New state budget tries to balance numbers, virus uncertainty

ALBANY — New York lawmakers — amid plummeting tax revenues and other economic fallout of the COVID-19 pandemic — passed a state budget that calls for state spending up to $105.8 billion. But that appropriation was $10 billion short of revenues even before the ink dried.

It’s creative accounting rare even for Albany. The total spending figure is predicated on receiving billions of dollars in a fourth federal stimulus package. If that money doesn’t come through and if the economy doesn’t restart as soon as hoped, spending will be have to be cut to $95.8 billion, according to the budget agreement.

If tax revenues drop further and the cost of fighting the virus rises higher, spending could be cut even further by Gov. Andrew M. Cuomo before May 1, and then in quarterly reviews after that.

In total, with federal aid that passes through to schools and local government, the state budget totals $177 billion, according to Cuomo's budget division.

“It’s made up on the fly,” said the Empire Center think tank's E.J. McMahon, who has spent decades analyzing state budgets. “It really sounds contrived … They can’t possibly spend what Cuomo proposed unless they get a federal bailout,” he said. “The tactic is that this budget is balanced as long as the federal government gives them $10 billion. What?”

“You can’t take this to the bank,” McMahon said.

“It’s aspirational,” said David Friedfel, director of state studies for the independent Citizens Budget Commission. “It’s a best-case scenario … it may not come to fruition.”

The appropriation of $105.8 billion in state spending for the 2020-21 fiscal year that began Wednesday is the same level of funding Cuomo proposed in early January. That was an optimistic proposal that counted another year’s ride of a red-hot economy when the coronavirus was only a problem in a rural province in mainland China.

The $105.8 billion appropriation, however, is still needed in the budget so that if all goes extremely well, the state can spend up to that much, according to Cuomo’s budget division. Under the constitution, the state Legislature must approve a ceiling on spending, but the governor can spend less, particularly in an emergency like now.

The state Division of Budget is already at work to identify cuts from non-vital services that can be made if additional federal funding doesn't come through. The budget deal also empowers Budget Director Robert Mujica to “develop a plan for across the board reductions and implement that plan as necessary over the course of the year,” according to a statement by the Cuomo administration.

“This is a crisis budget that needed to be passed in the middle of a fast-evolving emergency,” said Senate Finance Committee Chairwoman Liz Krueger (D-Manhattan). “We can only speculate on where we will be in three months or six months, but we must still pass a responsible budget that grapples with the reality of our anticipated revenues — and the reality is that we need flexibility. The numbers we've used represent our best guess based on the information we have now. Time will tell how accurate they are, and when that time comes we will have to address that new reality.”

The crisis left little choice, some legislators said.

“We had to construct a budget based on the information we have and our hope is that down in Washington they will get an economic aid package,” said Sen. James Gaughran (D-Northport).

“Tough decisions had to be made,” said Sen. Todd Kaminsky (D-Long Beach).

Budget numbers are important because they determine taxes and salaries, and impact the state’s credit rating, which determines the cost of the extensive borrowing Cuomo plans. On Wednesday, Moody’s ratings service affirmed the state’s high credit rating, but downgraded the outlook from stable to negative, reflecting an “expectation that the crisis will have substantial impacts on state finances and the economy, eating into the state’s reserves and straining its ability to structurally balance its budget.”

The uncertainty of state aid makes it harder for school districts and local governments to craft their own budgets, which will directly affect property tax bills.

“School districts and local governments should be very cautious about how they account for this aid,” Friedfel said. “If you need $1 million cut from your budget, it’s much easier to do it in the beginning of the year than late in the year, when you have to cut twice as deep. Better to cut 50 percent early in the year than cut a whole program halfway through.”

Schools and their taxpayers, so far, are OK thanks to $1.1 billion that was part of the $2 trillion stimulus package passed by Congress. Although the state passed that funding along to schools, the Cuomo administration also removed $1.1 billion from state school aid for use elsewhere in the budget.

“I would probably describe this at this point as best-case scenario,” said Brian Fessler, director of government relations for the state School Boards Association. “There is a real possibility for those aid numbers to be less.”

“You need to be conservative,” the association’s David Albert advised local school boards. “I would not budget for another federal stimulus.”

By Michael Gormley

michael.gormley@newsday.com@GormleyAlbany

Michael Gormley has worked for Newsday since 2013, covering state government, politics and issues. He has covered Albany since 2001.