DiNapoli: State Financial Condition Improving
A Rise in Debt and Transparency Questions Raise Concerns
New York state’s short-term financial condition continues to improve and the state has built on its reserves, but the 2015-16 Enacted State Budget contains broad statutory authority on some spending, according to an analysis released today by State Comptroller Thomas P. DiNapoli.
“Fortunately, New York state has moved beyond the recurring budget gridlock of the past,” DiNapoli said. “The Governor and the Legislature deserve credit for that. On the positive side, a timely budget was enacted and reserves have been strengthened. Areas of concern include the adequacy of statutory language to ensure settlement monies will be spent as intended. The budget also includes billions of dollars in new debt and lump sum appropriations for the Executive and Legislature to use at their discretion, leading to questions about transparency and accountability.”
Preliminary spending estimates by the Assembly indicate that All Funds spending in the Enacted Budget will total $150.3 billion, an increase of $7.3 billion, or 5.1 percent, over state fiscal year 2014-15. The Division of the Budget (DOB) is expected to release an Enacted Budget Financial Plan shortly.
Since the start of SFY 2014-15, the state has received or expects to receive more than $6 billion from more than a dozen legal settlements. The Enacted Budget makes some of the settlement dollars available for infrastructure projects, including the Tappan Zee Bridge replacement and improved access to Penn Station. A new fund, the Dedicated Infrastructure Investment Fund (DIIF), was created with the expressed intent of using the settlement dollars for capital investments or other one-time purposes, as DiNapoli has stressed is appropriate for one-time resources.
However, the budget also allows these one-time resources to be spent on a wide variety of purposes, including for personal services and other ongoing operating costs. Broad statutory language leaves open the possibility the DIIF could effectively become an undesignated reserve fund to be used largely at the discretion of the Executive. There is no comprehensive or standardized mechanism to track the spending of settlement dollars, much of which may flow through public authorities, and no public reporting is required for most of the DIIF programs. The new fund does not incorporate all of the settlement resources, capturing $4.55 billion of the total.
Despite the significant influx of settlement dollars, the Enacted Budget also includes more than $7.4 billion in new and increased authorizations for state-supported borrowing – an increase of 6.4 percent from previously authorized levels, and approximately 40 percent more than the Executive proposal. The new debt would be issued on behalf of the state by its public authorities. Such “backdoor borrowing” circumvents the state constitution’s requirement that state debt be approved by voters. Public authority debt is also subject to fewer controls regarding issuance, structure and retirement than voter-approved state general obligation bonds.
Newly authorized state-supported debt includes: $2.5 billion for transportation purposes; more than $1 billion for economic development projects; $1.4 billion for hazardous waste remediation and other environmental projects; and $1 billion for health care facility restructuring.
An additional $316 million was deposited into the state’s statutory reserve funds in March. The budget also authorizes higher annual deposits, and a higher maximum balance, in the Rainy Day Reserve Fund. These moves, which follow Comptroller DiNapoli’s calls for bolstering state reserves, provide greater assurance that funds will be available when truly needed and will only be used at those times.
DiNapoli’s report finds that the lump-sum appropriations included in the budget for Executive and legislative initiatives contain only minimal criteria for awards and few requirements for public disclosure of the programs’ operations. Examples include: $400 million for a new Transformative Investment Program for New York City and Long Island and an additional $385 million for the existing State and Municipal Facilities Program, bringing the total authorization for this program to more than $1.1 billion over three years. The 2007 Budget Reform Act was enacted, in part, to limit the use of legislative lump-sum appropriations.
DiNapoli’s analysis also found the enacted budget:
• Provides $2.33 billion for economic development, including the Upstate Revitalization Program, a net increase of $891 million, or 62 percent, from SFY 2014-15. Such new spending should be subject, along with the state’s existing economic development initiatives, to rigorous benefit-cost review and high standards of transparency and accountability;
• Relies on $300 million in transfers and miscellaneous receipts from state public authorities for budget relief, economic development, housing and other purposes, including a $41 million sweep of Regional Greenhouse Gas Initiative funds. In addition, considerable spending is shifted off-budget to public authorities;
• Makes more than two dozen changes to existing law affecting tax revenues, but with relatively modest immediate impact according to some estimates – an increase of $59 million in receipts this fiscal year, rising to $238 million in SFY 2017-18;
• Increases school aid by $1.3 billion, or 6 percent, on a school-year basis; and
•appropriations and direct aid to local governments.
DiNapoli’s report notes that major policy changes in education and other areas were introduced only hours before legislative action, leaving little time for the public and its elected representatives to consider the implications of important new laws. Future budget negotiations should include adequate time for review and consideration by lawmakers and interested New Yorkers, according to the report.
See the report: Report on the State Fiscal Year 2015-16 Enacted Budget.www.osc.state.ny.us/reports/budget/2015/2015-16_enacted_budget.pdf