New York Gov. David Paterson proposed an austerity budget yesterday that would slash spending and raise revenue through taxes and fees to close a $1.7 billion deficit in the current fiscal year and a $13.7 billion deficit in fiscal 2010, while capital spending and borrowing would increase.
The state would sell $5.6 billion of debt to finance capital projects in fiscal 2010, a $772 million increase over fiscal 2009. Most of the state's bonds, $4.93 billion, would be sold through public authorities rather than as general obligation debt.
The governor proposed a new student loan program called New York Helps that would be financed through bonds.
"Due to the tightening of the credit markets many private lenders are not issuing students loans at this point in time and if they are, they're issuing them at rates that are extraordinary, anywhere from 12% to 17% sometimes 18%," said budget director Laura Anglin.
The State of New York Mortgage Agency would sell bonds to buy the loans from participating private banks. The proposal calls for $350 million of bonds to be sold in fiscal 2009, a level expected to continue in future years. The loans would be issued at a rate of 8%.
Overall capital spending would not be reduced. Despite subjecting new capital spending to a review process designed to only allow essential projects to go through, the budget calls for capital spending to increase in the next fiscal year by $351 million to $9.3 billion.
Capital spending would increase in economic development, higher education and transportation while dropping in education due to the phase out of the Expanding Our Children's Education and Learning, or EXCEL, program that provides funds for school construction.
The proposed budget does not include federal aid which could come under the administration of President-elect Barack Obama but said that the state hopes to get infrastructure funding and community block grants.
The budget also calls for further reducing its variable-rate debt portfolio. New York's auction-rate debt has been reduced this year from $4 billion to $2 billion and all but $600 million is expected to be restructured by the end of the current fiscal year.
The state also plans to refund a portion of $420 million of variable-rate demand bonds insured by Financial Security Assurance and Assured Guaranty Corp. in early 2009 due to poor performance "if the credit markets cooperate."
"This is the worst fiscal downturn in our economy since the great depression: financial services are dwindling, century old firms are crumbling, Wall Street has laid off 60,000 people," Paterson said. "We've made too many promises and asked for too few sacrifices we are going to have to change our culture."
Capital spending and borrowing would increase under the proposed budget and the governor introduced a student loan program that would be bond financed. State funds spending would not increase and all funds spending would increase by just 1.1% over the current year to $121.1 billion, under the proposed budget.
Under the proposal, the current year budget gap would be closed by cutting spending. The fiscal 2010 budget cuts spending by $9.5 billion, increases revenue by $3.1 billion and includes $1.1 billion of one shot actions.
Some of the cost saving and revenue generating measures include cutting school aid by $698 million from the current year level to $20.7 billion in fiscal 2010; saving $3.5 billion on Medicaid and health care costs; reducing state workforce reductions mainly through attrition, reducing the workforce by 3,108 to 196,292; creating a new tier for pension funds for new workers that are less generous than the current plans; and eliminating a property tax rebate.
Though the budget documents call for an increase in pay as you go financing for economic development and housing projects, that initiative wouldn't start until fiscal 2011 and is not included in the current budget.
"What debt reform did is it limited the amount of debt we can issue, or debt cap, to 4% of personal income," Anglin said. "Our projections for personal income have declined substantially. We're trying to find a balance to ensure that we start shifting to more pay-go."
Earlier this year the state had projected that it would exceed its statutory debt cap in fiscal 2013 but the conversion to pay as you go would prevent that, according to budget documents. Anglin said the change was proposed for the fiscal 2011 budget rather the next fiscal year because they wanted to take action closer to when the cap could be reached.
The budget documents acknowledge that disruption in the bond markets have made competitive deals "difficult to execute reliably" but the state does not plan to scale back on its goal of selling 25% of its debt competitively.
Annual state-backed debt service in fiscal 2010 would rise to $5.8 billion, a 10% increase as the state's outstanding debt rises by $2.6 billion to $54.2 billion.
The state projected its personal income tax coverage ratio will fall nearly in half to 3.7 times in fiscal 2014, compared to 6.6 times in the current fiscal year.
Paterson released his budget proposal five weeks early with the hope that the Legislature will pass a budget before the beginning of the fiscal year on April 1.