OFFICE OF THE STATE COMPTROLLER

Thomas P. DiNapoli, State Comptroller

Current Status of the

State Fiscal Year 2010-11 Budget
July 2010

Executive Summary
The 2010-11 State Fiscal Year (SFY) began more than 100 days ago, but the State budget
is still incomplete. Since March, the Executive has proposed and the Legislature has
enacted 12 temporary spending bills to allow governmental functions to continue during the
budget delay. In those bills, the Executive included a number of savings and revenue
measures from the proposed budget. As a result, major components of the budget were
enacted as part of emergency spending bills, including Medicaid reductions, tobacco tax
increases, and changes in funding for the Environmental Protection Fund.

Through July 7, 2010, the Legislature had passed all appropriation bills as well as all Article
VII bills that accompanied those bills, with the exception of the Revenue Article VII bill,
which, as of this date, has passed the Assembly, but not the Senate (hereafter referred to
as the “outstanding revenue bill”).1 This outstanding revenue bill contains nearly $1.0 billion
in revenue actions, including $330 million from a temporary suspension of certain clothing
sales tax exemptions and savings associated with changes to the STAR property tax relief
program. The Division of the Budget (DOB) estimates that the budget enacted by the
Legislature, assuming passage of the outstanding revenue bill, fails to close approximately
$500 million of the Executive’s projected General Fund budget gap for SFY 2010-11 of $9.2
billion.

The Governor has vetoed nearly 6,700 individual line items added by the Legislature to two
of the appropriation bills, with estimated savings of approximately $525 million, as well as
additional savings associated with $180-190 million in reappropriated spending from prior
years. The Governor also vetoed the entire Education, Labor and Family Assistance Article
VII bill, which included implementation language for appropriations in the corresponding
appropriation bill.

The following summarizes the Comptroller’s preliminary review of the SFY 2010-11 Budget:

! New York State has struggled financially as the nation’s longest recession since the
Great Depression battered economies throughout the world. As New York entered the

1
The State budget comprises appropriation bills, which provide authorizations for State agencies and public authorities to
spend, and Article VII bills and language bills, which govern how such appropriations will be administered, implemented
and/or financed.
 Great Recession, the State’s pre-existing structural budget deficit proved devastating.
The gap between spending and revenue grew enormously as increased demand for
social services drove significant new spending and the economic downturn caused
revenues to plunge.
! While various signs of economic recuperation are apparent, the recovery has slowed,
with persistent high unemployment causing sustained demand for social services. Other
states and nations also continue to struggle with significant revenue shortfalls and
growing deficits.
! A preliminary analysis of the SFY 2010-11 Enacted Budget projects All Governmental
Funds spending of approximately $136.5 billion, including $2.1 billion in payment delays
from SFY 2009-10 (not including delays of $348 million in Medicaid payments and $500
million in Personal Income Tax (PIT) refunds). This is an increase of approximately
$9.6 billion, or 7.6 percent, from SFY 2009-10. When adjusted for delayed payments
from SFY 2009-10, projected spending will increase $5.4 billion, or 4.2 percent. This
rate of spending growth is more than twice the rate of inflation.
! Actions taken to close the projected $9.2 billion budget gap for SFY 2010-11 include
cuts across all major areas of spending. While many of these actions are recurring, the
Budget also relies on approximately $14.4 billion in non-recurring or temporary
resources, which virtually guarantees that the State will face significant projected gaps
between spending and revenue next year and beyond.
! Prior to vetoes, major actions in the Enacted Budget taken to close the projected budget
gap include over $3.9 billion in reductions and savings. New or increased fees, taxes
and other revenue actions total over $1.6 billion, although nearly $1.0 billion is still
pending action on the outstanding revenue bill. Other actions include $1.1 billion in
revenue from a six-month extension of funding from the federal government for the
Federal Medical Assistance Percentage (FMAP) program, approximately $700 million
from the December 2009 Deficit Reduction Plan, $676 million in non-recurring resources,
and $334 million in other targeted savings. The remaining $800 million is closed, in part,
with SFY 2009-10 closeout results and other actions.
! Of the actions taken to close the projected gap, a portion of $4.8 billion has been
identified as risky, meaning some resources in this category are likely either to not
materialize or to come in lower than projected. These areas include the $1.1 billion from
the FMAP program, collection of taxes on cigarettes and other items on Indian
Reservations, and a temporary repeal of the tax exemption on clothing costing less than
$110.
! Because the Enacted Budget relies on more non-recurring and temporary actions to
close the projected budget gap, out-year gap projections are expected to be more than
$1.0 billion higher than Executive Budget projections, and will likely exceed $7.0 billion in
SFY 2011-12. Out-year deficits will also be larger if the economic recovery stalls or if
resources in the budget fail to materialize fully.

