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November 2, 2006

Budget director: Holding state spending to inflation would close looming gaps

New York State faces looming budget gaps in the billions of dollars, but holding annual spending increases to the rate of inflation would "pretty much solve the problem," the state's budget director said.

Normal spending growth for Medicaid, education and other programs is projected to drive up Albany's General Fund spending by 6 percent annually over the next four years, Budget Director John Cape said in November 1 remarks at the Rockefeller Institute of Government in Albany. Revenues are expected to grow 4 percent a year, he said. Budget gaps are estimated at $4.5 billion in 2008, and around $7 billion in 2009 and 2010, not counting increases in education or other programs by the next governor.

If each year's budget raised spending only by the rate of inflation, around 3.5 percent, the state would virtually eliminate those gaps, Cape said. And if Albany could manage to keep spending flat, "we'd be rolling in money," he said. The budget director said inflation-level increases would require significant reductions in projected spending, while keeping the budget flat over four years would not be possible because of demand for public services.

The Budget Division's mid-year update, issued October 30, projects Albany will end the current fiscal year with a surplus of $1.1 billion, largely because of higher revenues driven by income and business taxes.

Medicaid, the STAR school-tax rebate program, and aid to public schools are largely responsible for budget gaps expected in future years, Cape said. Including extra rebates that were delivered to homeowners in recent weeks, STAR costs the state $4 billion this year. That will rise to $5 billion in 2010-11, not counting major expansions that gubernatorial candidates Eliot Spitzer and John Faso have proposed.

While STAR eases the tax burden on homeowners, local school-tax levies have continued to rise sharply -- by $3 billion outside New York City in the last four years, Cape said. A "rapid rise" in costs for employee health care and pensions has had "a major impact on levy growth," he said.

Overall Medicaid costs are expected to rise $1.7 billion this year, according to the Budget Division's mid-year report. That represents a smaller increase than in recent years, reflecting more use of managed care and other factors, Cape said. He said the state and localities could do more to investigate potential fraud by "mining" data on Medicaid usage, and pointed to Chemung County as an example for others to follow.

The Budget Division estimates New York's overall employment will rise at slightly more than half the national pace in 2006 and 2007.