New York state ended the 2013-14 fiscal year in the strongest fiscal position in years and was able to deposit $175 million in the Rainy Day Reserve Fund for the first time since 2008, according to a report on the recently enacted state budget released today by State Comptroller Thomas P. DiNapoli. Still, the $143 billion budget continues to rely, in part, on temporary funding streams to attain balance.

“After a tough few years, New York state is in better fiscal shape thanks to an improving economy and difficult fiscal choices made by the Governor and the Legislature,” DiNapoli said. “The on-time Enacted Budget seeks to keep spending growth to less than 2 percent while providing increased aid for schools and tax cuts. Past budget practices that had largely been curtailed, such as distributing large sums of money outside of the budget process, have once again appeared in this year’s budget. My concern continues to be for New York to achieve long-term structural budget balance. When the Financial Plan is updated I hope there will be more definition on how that goal will be reached.”

Based on the Division of the Budget’s (DOB) spending and receipt estimates included in the final Executive Budget Financial Plan, the Comptroller’s office estimated that projected cumulative budget gaps would total $7.2 billion through SFY 2017-18 if the growth in state operating funds spending was not held to 2 percent. Preliminary legislative estimates based on the Enacted Budget show more favorable cumulative projections for the out-years than the most recent Executive projections. These estimates will be revised after DOB releases the SFY 2014-15 Enacted Budget Financial Plan in the coming weeks.

The General Fund’s year-end balance of more than $2.2 billion was $432 million more than February Financial Plan projections. The state prepaid more than $700 million in debt service and Personal Income Tax refunds, according to the report. While indicative of an improved cash position, the prepayments obscure the overall picture of spending and revenue growth between the two years. Adjusting for the debt service pre-payments results in 2.8 percent projected spending growth from State Operating Funds for SFY 2014-15 instead of the approximately 2 percent currently presented.

In some cases, actions in the budget make it harder to track expenditures and determine actual spending growth. Spending of $589.5 million from a settlement with JPMorgan will be paid out of a new fund and not be counted towards total state spending. Up to $439.5 million of this total will be allocated by the Governor and the legislative leaders. Another $116 million in SUNY and CUNY capital funds will be spent based on a plan to be approved by DOB and the Senate. Following budget reform legislation enacted in 2007, the state largely discontinued its practice of allocating significant funds each year for discretionary spending by the Executive and Legislative branches outside the budget process.

Other off-budget spending associated with the Enacted Budget includes approximately $115 million transferred from the Mortgage Insurance Fund for housing and homelessness programs and grants to the cities of Yonkers and Rochester. The budget also includes up to $90 million in transfers from the New York Power Authority for state energy-related or economic development purposes, all of which may be spent off-budget at the discretion of the budget director.

The budget relies on an estimated $4.9 billion in temporary state resources and $2.7 billion in extraordinary federal aid related to Superstorm Sandy recovery and the Affordable Care Act. The total also includes $2.1 billion in revenues from temporarily higher tax rates on upper income individuals and $1 billion from State Insurance Fund transfers.

The budget includes $500 million in authorized unspecified fund sweeps, which allow resources to be directed solely at the discretion of the Executive branch. It also includes authorization of up to $100 million in sweeps specifically for consolidation of information technology services.

The budget also authorizes approximately $7.6 billion in new debt, most of which will be issued by public authorities without voter approval, a practice commonly referred to as “backdoor borrowing.” Included in this total is the proposed $2 billion Smart Schools Bond Act, which will be on the ballot this fall. The Bond Act will be the first borrowing proposal submitted to voters since 2005, a positive development for state taxpayers.

Tax reduction measures valued at an estimated $511 million this year were included in the budget, with residential property tax relief representing more than half that total. Other tax changes, some of which will be phased in, include: merging the Bank Tax into the Corporation Franchise Tax and reducing the top corporate tax rate from 7.1 to 6.5 percent; increasing the threshold value for New York’s estate tax to $5.25 million; and providing a 20 percent property tax credit for manufacturing companies.

DiNapoli’s report notes the final budget:

• Increases school aid by 5.4 percent, or $1.1 billion, on a school-year basis. It also provides $340 million for a statewide, full-day pre-kindergarten program, of which $300 million is targeted to New York City.
• Provides no increase in general revenue sharing assistance for local governments, but includes a $2 million overall increase in per capita aid for villages and modified versions of property tax relief proposals made in the Executive Budget.
• Authorizes the State Comptroller to audit the financial operations of charter schools located outside of New York City, addressing a recent court decision that challenged the office’s authority to audit charters. The New York City Comptroller is authorized to perform audits of the financial operations of charter schools within the City.
• Gives the Department of Health complete control over federal Medicaid waiver funds anticipated to come to New York, including $4 billion in the next two years. Budget language for this and certain other health-related contracts removes reviews by the Office of the State Comptroller and competitive bidding provisions, diminishing oversight, transparency and accountability in state procurement.
• Creates a one-year program of voluntary public financing for candidates for State Comptroller, provides new penalties for certain crimes by public servants and other individuals that violate the public trust, and creates a Division of Election Law Enforcement within the Board of Elections to investigate violations of the elections law.

As chief fiscal officer for the state, the Comptroller annually examines the Executive Budget proposal and the Enacted Budget. He also issues monthly reports on the state’s cash position. The report released today examines the SFY 2014-15 Enacted Budget.

For a copy of the report visit: http://www.osc.state.ny.us/reports/budget/2014/2014-15_prelim_enacted_budget.pdf