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Financial Overview
SFY 2010-11 – Enacted Budget Preliminary Analysis
To date, the Division of the Budget (DOB) has not released a Financial Plan reflecting the
SFY 2010-11 Enacted Budget, because the Legislature has not yet taken final action on the
budget. Preliminary figures indicate that All Governmental Funds spending will total
approximately $134.4 billion, after payment delays from the previous year are adjusted out,
representing growth of $5.4 billion, or 4.2 percent. In the General Fund, preliminary
estimates indicate spending will total $53.8 billion, after payment delays from the previous
year are adjusted out, representing a decrease of $0.5 billion or 0.9 percent.
SFY 2009-10 Actual Disbursements Compared to
Preliminary Estimates for SFY 2010-11 Enacted Disbursements
(in billions of dollars)

Disbursements Unadjusted for Timing Delays

2009-10 2010-11 $ Change % Change
General Fund (Including transfers to other funds) 52.2 55.9 3.7 7.1%
All Governmental Funds 126.9 136.5 9.6 7.6%

Adjusted for Timing Delays

2009-10 2010-11 $ Change % Change
General Fund (Including transfers to other funds) 54.3 53.8 (0.5) -0.9%
All Governmental Funds 129.0 134.4 5.4 4.2%

The Revenue Consensus process resulted in the Executive and the Legislature agreeing to
lower projected revenue by $850 million.2 In March, the Senate and Assembly each took
separate budget actions to reflect their respective budget positions. After that, the budget
process delineated in law was largely abandoned. While there was one meeting of the
General Conference Committee, Joint Legislative Budget Conference Committees were
never held, and most budget discussions were conducted away from the public eye.

Through July 1, the Executive and Legislature had reached agreement on three of the six
major appropriation bills. The Debt Service budget bill was enacted in late March.
Appropriation bills (and Article VII language bills) for Public Protection and General
Government, and for Transportation, Economic Development and Environmental
Conservation, were enacted in late June.

Prior to budget enactment, the Legislature is constrained in its ability to alter appropriation
bills submitted by the Executive. Consequently, the Governor expressed his intention to
include the remaining portions of his proposed budget in subsequent temporary spending
bills. Much of what remained of the Executive’s proposed budget was included in the
June 28 temporary spending bill submitted to the Legislature.

The Legislature did not consent to act on the temporary spending bill and instead passed
amended versions of the remaining appropriation and Article VII language budget bills,
including the bills for Education, Labor and Family Assistance, the remaining portions of

2
Section 23 of the State Finance Law requires the Executive and the Legislature to reach consensus on All Governmental
Funds tax collections, General Fund miscellaneous receipts and Lottery proceeds by March 1. If they do not reach
agreement, the Comptroller is charged with providing a revenue estimate in their place.

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Health and Mental Hygiene and the Legislature and Judiciary budgets. Key areas of
difference included restorations for school aid as well as provisions related to providing
significantly greater autonomy to the State University of New York (SUNY) and the City
University of New York (CUNY).

Although the Assembly passed an Article VII bill with nearly $1.0 billion in new revenue
provisions, the Senate has yet to act on that bill. As a result, the Legislature has not yet
provided a fiscal plan that shows balance in the General Fund.

Vetoes
The Executive vetoed nearly 6,700 lines of appropriations, contending that the Legislature
had not fully addressed the General Fund deficit. Because appropriations for Public
Protection and General Government, Transportation, Economic Development and
Environmental Conservation, and the 12 previously enacted temporary spending budget
bills were already chaptered into law, the Executive could not veto anything from those bills.
As a result, all vetoes occurred in appropriation bills for Education, Labor and Family
Assistance, and the remaining portion of Health and Mental Hygiene.

Summary of Vetoes
Appropriation and
Reappropriation Number of
Total Vetoes
Health and Mental Hygiene $ 146,542,036 1,972
Education, Labor & Family Assistance $ 658,746,262 4,709
Total $ 805,288,298 6,681

Approximately $535 million in savings in SFY 2010-11 would result from vetoes of new
appropriations, including $419 million from school aid, $58 million from the Tuition
Assistance Program (TAP), and $57 million from community college aid. Another $190
million in reappropriations was also vetoed, primarily reflecting legislative additions and
member items.3

The Executive also vetoed the entire Education, Labor and Family Assistance Article VII bill,
which provided implementation language for the appropriations contained in the
corresponding appropriation bill. The Executive referred to the Legislature’s inclusion of a
reduction in the Gap Elimination Adjustment (GEA) as a “poison pill,” because it essentially
negated the effect of his veto of the Legislature’s school aid restoration. However, as the
veto message acknowledges, the bill contains many other amendments to existing law,
including those related to TAP, many of which were proposed in the Executive Budget.

