Spending Still Rising In State Budget
FISCALWATCH MEMO January 18, 2005

Although legislators and special interest groups will complain of spending “cuts,” especially in New York’s Medicaid program, the baseline in Governor George Pataki’s 2005-06 Executive Budget tells a different story.

Under Pataki’s plan, state funds spending (excluding federal grants) would rise next year by 5.4 percent—fully twice the projected inflation rate.[1] This is one of the largest spending hikes Pataki has proposed in 10 years as governor, as shown the chart below.

Pataki's Proposed State Funds Spending Hikes
Annual Rate of Increase, Fiscal Years Ending 1996-2006

Note: Proposed spending hikes for 2005 and 2006 are adjusted to reflect onetime accounting changes and loss of temporary federal funds (shown as black line atop 2006 column).

Source: New York State Executive Budget, Manhattan Institute adjusted estimates

The spending figure for fiscal 2006 is inflated by several features that don’t reflect an actual expansion of programmatic expenses. It includes, for example, $220 million to cover the loss of a temporary increase in federal Medicaid assistance, enacted in 2003, which is now being phased out. Not counting this figure, the state funds spending increase would be in the neighborhood of 5 percent. Another $190 million reflects the Legislature’s past decision to roll forward a Medicaid billing cycle by a few days, moving this obligation from fiscal 2005 into fiscal 2006.

Even after adjusting for these anomalies, however, the portion of the governor’s proposed budget financed by the state’s own taxes, fees and borrowing clearly would grow considerably faster than the projected 2.7 percent increase in the composite Consumer Price Index for New York for 2005.

Medicaid Leads the Parade

The largest single growth item in the Executive Budget is Medicaid. The governor has proposed about $786 million in Medicaid spending reductions and “cost containment” actions, which are supposed to help finance the beginning of a partial state takeover of Medicaid costs borne by county and New York City taxpayers. Yet even after deducting these savings, the state funded portion of Medicaid is growing at an annual rate of nearly 13 percent.[2]

In descending order of magnitude, the following five categories account for nearly 90 percent of the state funds increase:[3]

 

Increase over 2004-05 adjusted total

Medicaid

$1.278 billion

Other health-related spending:

$468 million

School aid:

$458 million

Various state operations:

$356 million

Pensions and other benefits:

$298 million

Capital projects:

$259 million

The principal cause of the increase in state operations costs is the second phase of a new collective bargaining agreement between the state and its public employee unions, which was ratified last year. When fully implemented in 2007, it will provide for salary increases worth about 11 percent at total additional payroll costs exceeding $1 billion a year.[4]

Pataki-era spending

If the latest Executive Budget is adopted as proposed, state funds spending will have grown from just under $43 billion when Pataki took office in 1995 to $69 billion at the end of the coming fiscal year. Including Health Care Reform Act (HCRA) programs previously carried off-budget, state funds spending during Pataki’s first 11 years in office will have risen by 62 percent, an average of 4.5 percent a year.[5] A good portion of the increases—amounting to roughly half in recent years—was the result of legislative additions to the Governor’s original proposals.

Including federal aid, the total all-funds budget has grown from just under $62 billion when Pataki took office to a proposed $105.5 billion for fiscal 2005-06. The path of spending during the Pataki administration, including estimated and proposed totals for fiscal years ending in 2005 and 2006, is shown in the following chart.

Excelsior: The State Budget Under Governor Pataki
Annual Rate of Increase, Fiscal Years Ending 1996-2006

Source: State of New York, Executive Budget

The Executive Budget as opening bid

As noted in previous FiscalWatch memos concerning the annual Executive Budget,[6] 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

1,782

3.1

2005*

2,500

4.2

4,705

7.9

Average

1,216

2.3

2,155

4.25

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

Source: State of New York, Executive Budget

Past as prologue

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 10 years, including estimated final figures for fiscal 2005, his average proposed spending increase was about $1.2 billion, or 2.3 percent. But when the Legislature got through with it, the state funds budget ended up growing nearly twice as much—by an average of $2.16 billion, or 4.25 percent.

Same old problem

Without even counting the large temporary tax hikes approved by the Legislature in 2003, the state’s tax receipts as of 2006 have rebounded to a level 22 percent above the post-recession trough of 2003. If all the Governor’s cost-containment actions are approved, the state will still face general fund budget gaps of over $2.7 billion in both the 2007 and 2008 fiscal years.

It’s still the same old story: New York doesn’t have a revenue problem—it has a spending problem. If enacted, Pataki’s plan would significantly reduce the magnitude of that problem in the “out years” of fiscal 2007 and 2008—but only if the Legislature’s spending proclivities can somehow be tamed in the next budget.

Notes

  1. Adjusted figure from “Total Disbursements” table on page 6 of the Exexutive Budget Financial Plan.
  2. This is clearly shown in the tables on pages 7 and 20 of the Executive Budget Financial Plan.
  3. Based on figures presented on page 7 of the Executive Budget Financial Plan.
  4. See the FiscalWatch Memo of March 10, 2004, posted at http://www.nyfiscalwatch.com/html/fwm_2004-03.html.
  5. See table on page 66 of the Executive Budget Financial Plan.
  6. See, for example, the FiscalWatch Memo of January 22, 2004, at http://www.nyfiscalwatch.com/html/fwm_2004-01.html.

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