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Zack Hutchins
Director of Communications

August 8, 2005

Budget Division warns proposed Constitutional amendment could 'disrupt' state finances

A proposed state Constitutional amendment on this November's statewide ballot could disrupt state finances ”and force a return to costly borrowing practices that were eliminated through fiscal reforms in the early 1990s, the state Division of the Budget says in its latest fiscal update.

The Legislature placed on this year's ballot a proposed amendment that would shift significant budget power from the governor to the Legislature in any year that the financial plan is not enacted on time. The Business Council strongly opposes the measure.

Accompanying statutory changes enacted by the Legislature would move the start of the state fiscal year from April 1 to May 1.

In its first quarterly update to the state's 2005-06 financial plan, the Budget Division included the proposed amendment and accompanying legislation among several "risks" to implementation of a balanced budget this year.

"DOB believes the amendment, if enacted, could present a number of substantive and technical problems that have the potential to disrupt State finances," the report says. "For example, moving the start of the State's fiscal year from April 1 to May 1 results in the State ending the fiscal year on a volatile revenue month, increasing the risk of year-end shortfalls. In addition, starting the fiscal year on May 1 may potentially require the State to issue short-term notes ("seasonal borrowing") to support General Fund cash disbursements in the first quarter of the fiscal year, since May disbursements typically exceed May receipts by $2 billion to $3 billion. The State eliminated the practice of seasonal borrowing in the early 1990s through LGAC and is limited by existing law and bond covenants from returning to similar borrowing in the future."

The division plans to publish a more complete analysis of the proposed amendment within the next several weeks.

The Business Council's Board of Directors voted in May to oppose the proposed amendment. Business Council President Daniel B. Walsh said the amendment "would reward legislators for refusing to enact an on-time budget," and would lead to even higher spending, taxes and debt.

Another risk to this year's financial plan is a series of federal Medicaid audits that could force the state to return more than $600 million in aid for speech-pathology and transportation services, the Budget Division reported.

The federal agency that oversees Medicaid, the Centers for Medicare and Medicaid Services, has not made a final decision on its auditors' recommendations. However, the agency is "deferring" some other Medicaid reimbursement to New York pending completion of its review. The state is disputing the auditors' findings. Speech-pathology and transportation services were among those identified as subject to widespread abuse in a recent New York Times series on the state's Medicaid spending.

In its quarterly update, the Budget Division also said spending on Medicaid and other health programs will rise an estimated $186 million more than expected earlier this year.

"Continued strong utilization, medical price increases, and refinements to
the Enacted Budget forecast account for the upward revisions," the Budget Division said.

But higher-than-expected revenues produced by strong economic growth will leave the state with an improved bottom line at the end of 2005-06 and modestly reduced budget gaps projected for the next two years. The Budget Division now preducts gaps of $2.9 billion in 2006-07 and $3.9 billion the following year.