New York State Division of the Budget Releases Mid-Year Financial Plan Update

ALBANY, NY (11/02/2010)(readMedia)-- The New York State Division of the Budget today announced, through the Mid-Year Financial Plan Update, that the continued sluggish economic recovery is driving higher-than anticipated spending in government entitlement programs while modestly depressing State revenue collections, putting New York State on course for an estimated deficit of $315 million in the current fiscal year. However, the Mid-Year Plan shows that New York's economy and fiscal health has largely stabilized when compared to the volatility of the last two years, which saw mid-year budget deficits of $3.2 billion in 2009-2010 and $1.5 billion in 2008-2009. The current-year budget deficit would have been approximately $1 billion had the Governor not taken action and vetoed legislation that included spending that was not funded in the budget.

The Mid-Year Update observes that the national and State economies continue to perform below expectations on most major indicators, contributing to lower than expected tax collections and higher than expected Medicaid costs to date. For the entire 2010-11 fiscal year, the Mid-Year Update projects General Fund tax collections will come in $278 million lower than originally projected. Additionally, Medicaid spending is projected to increase more than originally projected this fiscal year in part because of a higher than anticipated caseload. The Mid-Year update also revises the Enacted Budget Plan's 2010-11 projections upward for inflation, to 1.3 percent (from 1.1 percent), and downward for personal income growth, to 4 percent (from 4.3 percent).

"As I have during my entire tenure in office, I will do everything in my power to protect the fiscal integrity of New York, and I am determined to ensure that the State is on sound financial footing when I leave office at the end of December," Governor Paterson said. "There are sure to be great days ahead for New York, but until our State and our nation emerge from this long and difficult downturn, we must make the difficult decisions to ensure economic recovery does not leave us behind."

Governor Paterson intends to ask the Legislature to take actions necessary to close the 2010-11 deficit.

The State-financed portion of the budget is estimated to grow by just 0.3 percent in 2010-11; however, over the next four years, it is projected to grow faster than both personal income and inflation, absent measures to control spending. Based on current law, State Operating Funds spending is projected to increase, largely due to mandated spending, at 6.9 percent annually from 2010-11 through 2013-14, while State tax receipts are projected to grow at 4.3 percent annually. State Operating Funds include the General Fund and special revenue funds that collect various State taxes and State user fees.

As a result of these trends, the update projects larger future year General Fund budget deficits than initial estimates: $9 billion for 2011-12, up approximately $850 million from the $8.2 billion deficit forecast in the Enacted 2010-11 State Budget Plan; $14.6 billion in 2012-13 (an increase of $1.2 billion from the Enacted Budget forecast), and $17.2 billion in 2013-14 (an increase of $1.7 billion).

Much of the projected deficit for 2011-12 is attributable to two factors: the expiration of Federal stimulus funding for Medicaid and education, which is expected to result in approximately $5.4 billion in costs reverting to the State General Fund starting in 2011-12, and the scheduled expiration at the end of calendar 2011 of the temporary personal income tax increase that was enacted in 2009-10. That is expected to reduce collections of personal income taxes by more than $1 billion in 2011-12 compared with 2010-11.

A link to the full report is available at the following link:

http://publications.budget.state.ny.us/budgetFP/1011midyear/2010-11_MidYearUpdate.pdf

Expenditures

In addition to the Medicaid caseload increase, the Federal government is increasing its share of rebates from drug manufacturers, driving additional State costs for the program. Rising costs of provider health care services (particularly in long term care), medical care cost inflation that affects nearly all categories of service, such as hospitals and nursing homes, and higher levels of utilization, as well as the expiration of the temporarily enhanced levels of Federal aid, also will drive additional State Medicaid expenditures.

Through September 30, 2010, spending on Medicaid, the government health care program for the poor, exceeded original estimates by more than $110 million, largely due to high unemployment. The trend has continued into October 2010. For the entire 2010-11 fiscal year, which runs from April 1, 2010 through March 31, 2011, the Mid-Year Update projects the State's portion of Medicaid spending will increase by $368 million.

Projections for the public assistance caseload over the multi-year plan have been increased significantly compared to the Enacted Budget Plan forecast, based on the latest economic forecast and updated program data. Increased spending on Medicaid and public assistance – both entitlement programs - is partially offset by lower-than-expected spending in child welfare services and labor settlements, while some resources have materialized since the 2010-11 State Budget was enacted.

Across-the-board State agency operating costs are now projected to be $150 million higher than originally estimated for 2010-11 because the State is unable to realize a longer fiscal benefit of cost-reducing measures within the current fiscal year. However, as the State realizes the full annual benefit of these measures, State operations savings are now expected to exceed anticipated savings levels for 2011-12 by an equal amount.

School aid costs are expected to increase above projections beginning in 2011-12, based on additional claims filed since May 2010, updated wealth and demographic information reported by school districts and a full-scale recalibration of demographic and enrollment factors within the Foundation Aid formula.

Tuition Assistance Program (TAP) grants are expected to increase beyond original projections, the result of current economic conditions and in particular high unemployment rates driving increased student enrollment in State and City University of New York community colleges and other institutions of higher education.

Expenses of the Community Projects Fund may be lower than projected in 2010-11 as a result of Governor Paterson's vetoes of member-item reappropriations.

Mental Health costs are projected to increase over the multi-year forecast period to reflect a revision to the statutorily-based 2011-12 human services COLA based on a 1.2 percent cost of living adjustment, higher fringe benefit rates, additional costs related to court-ordered funding for supported housing beds and support services, revised estimates for funding of the Sex Offender Management and Treatment Act of 2007 (SOMTA, or the civil confinement law) and the projected phase-in of required beds and services.

Although the current round of collective bargaining agreements with public employee labor unions expires at the end of 2010-11, the Financial Plan does not include any costs for potential wage increases beyond that point.

The Mid-Year Update estimates approximately $200 million in health care savings beginning in 2013-14 expected from the implementation of national health care reform.

Adjusted State Operating Funds spending is projected to total $79.2 billion in 2010-11, a 0.3 percent increase over 2009-10 results and about $200 million higher than originally forecast. All Funds spending, also adjusted for a one-time delay of $2.1 billion in school aid from 2009-10 into 2010-11, is projected to total $135.3 billion for the current year, a 6.6 percent increase over last year and about $1.5 billion higher than initially projected.

Revenues

Through September 30, 2010, General Fund tax receipts came in about $510 million below levels budgeted in the Financial Plan, while litigation has delayed and is expected to reduce originally-projected amounts of tax collections for cigarettes sold on Native American reservations to non-Indians.

For the full 2010-11 fiscal year, projections of personal income tax receipts have been revised downward by approximately $300 million, reflecting weakness in quarterly estimated payments. Receipts from user taxes have also been projected lower in the current year based on consumer spending data and actual collections, but such collections are expected to rebound in 2011-12. Receipts from statewide lottery games continue to fall below expectations as a result of the economic downturn.

Projected receipts from business taxes and other taxes have been increased modestly for both 2010-11 and 2011-12, reflecting unanticipated strength in estimated payments from banks and the performance of the real estate sector. The State is also witnessing higher than originally projected receipts from legal recoveries and surplus workers' compensation funds, as well as a one-time benefit of $43 million from the termination of its existing synthetic variable-rate swaps in September 2010.

For the entire 2010-11 fiscal year, the Mid-Year Update projects General Fund tax collections will come in $278 million lower than originally projected.

###