In fact, the veto of the Article VII bill may result in increased aid liabilities. For example, the
Executive Budget proposal froze most school aid input data (such as expenditures) as of
November 2009. With the veto of this Article VII language, payments to school districts for
certain expense reimbursement categories of aid may increase. In other areas, school
districts may face reductions. For example, the Executive Budget had frozen charter school

3
Note that reappropriated spending could occur through the SFY 2009-10 appropriation lapse period which ends
September 15, 2010, so savings in SFY 2010-11 cannot yet be determined.

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tuition payments for SFY 2010-11. Without enactment of these new provisions, school
districts may face increased tuition payments to charter schools.

The current situation creates some uncertainty for school districts. Districts still have no
reliable estimate of how much aid they will receive for the 2010-11 school year, which began
on July 1. Most school districts must determine their property tax levies by August. Without
definitive information on school aid payments, it is possible that school property tax levies
could be higher than is necessary.

Non-Recurring and Temporary Resources

The SFY 2010-11 Executive Budget included approximately $12.8 billion in non-recurring or
temporary resources, most of which were accepted in the Enacted Budget. This includes
$5.7 billion in federal stimulus funds as well as $5.5 billion from the temporary increase in
the Personal Income Tax enacted last year, both of which are scheduled to expire in the
near future. Non-recurring resources include $367 million in a non-specific sweep
authorization and $250 million from workforce concessions.

The Enacted Budget (assuming enactment of the outstanding revenue bill) relies on over
$14.4 billion in non-recurring or temporary resources that will phase out over the next few
years. Temporary resources added to the Enacted Budget or included in the outstanding
revenue bill include $330 million from the temporary elimination of the sales tax exemption
on clothes costing less than $110, and $100 million from a decrease in the allowable
deductions for charitable contributions for people with incomes over $10 million. Non-
recurring resources added include an additional $250 million in workforce concessions (for a
total of $500 million).

Non-Recurring and Temporary Resources

Identified in Executive and Enacted Budgets – SFY 2010-11
(in millions of dollars)
Executive Enacted
Stimulus FMAP Increase 4,447 4,447
Stimulus Fiscal Stabilization 1,275 1,275
Temporary Personal Income Tax 5,488 5,488
Temporary Utility Assessment 557 557
Temporary Assistance for Needy Families Offset - 200
Delay Physician's Excess Medical Malpractice - 127
Non Specific Fund Sweeps 367 367
Workforce Concessions (1) 250 500
Temporary Suspension of Clothing Sales Tax Exemption - 330 *
Taxation of Charitable Contributions - 100 *
Deferred Tax Credits - 100 *
Elimination of AIM Payments to New York City - 302
Sale of Wine in Grocery Stores 254 -
Abandoned Property 100 200
Debt Service Savings 16 100
Other (including December DRP (2)) (510) (415)
Other Reported Nonrecurring Actions 565 676
Temporary Resources 12,809 14,354

(1) Workforce concessions may provide recurring savings depending on how they are implemented.
(2) Includes costs associated with prior non-recurring actions such as $391 million from the spin-up of federal education
stimulus dollars, as well as other costs and benefits from the December DRP.
Note: The Executive proposed to eliminate New York City AIM payments permanently.

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Risks to the Financial Plan
The SFY 2010-11 Enacted Budget is predicated on a number of actions that may not
ultimately provide the level of resources anticipated, including several provisions that are
contained in the outstanding revenue bill.

The Enacted Budget contains $4.8 billion in revenue and spending actions that are risky
and may create the need for Financial Plan adjustments. While it is expected that some of
these resources will be realized, it is difficult to project what portion will not be realized, so
the full value of each risky action is presented. A significant portion of the total amount is
uncertain, meaning some resources in this category are likely to come in lower than
projected or not to materialize at all.

For example, the Enacted Budget relies on over $500 million in additional fraud recoveries
from Medicaid and tax audits. While some revenue will undoubtedly be realized, the full
additional amount is less certain. The workforce savings target, originally $250 million in the
Executive Budget, has proven difficult to achieve. Yet this target has been increased to
$500 million.

The $300 million Aqueduct franchise fee payment has proven elusive over the years. A
dubious procurement process has left the State with one qualified bidder, and it is unclear if
the State will achieve its goal of selecting an operator by August 2010. Finally, the Enacted
Budget relies on $1.06 billion in additional federal stimulus funds from the FMAP program
that have not yet been approved by Congress.

