New York Budget Again Shows Midyear Deficits Because Of Overly Optimistic Estimates

Once again, New York is facing a significant midyear budget deficit. And again, the problem stems from overly optimistic revenue budget projections. With the economy sputtering along and wishful thinking that the courts would support New York's attempt to tax Native American tribal sales of tobacco products, the state is finding itself in the hole for at least $300 million and quite likely closer to $1 billion before the end of the calendar year.

In addition to the current budget deficit, a fiscal update earlier in the week revealed the potential gap for the 2011-12 fiscal year would grow from $8.2 billion to $9 billion if action isn't taken. The new fiscal year begins April 1.

Budget Director Robert Megna said the newly widened gap was a product of slightly lower-than-anticipated tax revenue and a recession-driven increase in New Yorkers signing up for Medicaid. The program's caseload has gone from 4.2 million in 2007 to 4.9 million this year.

Megna noted that, in addition to flat income tax revenue, a court case against stepped-up collection of taxes on tobacco sales on Indian reservations has meant the state will have to go without $150 million of expected funds.

Megna said the state needs to cut $315 million. Paterson, however, hopes to cut $375 million in order to create a cushion for possible future shortfalls. To do that, he wants to rely on a variation of the "FMAP Contingency Plan" the administration developed to address a possible absence of federal Medicaid money earlier this year.

Although that shortfall wasn't as bad as anticipated, the plan involved across-the-board cuts of 1.5 percent to 2 percent to a wide variety of programs.

So what do lawmakers and others think of making cuts between now and the end of the year?

One observer noted that lame-duck lawmakers -- pivotal in the closely divided Senate -- might not want to make cuts they deem harmful. "There's no urgent incentive for them to pass anything in a lame-duck session," remarked Kyle Kotary, a consultant and former Senate Democratic spokesman.

And many of those who will be in office next year could be predisposed to wait and see what Gov.-elect Andrew Cuomo has in mind.

The state continued to push spending increases and refused to trim the budget in areas that it simply could not sustain.

No one in the Legislature nor Governor Paterson sought to keep spending contained and to deal with the Medicaid spending, even as everyone knew, or should have known, that reliance on Medicaid would increase as the safety net caught more people who needed critical services as the job market sputters along.

The overly rosy budget projections made the state budget appear to be sound on paper, but once the reality set in, the truth is that the state budget was done a grave disservice by those who pushed these revenue estimates. The state should have considered a flat to trending negative revenue estimate, which would have guaranteed that the state would have been much closer to its actual revenues, rather than expanding the deficit. Of course, entertaining any such revenue estimate would force the state legislators and governor to propose far less spending - and Gov. Paterson, Speaker Silver, and Senate Democrats were having nothing of that.

Now, Governor-elect Andrew Cuomo will have to deal with the mess and he's already hard at work preparing his budget proposal that is due in February. I expect him to call for the frequently suggested change to the state's fiscal year. Moreover, I expect him to call for reduced to flat spending and that would also include budget cuts and layoffs or furloughs where necessary. Gov. Paterson has repeatedly been thwarted from imposing furloughs and layoffs, despite their necessity to close the budget gap. We'll see soon enough whether Cuomo can make any headway, but public support is definitely there to do something to fix the mess in Albany.