Tax & Budget Analysis

The People's Budget 1999-2000: A Blueprint for Equity, November 1998

Balancing Revenues and Expenditures

New York completed its 1997-98 state fiscal year with a "surplus" of approximately $2 billion, yet it faces projected budget gaps of $1.8 billion in 1999-2000 and $5.5 billion in 2000-01. The $2 billion surplus was a cash surplus - an accumulation of cash reserves built up over time, and increased substantially by the boom on Wall Street. The $1.8 and $5.5 billion budget gaps, on the other hand, are projected or "structural" deficits calculated by comparing (a) the resources that are likely to be available during those future years given the tax cut promises that have been enacted into law and (b) the resources that are necessary to maintain current services and to honor new spending commitments. The accumulated cash surplus is being used up to balance the 1998-99 state budget and to reduce the projected deficit for 1999-2000 to the currently projected $1.8 billion.

It is extremely important to note that New York State would not have a structural deficit for 1999-2000 or 2000-01 if it were not for the tax cuts that were enacted in 1997 and 1998 and which are scheduled to take effect in 1999, 2000 and beyond. When fully implemented, these new tax cuts will reduce state revenues by an additional $5 to $6 billion per year. (This is over and above the $8 billion per year cost of the tax cuts already implemented since 1994.) While New York has created budget crises for itself in the past by enacting similar multi-year tax reduction packages, the 1997 tax cuts took this form of fiscal irresponsibility to new heights.

In recognition of the structural deficits caused by the 1997 tax cuts, the Governor's 1998-99 Executive Budget did not propose a new round of tax cuts. Instead, it proposed using a portion of the accumulated cash surplus to accelerate the implementation dates of some of the tax cuts enacted in 1997. The legislature adopted this proposal but it also passed a new package of back loaded tax cuts.

Focusing his rhetoric on the "pork barrel" nature of some of the spending that was added to the budget by the legislature, the Governor issued over 1,000 line item vetoes. In reality, however, the Governor vetoed funding for numerous safety net programs and a variety of basic services, including salary increases for workers in nonprofit service delivering agencies, all state General Fund support for legal services for the poor, and additional funding for child care.

While claiming that the item vetoes were necessary to address the large budget gaps that the state faces in the next several years, the Governor added to this problem by signing the legislature's tax cuts into law. In fact, in 2000-01 and thereafter, these new tax cuts will reduce revenues by more than the line item vetoes will reduce spending. The result is a projected budget gap of over $5.5 billion for 2000-2001, which is slightly more than the structural deficit which the current Governor faced when he took office in 1995.

People's Budget Recommendations:

New York State must stop the practice of enacting multi-year tax cuts that do not take effect for years but which substantially limit the state's fiscal choices. The state constitution limits to two years, from the date of passage, the period that may be covered by an appropriations bill.

1. Consistent with the constitutional limitation on out-year appropriations, the Governor and Legislature should be prohibited from enacting tax cuts which are not effective for at least a full year within a two-year period from their date of enactment. The Assembly and Senate should both adopt rules to this effect, similar to the rules adopted by Congress to prohibit the consideration of certain tax and budget measures. The Governor should pledge to neither submit nor to sign any tax cuts that are not effective within such a two year period.

2. The Assembly and Senate should both adopt rules requiring that a multi-year financial plan showing the out-year impact of all bills comprising the 1999-2000 state budget be available to legislators and the public at least three full days prior to the third reading (i.e., the commencement of floor debate) of any such bill.

3. As part of the 1999-2000 state budget, the Governor and Legislature should repeal all tax cuts that will not be fully effective for at least 12 months during the period covered by this multi-year financial plan.