The $168.3 billion State Fiscal Year (SFY) 2018-19 Enacted Budget increases funding for education, health care and other programs, but allows more borrowing and limits transparency of state spending, according to a report released today by State Comptroller Thomas P. DiNapoli.

"On the positive, this year's enacted state budget tackles the tax changes from Washington and gives private-sector workers more options for saving for retirement," DiNapoli said. "But I am concerned that the budget expands public authority backdoor borrowing and fails to build up rainy day reserves. While revenues are currently strong, it's important to monitor trends moving forward including the ongoing impact of federal tax and budget actions."

After the first eight months of the last fiscal year, personal income tax (PIT) collections were 3.1 percent below the previous year. However, New York state ended its SFY 2017-18 with a General Fund balance of $9.4 billion, up $1.7 billion from a year earlier, due to strong PIT revenues late in the year, unanticipated monetary settlements and lower-than-projected spending. Despite these factors, no additional deposits were made to the state's rainy day reserves, DiNapoli noted, a missed opportunity to better prepare for the next economic downturn.

The budget expands the state's use of lump-sum appropriations that leave broad discretion for use of funds with limited disclosure, including a new $475 million allocation for the State and Municipal Facilities Program (SAM). With the majority of previous SAM appropriations unspent, the need for additional discretionary spending authority was not made clear in the enacted budget.

The budget provides nearly $6.5 billion in increased state-supported debt authorizations for public authorities to conduct "backdoor borrowing" on behalf of the state, a 21.5 percent increase over the Executive proposal. The largest change from the Executive proposal is a $398.5 million increase in borrowing authority for SAM. The budget decouples provisions in the state's tax code from federal law to eliminate $1.5 billion in potential increased state tax liability related to the standard deduction, itemized deductions for local property taxes and other areas. Partly offsetting such changes, the budget retains more than $500 million in annual revenue by eliminating what would have been an automatic boost in the state's child tax credit, eliminating a net total of more than $1 billion in potential state tax increases.

Lawmakers also established new state tax provisions intended to mitigate the increased federal tax liability that many New Yorkers are expected to face because of a new federal $10,000 limit on itemized deductions for state and local taxes. It created an optional employment compensation expense tax (or payroll tax) that is intended for employers to use to help employees offset potential increases in federal liability. Other changes establish or authorize charitable funds for various public purposes at the state and local levels, along with tax credits for such contributions. Such credits are also permitted for authorized contributions to certain not-for-profit entities. The extent of any federal, state, or local tax savings these new mechanisms may generate for New Yorkers is unclear.

DiNapoli's report also identifies actions to bypass provisions that are intended to promote oversight and integrity in state procurement, including eliminating competitive bidding and independent review of contracts in certain cases. In addition, the budget provides new lump-sum appropriations for economic development, but does not include any provisions to improve transparency or accountability related to such spending. Spending projections also reflect the movement of $1.4 billion in spending for the Metropolitan Transportation Authority (MTA) off-budget, among other actions.

Although the budget was enacted on time, most budget bills were rushed to passage with "messages of necessity," leaving very little time for review by legislators and the public.

DiNapoli's report finds the enacted budget:

• Increases General Support for Public Schools by $863 million, or 3.4 percent, and provides an additional $50 million in competitive grants for prekindergarten, after-school and other programs. Foundation Aid is expected to increase by $618 million.
• Provides more funding to the MTA, including off-budget proceeds from new surcharges on taxi trips and other for-hire transportation in Manhattan, starting in January 2019. The budget also requires New York City to make contributions for capital and operating costs associated with the plan or risk losing state aid.
• Creates the Secure Choice Savings Program, a voluntary, state-administered retirement savings plan for private sector and nonprofit employees.
• Relies on an estimated $186 million in new tax and assessment revenues, including $100 million from opioid manufacturers and distributors and the impact on business taxes of decoupling from the Internal Revenue Code. It also authorizes the state to use certain health plan reserves of up to $750 million annually for a multi-year period, potentially generating billions of dollars to fund a variety of health and other programs.
• Establishes a new Health Care Transformation Fund to pay for health care programs and other purposes, with authority to transfer moneys to any other state fund at the discretion of the budget director.
• Holds flat most direct aid to local governments. Aid and Incentives to Municipalities, the largest unrestricted aid category for cities, towns and villages, is funded at $715 million, the same level since SFY 2011-12.
• Maintains the appropriation for the Environmental Protection Fund at $300 million.
• Creates a New York State 2020 Complete Count Commission to recommend steps to be undertaken to ensure an accurate count of New Yorkers in the next U.S. Census.
• Includes a revised version of an Executive proposal requiring disclosure of the identities of entities or individuals making expenditures for certain paid Internet or digital political communications but omits several other Executive proposals related to public campaign financing, other campaign finance reforms, and early voting.

DiNapoli's office will provide additional analysis after the Division of the Budget releases its Enacted Budget Financial Plan in coming weeks, including an assessment of updated out-year gap projections.

Read the report, or go to: http://osc.state.ny.us/reports/budget/2018/enacted-budget-report.pdf

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