Cuomo deficit gamble carries risks for local governments, analysts say
Gov. Andrew Cuomo speaks about the $175.5 billion state budget during a news conference in the Red Room at the state Capitol in Albany on March 31. Credit: AP/Hans Pennink
ALBANY — Gov. Andrew M. Cuomo’s gamble to delay action on a huge state deficit worsened by the COVID-19 emergency carries risks for schools, local governments and their taxpayers, fiscal analysts said.
Cuomo has said he will wait until after the November elections to enact tax increases, spending cuts and long-term borrowing to contend with what he says is a $30 billion deficit for the state, the Metropolitan Transportation Authority and state aid to local governments and schools over the next two years.
He is betting that Democrats led by Joe Biden will win the White House and take control of the U.S. Senate. Together, Cuomo said, they will provide the federal aid needed to meet the state’s costs and lost revenues from the economic shutdown forced by the virus. So far, Trump and the GOP-controlled Senate have rejected that level of aid.
Analysts say there are many risks in that gambit.
"Even if there is a large federal aid package, it’s very unlikely it will cover the whole gap," said David Friedfel of the independent Citizens Budget Commission.
E.J. McMahon, of the fiscally conservative Empire Center for Public Policy think tank, said the deficit the state faces is shaping up to be worse than that of the 2007-09 recession. "Biden’s stated tax and budget priorities don’t include permanent rolling bailouts of state and local deficits," he said.
School districts that were already hit in September with a $300 million temporary cut in state aid that triggered some layoffs and counties that face their own budget deadlines in December say further delay in state action creates uncertainty over how they could address their own budget problems.
A coalition of activists, parents, students, and educators protest Governor Cuomo's decision to withhold 20% to state aid outside his office in Manhattan, New York, on September 8, 2020. Credit: Sipa USA via AP/Gabriele Holtermann
McMahon said permanent cuts in state spending must be made now to stem the pain.
Cuomo, however, is still pinning his hopes on federal aid while taking temporary measures to keep the current budget in balance. The administration has "already lowered state spending by $4 billion by freezing hiring, new contracts and pay raises, and by temporarily reducing payments by 20%," said Freeman Klopett, Cuomo’s budget spokesman.
"If the federal government does not act and provide flexible funding, then these temporary payment reductions may become permanent cuts, which will put more New Yorkers out of work, cause devastation to schools, hospitals, police and fire departments, and weaken New York state’s and the nation’s ability to recover," Klopett said.
Before COVID-19 hit forcing Cuomo’s shutdown of the state economy for months, the state faced a $6 billion deficit, mostly because of rising Medicaid costs to hospitals and health care programs despite a growing economy.
Independent analysts credit Cuomo for measures that avoid compiling far more debt during the emergency. But they note the administration and the State Legislature borrowed $4.5 billion in the spring when the federal government delayed the deadline to file income tax returns. Payment on that is due Dec. 31, analysts said.
The state has $2.5 billion in its required "rainy day funds" and another $3.4 billion in other reserves that Cuomo hasn’t yet tapped, financial analysts said, citing Cuomo’s financial plan.
But schools and local governments have fewer options.
On Sep. 23, the Citizens Budget Commission, the New York Public Interest Research Group, Common Cause, Reinvent Albany and the League of Women Voters wrote to Cuomo asking for a plan to deal with a current deficit they pegged at $9 billion. The groups are still waiting for more data in updated financial plans and in fiscal information required under a "quick start" provision in budget law.
"These indefinite delays in payments create enormous uncertainty for recipients of state funds, deny the Legislature the opportunity to pass its own spending adjustments as the framework allows, and obscures the public’s understanding of spending reductions or other gap-closing measures," the groups stated.
"Your desire to wait is understandable, but delay has deleterious effects," the groups stated. "Recipients of state funding may be delaying actions that they should be taking now or making unnecessary cuts because they do not know how much state aid they will receive this year. It is past time for the budget balancing plan to be released."
Brian C. Fessler of the state School Boards Association, said schools face "significant risk," in part because of uncertainty.
"Districts that are most dependent on state aid have very little financial flexibility, and also tend to be some of the most high-need," Fessler said. "Many districts will simply not have the financial resources available to deal with renewed withholdings — or actual cuts — without having to, unfortunately, consider layoffs and impactful reductions in programs and services for students."
New York State United Teachers union president Andy Pallotta said the federal government must come through, "but the state also needs to step in to provide school districts with assurances that they will be fully funded this year. The sooner the state acts to tax the ultrawealthy, tap its reserves and take other actions to close this gap, the better."
For counties, budgets must be adopted by mid-December. That will leave little time to act after the presidential election results are final, and well before a stimulus package could take shape in the spring, even if Biden and the Senate Democrats win.
"Some counties probably have sufficient reserves and/or have implemented enough spending cuts over the last several months to get through the end of the 2020 calendar year," said Stephen J. Acquario, executive director of the New York State Association of Counties. "Getting through March, if no federal aid comes and state cuts become permanent, will require all counties to reconsider their entire budget and likely lead to further layoffs and/or cuts to local services like Meals on Wheels, veterans’ programs, youth services and road maintenance. "The longer we wait, the less time there is to make adjustments," Acquario said.
Michael Gormley has worked for Newsday since 2013, covering state government, politics and issues. He has covered Albany since 2001.
