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The 2011-12 budget Gov. Cuomo unveils today will include substantial cuts in hundreds of state programs, large and small. And yet, even where the Legislature approves reductions, many of those same programs will still see spending go up. How can this be?
The answer helps explain why New York state has ongoing fiscal problems, even when the economy is good and revenues are flowing.
The new governor is making clear this is a key part of the budget culture in Albany that he hopes to change dramatically. And with good reason: Success or failure here will do much to determine not only the state’s ability to control its finances but also his own long-range legacy.
State spending can go up, even after reductions, because of the way that modern governmental budgets are constructed. Governors and other policymakers don’t start from scratch. Rather, they begin by estimating the dollars needed to continue existing programs and meet existing commitments, including new expenditures driven by employees’ contractual wage increases and inflation in big programs, such as health care. They tend to add programs in good years. But during tough times, they almost always have to cut from growth in trend-line spending.
Commitments written into employee contracts are typically the most important factor in the ongoing base of local government budgets, including New York City’s. Wages, salaries and fringe benefits make up more than half of the city’s annual spending. For the state, employee compensation is important but less so — about 15 percent of all outlays last year.
The big money in Albany goes to services the state doesn’t deliver itself, with education and Medicaid by far the largest.
The state sends school aid to more than 700 local districts and regional cooperatives. Thousands of hospitals, nursing homes, physicians, home-health businesses, transportation providers and others get Medicaid funding. Rather than appropriate specific amounts for each of these, the Legislature writes formulas into state law — sending each district so many dollars for each elementary-school pupil, each hospital so much for a day of care for each patient, and so on.
These funding formulas drive the baseline spending for each new budget. In the fiscal year starting April 1, for example, existing law requires $2.9 billion more in aid to local schools. Much of that increase is driven by the state’s basic “foundation aid” formula proposed by then-Gov. Eliot Spitzer and enacted in 2007. Other new dollars would be driven by aid for prekindergarten, a program Assembly Speaker Sheldon Silver and his colleagues initiated as part of the 1998 budget. Still other formulas that would automatically drive spending higher this coming year go back years further.
Formula-driven spending increases are not new. In the first budget he presented to the Legislature in early 1929 (before the Great Depression devastated state revenues), Gov. Franklin Delano Roosevelt reported that then-existing formulas would drive an unaffordable increase in school aid.
But in FDR’s time, the biggest element in state budgets was building and maintaining highways. Education and health care were relatively small.
Today, those two areas absorb roughly two in every three tax dollars the state collects. Each has an array of influential interest groups standing ready to fight any reductions from baseline growth.
Advocates gain an important rhetorical and political advantage if they can portray a certain level of spending as a “cut” when dollars are held constant or rise less than expected. And there’s a case to be made that continuity in essential services requires something beyond the vagaries of annual appropriations.
For well over a century, New York’s governors have held the power to veto individual budget items. Including other powers added during the 1920s, the chief executive’s authority over each year’s budget is among the strongest of any governor in the country. But those powers don’t include the ability to rewrite statutory formulas. Only the Legislature and the governor together can do that.
Cuomo is making clear he wants to reduce the influence of such “permanent” formulas. That would make it far easier to slow spending growth.
Along with the governor’s proposals to cap property taxes and his forthcoming budget, that idea adds another major challenge to New York’s tradition of richly funded public services and high taxes. A budgetary culture that has held sway in Albany for half a century — since the early days of Nelson Rockefeller — is under attack as never before.
Robert B. Ward is deputy director of the Nelson A. Rockefeller Institute of Government.