent figure is arguably somewhat misleading as a basis for comparison with prior years, because the 2004-05 state funds budget is inflated by some unusual factors. These include the partial disappearance of a one-shot infusion of extra federal Medicaid funds, approved by Congress in 2003, which must be replaced by state funds starting next year; an extra pay cycle for some state employees, which is a vagary of the calendar; and some other expenses artificially pushed into the new year under the Legislature’s budget for 2003-04.

However, even if further adjustments are made for these factors, the state funds spending increase in Pataki’s budget still stands at $2.5 billion, or 4.2 percent[2]—twice the current inflation rate, and the fourth highest spending hike, overall, out of 10 Pataki budget proposals since 1995, as illustrated in the chart below.

Governor Pataki’s Proposed State Funds Spending Hikes
Annual Rate of Increase, Fiscal Years Ending 1996-2005

Note: Lower growth rate of 4.2% reflects adjustment for drop in federal Medicaid funds, spending rolled forward from prior year, and extra payroll for institutional employees

Source: State of New York Executive Budget,Manhattan Institute adjusted estimate for 2004-05

The size of the spending increase is especially startling given the $5.1 budget gap the state will need to close in fiscal 2004-05. While tax revenues have rebounded in the past year, thanks in large measure to the resurgence of the stock market and the securities industry, job growth in the state remains slow and large budget gaps are still projected for 2005-06 and 2006-07. Yet spending growth in the neighborhood of 4.2 to 5.5 percent is more on a par with the budget proposals Pataki introduced in 2000 and 2001, when the economy was red-hot and the state was amassing huge surpluses.

The proposed spending increase for 2004-05 also stands in marked contrast to Pataki’s 2003-04 proposal, which would have slightly reduced state funds spending in absolute terms. The Legislature rejected the Governor’s approach last year and approved well over $2 billion in spending increases over his vetoes, financed by the biggest sales and income tax rate increases in more than 30 years.[3]

If Pataki had proposed a zero-increase state funds budget again this year, he would have freed enough cash to repeal all or most of the income and sales tax hikes approved by the legislature in 2003. Instead, however, the Governor has proposed nearly $1 billion in new tax and fee hikes while pledging that last year’s temporary tax increases will “sunset” on the Legislature’s original schedule, by the end of calendar year 2005.

The chart below portrays the growth in the state funds budget from 1994-95, Mario Cuomo’s last year in office, through Pataki’s plan for 2004-05.

State Funds Spending by New York State
Fiscal Years 1995-2005
(in millions of dollars)

* estimated     ** proposed

Source: State of New York Executive Budget

Past as prologue

The spending figures in the Governor’s Executive Budget traditionally are viewed as the floor for further negotiations with the Legislature, which invariably wants to spend more on nearly everything.

The table below shows Pataki’s proposed state funds spending increases to the actual change in spending, reflecting legislative changes.

Pataki Budget Cycles From Start to Finish:
Proposed and Actual Changes in State Funds Spending

Fiscal year ending

Proposed Change

Actual Change

Total ($ million)

Percent

Total ($ million)

Percent

1996

-105

-0.2

435

1.0

1997

-1,546

-4.2

-251

-0.6

1998

536

1.2

1,472

3.4

1999

3,822

8.5

3,705

8.4

2000

867

1.8

1,902

4.0

2001

2,546

5.1

4,333

8.7

2002

2,684

4.9

2,795

5.2

2003

929

1.6

672

1.2

2004*

-73

-0.1

2,562

4.4

Average

1,073

2.1

1,958

4.0

 * Preliminary estimate as “adjusted” in 2004-05 Executive Budget; prior year figures are actual

Source: State of New York, Executive Budget

Since he took office as governor in 1995, Pataki’s recommended changes in state funds spending ranged from a cut of 4.2 percent in fiscal 1996-97, his second year in office, to a high of 8.5 percent in 1998-99, the budget introduced before his first re-election campaign. Across nine years, his average proposed spending increase was about $1 billion, or just over 2 percent. In the final analysis, state funds spending ended up growing nearly twice as much– by $1.96 billion, or 4 percent.

But the budget didn’t increase every year. In 1998-99, Pataki opened the budgetary bidding with an unusually large proposed increase, then successfully vetoed the Legislature’s attempt to add $1.6 billion in spending and borrowing, resulting in an adopted budget that ended up spending slightly less than his original plan. In his budget for fiscal 2002-03, presented in advance of another gubernatorial election campaign, the budget ended up about one-third lower than Pataki had originally proposed, reflecting a sharp drop in revenues and post-election spending reductions to close a yawning budget gap. Last year’s record increase over Pataki’s proposal reflects the Legislature’s override of the Governor’s vetoes.

How much will the Legislature’s price be price for passage of the 2004-05 budget? Given the size of projected budget gaps for the two years following 2004-05, the shakiness of the some of the fiscal assumptions in the proposed plan, and the still uncertain strength of New York’s economic recovery, it seems unlikely the Legislature will be able to finance an increase twice as big as the $3.3 billion he has already proposed. At a minimum, however, spending in the adopted budget is likely to rise by hundreds of millions of dollars more than Pataki has proposed. The final figure, as always, will be subject to changing economic conditions as the fiscal year unfolds.

Notes

  1. Because the state was running short on cash near the end of the 2002-03 fiscal year, the Governor delayed payment on $1.9 billion in local aid payments for several weeks, pushing these outlays into 2003-04, which has the effect of inflating the baseline for comparison of spending in 2004-05. The “adjusted” figure is arrived at by reversing this deferral, assigning the $1.9 billion in spending to 2002-03, when it was originally scheduled to take place. See page 5 of the Executive Budget, Appendix II, for further explanation.
  2. This figure is calculated by subtracting the $390 million value of temporary additional Federal Medicaid funding and the $163 million cost of an extra institutional payroll from the “adjusted” state funds total, and then reassigning $104 million in Tuition Assistance Program spending from 2004-05 to 2003-04, where it properly belongs.
  3. For more on the 2003 tax increases, see “Proposed Tax Hikes in Historical Perspective,” FISCALWATCH MEMO May 6, 2003, at http://www.nyfiscalwatch.com/html/fwm_2003-04.html.

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