The recently enacted fiscal year 2016-17 state budget includes a $1.4 billion increase in school aid, as well as increases to the minimum wage and phased-in personal income tax cuts for most taxpayers, but adds to state debt and shifts significant spending off-budget and to authorities, according to a report released today by State Comptroller Thomas P. DiNapoli. The report also notes the budget sacrificed public transparency both in process and content.

“The creation of a paid family leave program and increases in the state minimum wage will help distribute the benefits of economic growth more broadly among New Yorkers, while the boost in education funding will help school districts around the state,” DiNapoli said. “Despite these accomplishments, the state budget should be created with transparency and this budget came together at the last minute and with little public scrutiny. While the state’s financial footing is currently sound, there are open questions regarding the use of lump sum appropriations and whether future spending will match future revenue.”

The state Senate and the Assembly, respectively, estimate that spending this fiscal year will total $155.6 billion to $156.1 billion in All Governmental Funds and $96.2 billion in State Operating Funds. Detailed figures on the enacted budget’s impact on expected disbursements, receipts and debt should be made available when the Division of the Budget (DOB) issues its updated Financial Plan.

Key fiscal provisions in the spending plan include a $1.4 billion increase in K-12 education assistance for the coming school year. The 6.1 percent aid increase includes an end to the Gap Elimination Adjustment, a provision that reduced aid to schools from other formula-driven levels as part of the state’s response to fiscal challenges stemming from the Great Recession. The overall increase also reflects a $627 million boost in Foundation Aid.

The enacted personal income tax (PIT) rate reductions will benefit a large number of taxpayers starting in 2018. Preliminary Executive estimates indicate that this will reduce revenues by $236 million in 2017-18. These rate reductions, which amount to half a percentage point or more for most taxpayers with incomes over $26,000 when the changes are fully effective, are to be phased in over eight years. The enacted budget allows the highest income tax rate to expire on Dec. 31, 2017, reducing the top tax rate from 8.82 percent to 6.85 percent.

The budget provides more than $8.7 billion in new state-supported debt authorizations, an increase of 7.1 percent from previously authorized levels. All of this increase is in the form of backdoor borrowing that public authorities undertake on behalf of the state. Newly authorized borrowing includes approximately $2.8 billion for purposes described as economic development and for the Jacob K. Javits Convention Center expansion, more than $1.5 billion for housing, and other increases for transportation, environment, education and higher education, health and mental hygiene, and state facilities.

DiNapoli’s report notes the budget expands on actions in recent years that have blurred both fiscal and operational distinctions among state agencies and public authorities. For example, the new Design and Construction Corp. (DCC) has broad powers to oversee public works projects undertaken by other authorities and state agencies. The budget also authorizes the transfer of the Canal Corp. from the Thruway Authority to the Power Authority of the State of New York. Other provisions involving authorities include nearly $262 million in transfers or other actions that directly or indirectly use resources from various authorities. 

In addition, billions of dollars in settlement funds and other resources dedicated to various purposes are authorized to flow through public authorities. Authorities play a key role in the use of lump-sum appropriations for Executive and legislative initiatives through programs such as the State and Municipal Facilities Program (SAM). This year’s budget adds $385 million in appropriation and borrowing authority for the program. Lump-sum appropriations reduce transparency and accountability for public resources, especially when they take the form of “backdoor spending” by authorities.

The budget includes the allocation, through the Dedicated Infrastructure Investment Fund (DIIF), of $6.4 billion associated with settlement funds received over the past two fiscal years. The allocations are broadly drafted and do not appear to limit the use of the funds to one-time purposes.

DiNapoli’s report also finds the enacted budget:

• Holds funding for Aid and Incentives for Municipalities (AIM), the largest unrestricted aid program for local governments, level at $715 million. Other Budget provisions that may benefit certain localities include $200 million in additional funding for wastewater and drinking water infrastructure, and $25 million for the Empire State Poverty Reduction Initiative;
• Excludes proposals to shift a larger share of costs for Medicaid and the senior colleges of the City University of New York to the City of New York (CUNY). However, it includes a provision that will cost the city $600 million over the next three years by redirecting certain city sales tax revenues to allow the state to recoup debt-related savings. In addition, the budget does not include $240 million in proposed funding for retroactive salary increases at CUNY senior colleges, related to CUNY employees who have been working without a contract for more than five years;
• Ethics and campaign finance reform proposals proposed in the executive budget were not included in the enacted budget;
• Raises the minimum wage for employees of New York City employers with 11 or more employees to $11 at the end of 2016, $13 a year later and $15 at the end of 2018. Increases in the minimum wage will take effect over longer periods for smaller employers in the city, and for employers elsewhere in the state;
• Starts a paid family leave program, funded by employee payroll deductions, in January 2018. It will be fully implemented in 2021, when workers will be eligible to receive a maximum 12 weeks of leave, with benefits capped at 67 percent of the statewide average weekly wage; and
• Increases the Environmental Protection Fund to $300 million, including $120 million from non-recurring monetary settlement resources, and creates authorization for projects that identify climate change impacts and/or mitigate or adapt to those impacts, as well as projects that reduce greenhouse gas emissions.

New York state ended the 2015-16 fiscal year with a General Fund balance of just over $8.9 billion, primarily reflecting an additional $1.6 billion in monetary settlement resources that were not initially anticipated and $3.7 billion in transfers from the General Fund to the DIIF that were not made as planned.

Read the Report on the State Fiscal Year 2016-17 Enacted Budget, or go to: https://www.osc.state.ny.us/sites/default/files/reports/documents/pdf/2019-02/budget-enacted-2016-17.pdf