Risks to the SFY 2010-11 Financial Plan

(in millions of dollars)
2010-11
Additional Federal Stimulus Funding 1,060
Various Nonrecurring Resources (Including Fund Sweeps) 676
Workforce Reductions 500
New Cigarette Taxes (including Native American Sales) 440
Blanket Fund Sweeps 367
Temporary Reduction of Sales Tax Clothing Exemption 330 *
Additional Medicaid Fraud Recoveries 300
Aqueduct Franchise Fee 300
Additional Tax Audit Recoveries 221
Additional Tax Revenue based on Positive April through June Collection 200
Additional Tax Collections from Charitable Contributions 100 *
Additional Revenue from Unclaimed Funds 100
Debt Service Savings 84
Nonresident Hedge Fund 50 *
Additional Lottery Revenue from VLT Expansion 45

Total 4,773
* Part of the outstanding revenue bill.

In addition, the national economic recovery has slowed, unemployment remains high and
both the commercial and residential real estate markets continue to show fragility. Any
further economic setbacks could easily undermine the revenue and spending assumptions
in the Enacted Budget Financial Plan.

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Taxes and Other Revenue
Overall, the SFY 2010-11 Enacted Budget relies on almost $1.6 billion from new revenue
actions, including increased taxes and revenue re-estimates. This primarily reflects the
tobacco tax increase and tobacco sales by Native Americans to non-Native Americans
($440 million), revenue re-estimates since the Revenue Consensus process (increased by
at least $200 million), and an additional $959 million if the outstanding revenue bill is
enacted.

Summary of Revenue Actions for SFY 2010-11

(in millions)
Revenue Actions
Article VII S.6610 (not yet enacted)/A.9710
Revenue Increases 959
Sales tax on clothing and footwear under $110 330
Business tax credit deferral 100
Reduce itemized deductions for AGI greater than $10 million 100
Restructure the NYC personal income tax rate reduction for STAR 140
Nonresident source income for Scorps 30
Extend VLT hours 45
Nonresident hedge funds 50
Repeal sales tax bad debt credit for private label credit cards 17
Sales tax vendor credit 23
Bank bad debt deduction conformity 15
Hotel markup 13
Abandoned property 100
Revenue Reductions
Empire State Film Production Credit -
Low income housing credit (4)
Tobacco taxes 440
Revenue Re-estimate Since Consensus Forecast 200
Excelsior Jobs Program Act -
Total Revenue Actions 1,599

Structural Imbalance – Out-Years

The Executive’s SFY 2010-11 Proposed Budget Financial Plan (updated for the 21-day
amendments, released in February) projected out-year gaps for current services of
$5.4 billion in SFY 2011-12, $10.7 billion in SFY 2012-13 and $12.4 billion in SFY 2013-14.
Out-year gaps will likely exceed the Executive’s projections because of a variety of factors,
including lower revenue projections associated with the Revenue Consensus process,
federal funding for Medicaid and fewer enacted recurring spending cuts.

Because of these and other factors, out-year gaps are expected to be more than $1.0 billion
higher than original projections, and will likely exceed $7.0 billion in SFY 2011-12. Out-year
budget deficits could also be larger if the economic recovery stalls or if resources in the
budget fail to materialize fully, as has occurred in previous years.

The large General Fund budget gap reaffirms that the growth in State spending continues to
exceed the growth in State revenue. For SFY 2009-10, reported General Fund revenue
declined by 2.3 percent from SFY 2008-09. Spending declined by 4.4 percent for the same
period, but only because of delays of $2.1 billion in aid payments, $500 million in PIT

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refunds and a $348 million Medicaid payment to SFY 2010-11. If those funds had been
disbursed when scheduled, spending would have been virtually flat from the prior year while
revenue declined.

Current projections show recurring revenue will grow significantly more slowly than recurring
spending. In fact, although updated gap projections are not yet available, the Executive’s
February projections show revenue growing annually through SFY 2013-14 at an average of
only 3.4 percent, compared to spending growth of 8.1 percent. Historically, this difference
has been made up with non-recurring resources, debt and reserves. This longstanding
reliance on one-shots, debt and other non-recurring resources to address the State’s
operating deficit is unsustainable.

Conclusion
Despite a consensus that the budget process is badly flawed and a chorus of public and
private proposals for budgetary and fiscal reform, the Enacted Budget contains no reforms
that would help impose the fiscal discipline necessary to realign recurring spending with
recurring revenue. Even modest budget reforms enacted in 2007, such as the public
budget conference committee process, were largely abandoned.

The State continues its one-year focus on the budget, using too many measures that
provide short-term budget relief to pay for long-term commitments, without fully addressing
the State’s chronic structural deficit.

The Enacted Budget for SFY 2010-11 is not yet complete. The projected General Fund gap
of $9.2 billion has not yet been closed due to the unresolved revenue bill. Uncertainty
remains for school districts and other entities due to the veto of the Education, Labor and
Family Assistance Article VII bill.

The Comptroller will provide a more detailed analysis of the SFY 2010-11 Enacted Budget
once the budget is complete.

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