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From 'The sky is falling!' to 'No worries': How a state deficit goes away

ALBANY – When officials in late fall started to put all the pieces of a new state budget together for Gov. Andrew M. Cuomo to present in January, the gloomy talk started coming out of the Capitol’s first floor where his budget staff is based.

The state, officials warned, faced a looming $4.4 billion deficit. Put in perspective, that’s almost what is spent each year on New York’s sprawling judiciary and prisons systems.

In the final budget enacted March 31, officials say the deficit was completely wiped out.

How did they do it?

Holding the line on certain spending? Hauling in new revenues? Some fiscal maneuvering?

Yes, yes and yes.

$168 billion state budget passed overnight has $1 billion hike in state aid for schools

Here is the gist of how the deficit was closed. Keep in mind, though, that there is not any single source in the thousands of pages of the 11 different budget bills that might help explain how it happened. Also, the actual reporting by the state of the precise fiscal numbers won’t be made public until sometime in May when Cuomo’s office releases a document known as the adopted budget financial plan.

The Buffalo News turned to three sources: the Cuomo administration; a state lawmaker involved in the negotiations; and an outside fiscal watchdog of state finances. Taken as a whole, their explanations show how the deficit was erased.

Sen. Catharine Young, an Olean Republican who heads the Senate Finance Committee, said the “real” deficit was $1.7 billion, not the $4.4 billion figure Cuomo used. That’s because the higher amount reflected the red ink that the state was facing if spending and revenue actions already on the books were permitted to continue in the 2018 fiscal year. But, Young said, all sides have agreed for years to a self-imposed annual growth of 2 percent of the budget’s general fund. That, she said, meant the deficit was actually $1.7 billion.

Cuomo’s budget plan in January was balanced, by law, but she said he did it with more than $1 billion in tax and fee hikes, among other revenue raisers.

“Our conference said absolutely no to more taxes and fees," she said of the Senate GOP.

When it became clear that some Cuomo tax hikes were going to be rejected and both legislative houses wanted to drive more money than Cuomo’s plan to public schools, a solution was found: re-estimating revenues. In other words, they took another look at the books and decided they were being too conservative in what Albany would raise in tax revenues. After all, 2017 was a boom year on Wall Street and tax receipts were showing that.

The result: A “revenue forecasting consensus” was reached and they agreed $750 million in higher-than-expected taxes would flow to the state’s coffers.

There were more re-estimates, this time on the spending side. Negotiators agreed that spending in the recently concluded fiscal year would be $250 million less than expected and, importantly, that the trend would continue by the same level in the new fiscal year that began April 1.

So, between those two re-estimate exercises, about $1 billion was trimmed from the deficit, taking it down to about $700 million.

Assistance came from other areas. Notably: $750 million in the current fiscal year will go to the state – $500 million to its general fund account – as part of a multi-year, special levy Albany is imposing on the sale of the non-profit Fidelis Catholic health insurance program to Centene, a for-profit carrier.

That lowered the deficit total to $200 million. A combination of a new surcharge on opioid manufacturers and distributors – about $100 million – and miscellaneous agency, program savings and rounding got it the rest of the way to zero.

Administration officials said the true deficit number at the start of the process was $4.4 billion and that keeping state spending to the 2 percent cap level – which got things down to a $1.7 billion deficit – took a combination of spending cuts and proposed tax increases. State agency spending, for instance, was held basically flat for another year, despite growth in staff salaries and other costs.

“We closed the $4.4 billion deficit by achieving many of the savings proposals put forth in the Executive Budget, such as actions to hold state agency spending flat, containing Medicaid growth within the global cap and service consolidation and reorganizations,’’ said Morris Peters, a spokesman for Cuomo’s budget division.

During negotiations, two basic things happened to affect the financial plan Cuomo sought: the Senate rejected most of the tax hikes he proposed – such as closing a loophole on third party internet sales on sites such as Amazon – and lawmakers nearly doubled what the school aid increase that Cuomo planned in January. The net-negative effect: about $1 billion. To counter, the spending and revenue re-estimates. The net-positive effect of those: about $1 billion.

David Friedfel, director of state studies at the Citizens Budget Commission, a private group that monitors state financial matters, noted the see-saw effect on the deficit number as various spending and revenue-raising actions took place during budget talks.

The deficit was reduced, he noted, also by the state banking on $577 million in legal monetary settlements with companies on various matters. Some of that went to the general fund, some went to New York City to help with its declining subway system.

While Senate Republicans take credit for beating back Cuomo tax hikes, Friedfel said nearly $621 million is coming from new revenue actions, including the opioid surcharge and the Fidelis insurance levy.

Friedfel said the $750 million in revenue re-estimates is what ended up bankrolling for lawmakers an extra $200 million in school aid and the Senate’s ability to kill off some tax hikes.

But Friedfel says state officials, once again, moved some cost items to other accounts to show spending being kept at the self-imposed 2 percent cap. Instead, he said such cost-shifting and other steps helped to mask what he believes is a spending hike that is actually double the inflation rate.

Worrisome, too, is the use of one-shot kind of revenue actions, such as the $577 in monetary legal settlements. “They used a number of one-time revenue action to really get through this year,’’ he said.

Friedfel said such fiscal maneuvers might be explained if the state’s economy was tanking and officials were desperate to find funds to pay for critical spending needs.

“But they’re doing it now at a time when the economy is growing. What steps do we take when the economy is contracting?’’ he said.

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