ALBANY — While it should surprise no one that New York faces dire economic times, a new report from the state comptroller paints a sobering picture of the state's fiscal future.
Spending growth that outpaces the rate of inflation will cause expenses to continue to rise faster than revenues, while high levels of debt and debt servicing costs will add pressure to the state's cash-strapped budget.
The Financial Condition Report, released Wednesday, covers the fiscal year that ended March 31. It says New York "faces serious fiscal challenges" and estimates that over the next few fiscal years, the state's out-year budget gaps will combine to exceed $26 billion.
"For too long, New York's budgets have contained spending commitments that dramatically outpace realistic revenue growth," the report said.
Comptroller Thomas P. DiNapoli, in a press release accompanying the report, said state leaders need to be "smarter about spending."
"I've been saying for a long time we have to fix New York's finances," Mr. DiNapoli said. "The downturn in the economy has elevated the problems and limited our options. We need to address the state's growing budget problems and tighten our belts. In difficult financial times, an informed public becomes even more imperative. Everyone should understand how their tax dollars are being spent."
During fiscal year 2007-08, which began April 1, 2007, total state spending was $116.1 billion, a 19.3 percent increase over four years from the $97.3 billion spent in 2003-04. For that same span, inflation as measured by the Consumer Price Index rose 13.3 percent. Over the next four years, spending is projected to grow by 29.3 percent to $150.2 billion, far outpacing forecasted revenue growth of 17.3 percent and leading to an estimated $10.9 billion budget deficit for 2011-12, the report said.
Furthermore, outstanding state-funded debt is projected to rise to almost $67.6 billion by March 31, 2013; it was $52.4 billion at the end of the most recent fiscal year. The report estimated that this will boost state-funded annual debt service costs to $7.6 billion from the current level of $4.8 billion.
"While debt can be an effective and appropriate funding mechanism to finance capital assets, New York has also issued debt to finance operating deficits and other budget relief, with approximately $11 billion outstanding for such purposes," the report said.
The current enacted budget for 2008-09 continues a "historic trend in which the state funds budget is dominated by growth in Medicaid and aid to school districts," the report said. By 2011-12, these two categories will combine for an estimated 41 percent of state funds.
Debt service is "one of the fastest growing areas" in the budget. When it is combined with Medicaid and school aid, these three items will comprise an estimated 47 percent of the state funds budget by 2011-12, leaving 53 percent for everything else, including "transportation, higher education, mental health, economic development, local government assistance, public protection, parks and environmental purposes," the report said.
Noting that the state has a "history of structural imbalance in the budget," the report said that to address such imbalance the state "has borrowed money to provide either budget relief or deficit financing."
"Good fiscal management dictates that the use of current resources to finance capital spending (should) fluctuate in accordance with economic conditions — when the economy slows and current resources are constrained, the use of debt to support capital spending increases," the report said. "Inversely, when the economy flourishes, the use of current resources in place of debt increases as funds become more available. However, as the use of debt increases, future debt service costs also increase. In the past, New York state has not followed this practice and has instead relied heavily on the use of debt, even in good economic times."
In 2006, the north country as a region had the lowest personal income per person in the state at $28,100, compared to $44,000 for the state and $36,700 for the nation. This is the only time the region is specifically mentioned in the report.
"It is time for state leaders to come together and collaboratively confront the difficult realities we face," Mr. DiNapoli said in the report's preface. "It is time for us to roll up our sleeves and redesign the way the state manages its resources. We must address today the problems we have accumulated over years past. It is time to ensure that tomorrow's generation inherits a New York that is as vibrant and inspiring as its great tradition and rich potential deserve."
