October 17, 2005. The comments below were presented by Frank Mauro at a press conference today at the Legislative Office Building in Albany, New York. These comments were based on his September 1, 2005, analysis of the budget reform constitutional amendments. The Fiscal Policy Institute, as an organization, has not taken a position in support of or in opposition to the proposal on the November 8, 2005, ballot. These are the views of Frank Mauro and not those of the Fiscal Policy Institute.

The current provisions of the State Constitution, as they have been interpreted by the Court of Appeals, create a situation in which the Governor can include changes in permanent law in his proposed appropriations bills and the Legislature can not delete or change the Governor’s proposed statutory changes. This puts the Legislature in a “take it or leave it” position. The Governor says the Legislature can just say “no” until an agreement between the two branches is reached. This means that the Legislature’s only recourse under the current constitutional arrangement is to refuse to adopt the Governor’s proposed appropriations bills until the Governor agrees to change the statutory language that the Legislature finds unacceptable. But this is exactly what has happened in recent years and what critics point to as a failing of the current system.

This situation can and should be fixed in one of several ways. For example, the constitution could be amended to require the Governor to submit changes in permanent law in non appropriation budget bills. This approach is taken in a proposed constitutional amendment (A4630) given first passage by the Senate and Assembly earlier this year. For this amendment to go to the voters for their approval, it would have to be given second passage by the Legislature elected in 2006. The amendment (S1) that will be on the ballot on November 8, 2005, on the other hand, gets at the “balance of powers” question in a very convoluted and inadequately defined way that would make the state budget process even messier and more complicated than it currently is.

While many of the critics of S1 oppose it because it would increase the power of the Legislature in the budget process, I believe that the power of the Legislature should be increased, but that it should be increased in a way that deals directly and clearly with the impact of the Court of Appeals decisions. When I served as Secretary of the Ways and Means Committee in the mid 1980s, the Governor and the Legislature both operated under the understanding that the Legislature could amend the “terms and conditions” language that the Governor included in his proposed appropriations bills and that the Governor could veto those changes if he disagreed with them. That certainly did not create a budget process with a weak or ineffectual Governor nor did it run contrary to the concept of the Executive Budget. I think that the balance of powers in the budget process needs to be changed back to something like that and I believe that the constitutional amendments proposed in A4630 would do a decent job in that regard.

S1, on the other hand, gets at this dilemma in a roundabout way that would create an even messier budget process than we now have. S1 does not limit the Governor’s ability to include changes in permanent law in his appropriations bills nor does it authorize the Legislature to make changes in such submissions. It only increases the Legislature’s relative power in the budget process by taking the Governor’s appropriations bills off the table if they are not all acted on by the start of the state fiscal year and then giving the Legislature greater discretion in amending the “contingency budget” (that would take effect in such a situation) than it has in amending the appropriations bills submitted by the Governor in conjunction with his Executive Budget.

But neither S1 (nor the accompanying implementing legislation which will take effect if the constitutional amendments proposed by S1 are approved by the voters), assign responsibility to anyone for preparing the “contingency budget” let alone for doing so in a timely fashion.

Moreover, S1 has internally inconsistent language regarding the contingency budget – referring to it in one sentence as being based on the prior year’s appropriations (i.e., authorized spending) and in another sentence as being based on the prior year’s disbursements (i.e., actual cash out the door). The result is that the lower of these two levels would prevail under the contingency budget. This opens the door to incredible unintended and undesirable consequences.

For example, in closing out the 2002 03 fiscal year, Governor Pataki, for cash flow reasons, deferred the paying of $1.9 billion of 2002 03 bills until after April 1, 2003. The result of this action was that 2002 03 disbursements were artificially deflated by $1.9 billion and 2003 04 disbursements were artificially inflated by that same amount. On paper, General Fund disbursements, including transfers to other funds, went from $37.6 billion in 2002 03 to $42.1 billion in 2003 04. But adjusting for the $1.9 billion shift, 2002 03 disbursements were really $38.5 billion. If the proposed constitutional amendment had been in place at this time, the contingency budget for 2003-04 would have required spending for state operations and aid to localities in 2003 04 to be cut by $4.5 billion even though the actual spending levels for 2003 04 weren’t even sufficient to maintain current services in most parts of the state budget.

Only two states (Rhode Island and Wisconsin) have contingency budget mechanisms similar to the one being proposed in the S1 package. In neither of these states (nor in New York City which also has a version of this approach), is the contingency budget tied to prior year disbursements. And for good reason, since cash disbursements during a fiscal year are frequently different from the obligations actually incurred during that year.

The proposed Constitutional Amendment’s implementing legislation would also create an Independent Budget Office and would purport to give that office the authority to impose uniform, across-the-board reductions to all disbursements other than public assistance payments and certain federal funds if it projects that “annual receipts are insufficient to meet annual disbursements under the contingency budget.” This provision is very unlikely to pass constitutional muster, but if it did it would represent a very unbalanced approach to balancing the state budget. All the balancing would automatically come through cuts in state-funded services and none on the revenue side. Neither New York City nor either of the two states with contingency budget mechanisms have any provision for administratively imposed reductions of the kind authorized by this implementing legislation.

S1 is flawed in significant and substantial ways. It does, however, (in its own convoluted way) address the imbalance in power in the state’s budgetary process that has resulted from the Pataki Administration’s aggressive interpretation of the Constitution as upheld by the Court of Appeals.

In this context, it might have been worth living with the flawed provisions of S1 for two years if the Legislature had initiated a corrective amendment to be presented to the voters in 2007. But S1, without significant corrections, should not be made part of the New York State Constitution.