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June 2, 2004

Proposed budget 'reform' would lead to higher spending and taxes, analyst says

A proposed Constitutional amendment approved by both houses of the Legislature, making significant changes in the state budget process, would shift power from the governor to the Legislature and ultimately result in higher spending and taxes, according to independent budget expert E.J. McMahon.

"The constitutional and statutory changes sought by the Senate and Assembly would mark a fundamental shift of power in the state Capitol," McMahon, senior fellow for tax and budgetary studies at the Manhattan Institute, wrote in a new analysis.

"For the first time since the late 1920s," he said, "New York's Legislature would ultimately have the upper hand in budget disputes with the governor. The result would be less fiscal discipline, higher spending and higher taxes."

Acting to address concerns about late state budgets, the Senate and Assembly are considering changes to both the State Finance Law and the state Constitution.

The proposed Constitutional amendment, approved with overwhelming support from both parties in each house, would enact the most significant changes to New York State's budget-making process since Governor Al Smith championed creation of the Executive Budget process in the 1920s.

The Constitutional process instituted by Governor Smith, with bipartisan support from former Governor Charles Evans Hughes and others, gives the governor the initiative in the budget process as one means of focusing accountability for the state's fiscal practices. The Legislature cannot initiate budget bills until both houses have acted on those submitted by the governor with the Executive Budget. In addition, the governor can veto any additions to his proposed budget, subject to two-thirds override votes by both the Senate and Assembly.

Under the proposed amendment, if the Legislature has not acted on the budget by the start of the fiscal year, a contingency budget based on the previous year's plan would take effect. Budget bills that had been proposed by the governor would become moot, except those dealing with debt service and related expenditures. Instead, the Legislature could initiate its own multi-appropriation budget bill. The governor's power to veto elements of such a bill would be eliminated for provisions that implement the contingency budget.

The proposed amendment limits spending under the contingency budget to the amount of spending in the previous year. It allows statutory exceptions to such limits. Under the proposed statutory changes envisioned by the Legislature, exceptions to the spending limit would include school aid, welfare payments, state employee health and pension benefit costs, and debt service.

The Senate has approved the legislation that would implement those exceptions to the spending cap, along with other changes to the budget process. The Assembly has not acted on the legislation, reportedly because the powerful hospital-workers union Local 1199 complained that the exceptions to the spending cap do not include Medicaid.

The proposed changes also include creating two-year appropriations for school aid.

Such a change would "deprive the governor of significant negotiating leverage and is likely to result in significantly higher school aid spending," McMahon said.

A contingency budget could be a good idea if it included no exceptions to prior-year spending limits and preserved governors' existing prerogatives over the budget, McMahon said.

He suggested two other Constitutional reforms. One would cap the annual growth in most state-funds spending (not including federal aid) to the rate of inflation plus population growth. The second would reform the state's borrowing practices, including a tighter limit on debt.

Any changes to the state Constitution would require approval by two separately elected Legislatures, and then by the voters of the state.