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AUGUST 1998

State's long-term deficit is finally gone, Comptroller McCall says

For the first time since New York State adopted accrual-basis accounting standards in 1983, the state has ended a fiscal year with an accumulated surplus.

The 1997-98 budget year ended with a General Fund operating surplus of $1.56 billion, thanks to higher-than-projected tax revenues from continuing economic growth, according to a new report from state Comptroller H. Carl McCall.

The state's accumulated deficit was $3.3 billion in January 1995, as a result of over two decades in which state officials incurred bills for school aid and other costs in one fiscal year and shifted payment into later years.

"We have reached yet another milestone on our historic march back toward fiscal health and stability," said Governor Pataki. "We continue to turn crisis into comeback."

Comptroller McCall warned that elimination of the accumulated deficit was made possible by shifting $4.4 billion of short-term borrowing into long-term debt from 1991 through 1995.

New York's debt burden continues to grow in this year's budget, according to his review of the 1998-99 fiscal plan.

"Although the state will likely end this fiscal year with a surplus of over $1 billion, the budget made no attempt to reduce the use of debt or create real reserve funds to deal with looming future budget gaps," he said.

"In a way, the surplus is a result of borrowing, because it is only made possible because much of the state's capital spending is being financed with debt."

Debt service will rise an estimated 40 percent, to $4.5 billion annually, by the end of the state's five-year capital plan, the Comptroller said.

The proportion of nonfederal capital spending financed with cash will drop sharply, from about 37 percent to less than 20 percent, the report said.

The Comptroller's report notes that the tax reductions enacted this year will bring the total of tax cuts adopted since 1994 to $11.7 billion as of the 2001-02 fiscal year.

Several major cuts in business and other taxes were adopted this year, including a drop in the corporate income tax rate from 9.0 to 7.5 percent which will be fully effective in 2002.

School aid rises a record $851 million under the new budget, the Comptroller's report said. It added: "Unfortunately, the budget contains no reforms aimed at helping school districts to be more cost-effective or efficient. For example, the complex and inefficient maze of school aid formulas is left in place, including 'spend-to-get' formulas which reward spending increases and penalize efficiencies."

August 6, 1998