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Albany's $2B surplus not quite what it seems

New York Gov. Andrew Cuomo gives a speech

New York Gov. Andrew Cuomo gives a speech in the Hart Theatre at the Egg Center for Performing Arts in Albany on July 18, 2013. Credit: Newsday / J. Conrad Williams Jr.

ALBANY - In the state capital, a $2 billion tax increase can lead to a historic $2 billion tax cut, a budget surplus is being spent before it exists, and politicians credit their statesmanship rather than legal precedent for passing budgets on time.

The political spin is all part of managing what is called in political circles the "optics," or how a policy is packaged for voters. One longtime Albany observer calls the practice "reverse engineering from the press release." The volume is turned up in this election year as lawmakers push to approve a state budget for 2014-15.

Gov. Andrew M. Cuomo, for example, began the year by announcing the first surplus in a decade, which would allow for an election year package of tax cuts. But Cuomo's $2 billion surplus isn't reflected in the new budget; it won't materialize for at least two years. The projection is based on the assumption that Cuomo will be re-elected in the fall and that future state legislatures -- which can't be bound by today's promises -- will make the cuts and tough decisions he wants after this election year.

"We don't have a surplus," said Elizabeth Lynam, spokeswoman for the independent Citizens Budget Commission. "They put the costs out in the future. They will have to balance the budget one way or another; either the revenues will have to get better or there have to be spending reductions. And those decisions won't be easy."

"It's purely aspirational," agreed E.J. McMahon, president and founder of the Empire Center for Public Policy think tank and a former budget director under Republican Gov. George Pataki.


'He's talked a good game'

State budgets are not an exact science. Revenue is based on tax revenue projections from the governor and legislative leaders and their forecasts for the state economy, which often vary significantly. Governors traditionally set the most conservative estimates for revenue to try to avoid deficits. The budget must be balanced by law using these projections and estimates.

Cuomo notes the 2014-15 budget he proposed is balanced, the future revenue growth is based on their economic projections, and the administration is confident the next elected legislature won't "turn its back" on prudent financing ushered in by the governor. In two years, he said his fiscal restraint will result in tax revenue growth surpassing spending increases as the economy further improves.

Even if the surplus reaches its projected level of just over $2 billion in two years, it will be largely because the state last year extended until 2017 the temporary millionaires' tax, which was created in 2009 in the depth of the fiscal crisis and brings in more than $2 billion a year.

In March 2012, Cuomo, Assembly Speaker Sheldon Silver (D-Manhattan) and then Senate Majority Leader Dean Skelos (R-Rockville Centre) issued a joint statement announcing early passage of the 2012-13 state budget "with no new taxes, fees or gimmicks."

But McMahon said the governor and legislators are being "disingenuous" by contending the millionaires' tax extension wasn't a tax increase.

"When the governor says we can't be seen as a high-tax state, he's talked a good game, but that doesn't change the fact that he raised one tax in order to cut a bunch of other taxes, and some of those tax cuts aren't cuts," McMahon said.

Cuomo's latest $2 billion tax cut proposal includes business, manufacturing and estate tax cuts. But the heart of it is a property tax freeze.

Under that plan, the state would use its tax dollars to subsidize the local tax increase for a year, as long as local officials kept spending under 2 percent and came up with ideas approved by Albany to share or consolidate expenses. The state would provide the subsidy the second year only if local officials implemented the structural savings, which some officials say could be impossible after several years of cuts and layoffs forced by the recession.

McMahon estimates the benefit -- which wouldn't be felt until 2015 -- would be about $350 per middle-class family after two years, and the idea is being questioned by some legislators as well as local government and school officials. In a recent budget hearing, Senate Finance Committee chairman John DeFrancisco (R-Syracuse) was exasperated after getting few answers to his questions about details of the property tax proposal. He told Cuomo's tax commissioner the plan was "a nightmare . . . an absolute nightmare."

"It's like the rhetoric kind got ahead of itself," Lynam said. "So there is a real question."


Ruling acts as an enforcer

Legislators will seek answers to these and many other questions before they vote to approve a budget by the April 1 deadline. But unlike in past decades, where such disputes routinely made state budgets late by months, lawmakers are already promising a fourth straight on-time budget this year. They credit their bipartisan cooperation and better stewardship of the state's finances.

What Cuomo and legislators don't note is that that achievement can be largely attributed to a court decision that makes any future late budget improbable at best.

Sen. Jeffrey Klein (D-Bronx), who leads the Independent Democratic Conference, which shares majority control of the State Senate, recently threatened to hold up the budget. He said he wanted to pressure Cuomo and Senate Republicans to allow New York City to raise its income tax to fund Mayor Bill de Blasio's pre-kindergarten expansion.

But a day later, Klein said he didn't mean he'd force a late budget, adding: "I want an on-time budget this year, which is something I am very proud to have accomplished for the past three years."

That's because the reality is that there is an enormous disincentive to late budgets that transcends statesmanship. A landmark legal discovery in 2010 by Democratic Gov. David A. Paterson -- despite his low ratings and few political allies -- changed Albany's budget process forever.

Until then, a legal precedent had gone unnoticed in a 2004 high court decision in which Assembly Speaker Sheldon Silver sought, but failed, to gain more legislative control of the budget from Gov. George Pataki. The ruling said the governor had the authority to impose policy changes in emergency budget bills.

"I came up with the idea by serendipity," Paterson said in an interview. "Because I thought we had that power and I claimed we were using it in a couple of radio interviews. Budget Director Bob Megna told me I shouldn't say that because we aren't doing that . . . He said it was never done before.

"I said, 'If it's never been done before, this is Albany. Let's do it,' " Paterson said.

So when the budget missed its April 1 deadline, Paterson started issuing the traditional emergency spending bills known as "extenders." But he also sent the legislature spending bills that included his cost-cutting policies and spending cuts.

That left the legislature with a choice: Accept the extender bill with Paterson's budget cuts, or risk shutting down state government and getting blamed for it.


Late budget? Probably not

Before the ruling, the legislature could wait out a governor beyond the budget deadline, and governors generally suffered in the polls for the failure. "The legislature's leverage was the late budget, and now they don't have it," said Blair Horner, legislative director of the New York Public Interest Research Group.

So what are the chances of a late budget now?

"I think it's like zero on the Kelvin scale," said Horner, referring to the temperature gauge that registers absolute zero.

"The budget could be a day late or something, but any future governor could put his budget in an extender and the legislature would be left the daunting prospect of accepting it or shutting down the government," he said.

Paterson's plan was loudly criticized by lawmakers, but not challenged in court. It left the legislature stymied. Ultimately, it was left with little recourse but to send its spending changes to Paterson in the form of policy bills, which Paterson vetoed -- all 6,109 of them. And his budget stuck, cutting billions of dollars in state spending when Paterson left office.

"Gov. Cuomo thanked me in advance," Paterson remembered. "He thanked me when he was still a candidate and said, 'This is really going to help me govern . . . I will discuss this as soon as I come in the door.' "

"He passed three budgets in a row," Paterson said, "and that hasn't happened been done since the Peloponnesian War."


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