Spending Still Rising In State Budget
Although legislators and special interest groups will complain of spending cuts, especially in New Yorks Medicaid program, the baseline in Governor George Patakis 2005-06 Executive Budget tells a different story.
Under Patakis plan, state funds spending (excluding federal grants) would rise next year by 5.4 percentfully twice the projected inflation rate. This is one of the largest spending hikes Pataki has proposed in 10 years as governor, as shown the chart below.
The spending figure for fiscal 2006 is inflated by several features that dont 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 Legislatures 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 governors proposed budget financed by the states 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.
In descending order of magnitude, the following five categories account for nearly 90 percent of the state funds increase:
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.
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 Patakis first 11 years in office will have risen by 62 percent, an average of 4.5 percent a year. A good portion of the increasesamounting to roughly half in recent yearswas the result of legislative additions to the Governors 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.
The Executive Budget as opening bid
As noted in previous FiscalWatch memos concerning the annual Executive Budget, the spending figures in the Governors 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 Patakis proposed state funds spending increases to the actual change in spending, reflecting legislative changes.
Past as prologue
Since he took office as governor in 1995, Patakis 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 muchby 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 states tax receipts as of 2006 have rebounded to a level 22 percent above the post-recession trough of 2003. If all the Governors 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.
Its still the same old story: New York doesnt have a revenue problemit has a spending problem. If enacted, Patakis plan would significantly reduce the magnitude of that problem in the out years of fiscal 2007 and 2008but only if the Legislatures spending proclivities can somehow be tamed in the next budget.