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November 26, 2002

Report: How state made this year's spending increase possible makes the case for spending restraint next year

How the state created the current state budget offers a strong case for spending restraint in dealing with the state's current fiscal challenge - because only spending restraint in previous years made this year's $5 billion spending increase possible, the latest state budget analysis by The Public Policy Institute of New York State shows.

"A big increase in spending was possible this year, despite a decline in revenues, only because Governor Pataki insisted on building up $6 billion in surpluses during the boom years of 1998 through 2000," according to "Fiscal Update: The State Budget Shows Why Spending Restraint Is a Good Thing." The report, which The Institute released Nov. 26, is the latest in The Institute's Budget Watch '03 series. The new report is posted at www.ppinys.org/budget/budget_watch_03_issue6_fiscal.pdf.

State legislators, who are subject to a wider variety of spending constituencies than the Governor, typically seek to spend more than the Governor proposes each year, the report noted.

"When the economy is strong, that's not necessarily a problem," the report said. "But when the state enters a recession, or even periods of slower growth, spending every dollar we think we have can create enormous budget gaps. Those, typically, are then ascribed to 'revenue shortfalls.'

"The truth is, however, that if you spend more than you have, your problem is spending, not revenues."

This year's 6 percent increase in the state budget is only part of the spending picture, the report noted, because the state will spend some $1.2 billion this year through Health Care Reform Act of 1996 (HCRA) - an increase of several hundred million dollars. Those accounts are entirely outside the state financial plan, the report said.

The report noted that the state Division of the Budget has reportedly asked heads of state agencies to prepare budget requests that are 5 to 10 percent below current year's spending levels. "But agency operations represent only 20 percent of all state-funds spending (i.e., not counting federal aid) this year," the report noted.

"To find real savings, Albany will have to look at the two-thirds or so of spending that goes to 'local assistance' - starting with the truly big items, Medicaid and school said," the report said.

The report also noted that Governor Pataki and the state Legislature eliminated a similar budget gap in 1995 while cutting taxes.

The Institute, the research affiliate of The Business Council, launched Budget Watch '03 earlier this month to focus attention on spending issues that are at the root of the state's looming fiscal challenge. If the state had held overall state-funds spending to the rate of inflation over the last five years, the state could have saved $7.9 billion.

Reports in the series will be issued once or twice a week as the state budget debate unfolds. They can all be accessed from www.ppinys.org/bwatch03.htm.