Enacted New York State budget seeks shields from coronavirus revenue hits
New York lawmakers approved a state budget Thursday with mechanisms for spending reductions throughout the year because of the economic headwinds caused by the COVID-19 pandemic.
The adopted $177 billion budget includes an initial $95.8 billion of state operating spending, $10 billion less than Gov. Andrew Cuomo’s January proposal.
The fiscal plan enables flexibility to spend up $105.8 billion in the event of a faster economic recovery or additional federal assistance while also empowering the Cuomo administration to make necessary cuts throughout the year.
“There is no budget in the history of the state where the governor has as much control as this one,” said Jerry Kremer, president of Empire Government Strategies and a former New York assemblyman. “This is a turbulent time where there is no room for raids or no room for one-shot revenues anymore and that shows how dire things are.”
Andrew Rein, president of the independent Citizens Budget Commission, said in a statement that while financial uncertainties may necessitate ongoing budget revisions, but noted concerns about how the process will work. The approved modification measure requires the Division of Budget to notify the legislature of a 1% revenue shortfall or over-spending with the DOB then empowered to make cuts if lawmakers don’t form a plan within 10 days.
“Flexibility and speed are necessary at this time, but this authority should not be used to employ unwise fiscal maneuvers,” Rein said. “The Legislature should generate its own contingency plans as soon as possible, so that it can productively respond within the 10-day period if it so chooses.”
New York State was already facing an estimated $6.1 billion budget gap even before the COVID-19 shockwaves. The Division of Budget is now projecting a $15 billion deficit from revenue losses after the fast-spreading virus forced many businesses to shut down operations.
Before the coronavirus, New York's main fiscal challenge was a $4 billion rise in Medicaid expenses. The finalized budget reduces Medicaid spending to hospitals by $300 million after Cuomo initially sought a $400 million cut. The state is expecting up to $4.5 billon in federal aid for Medicaid in the 2021 fiscal year.
In addition to mechanisms for controlled spending, the enacted budget also authorizes $8 billion in short-term borrowing and access for a $3 billion line of credit to combat an expected loss of liquidity stemming from an extension of the tax-filing deadline to July 15 from April 15. The bond obligations will be due at the end of the fiscal year on March 31, 2021 and could be extended.
Rein said that short-term bonding is “reasonable,” but also noted the importance of not extending the deadline past 2021 or repaying the obligations with long-term debt.
“Using long-term debt for operating purposes obligates future generations of New Yorkers to pay for today’s services and needs,” Rein said. “This should only be done as a last resort."
New York’s general obligation bonds are rated Aa1 by Moody’s and AA-plus by S&P Global Ratings, Fitch Ratings and Kroll Bond Rating Agency. Moody’s Wednesday revised the Empire State’s rating outlook to negative from stable citing potential negative economic impacts from COVID-19.