New York state”™s current $4 billion deficit could balloon to as much as $38 billion by 2013 if current trends continue.
That was the sobering news delivered last week by state Comptroller Thomas P. DiNapoli who added that “the state needs to get its financial house in order.”
Even more distressing news came from Budget Director Robert L. Megna: “Unless action is taken to address New York”™s current-year budget deficit, our state government is likely to face significant cash-flow difficulties beginning in December.”
It is during December that substantial local assistance payments are scheduled to be made, including $2.5 billion for school tax relief or STAR, $1.6 billion in funding for school districts, $500 million for city governments and $500 million for county governments.
The state might not be able to pay for all those expenditures, Megna said.
“If no corrective action is taken, we will have to begin to make difficult choices about which payments to delay. These delays could create a trickledown effect on local governments and service providers across the state as those organizations continue to face similar cash-flow difficulties of their own. And if revenues further deteriorate beyond current projections, the state”™s cash-flow difficulties may become even more severe.”
In addition, the state”™s fiscal problems could result in a downgrade of its credit rating, which in turn would make it more expensive for the state to borrow.
“California was forced to issue IOUs and saw its credit rating downgraded to BBB ”“ the lowest in the nation and one notch above junk-bond status,” Megna said.
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DiNapoli was hopeful of federal initiatives that are being formulated in Washington, D.C., “but there will be cutbacks in spending that are going to hurt.”
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Gov. David Paterson has proposed a two-year, $5 billion across-the-board deficit reduction plan. He, like DiNapoli, said cooperation by state lawmakers was needed.
The comptroller is barnstorming the state highlighting its financial condition and the imbalances in the budget structure.
Di Napoli told business owners in Orange County that the county has the ignominious distinction of having the highest foreclosure rate in the state: one out of every 208 homes is currently on the auction block.
“That”™s a sign of how hard the recession has hit this county in particular and the Hudson Valley in general,” DiNapoli said of his report on the county that he released last week.
“While we have seen some encouraging investments in transportation infrastructure, we will still need to create more jobs and end the slide in home prices to restore growth to the area.”
“There is better news in Westchester and Putnam counties about housing sales, but we are facing a tough time to come. Signs that the stock market is rebounding may be a good indicator,” DiNapoli said, “but because Wall Street is doing well, it does not mean Main Street is doing well.”  ?With Wall Street and the financial markets comprising 20 percent of the state”™s revenues, those markets cannot be depended upon as the state”™s primary source of income, DiNapoli said. The state is now faced with having to dip into the General Fund.
“We are $620 million below the financial plan … the Division of Budget keeps lowering its projections, and every time we adjust the numbers downwards, we are coming in even lower.”
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DiNapoli did not mince words about the budget or those who put it together.
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“Halfway through the financial year, the state is running out of money. Is this a smart way to govern? Not really. It is better to give realistic numbers up front rather than telling people we are running out of money. Small businesses and nonprofits are struggling as we face the reality: we cannot rely on the financial industry as the state”™s economic engine. It is not going to come back anytime soon, if it all, to the level it was a few years ago.”
DiNapoli called for a more transparent system, where both business and nonprofits could give the state input and make the bureaucracy less burdensome.
“These cuts are tough; we need everyone to participate.”
He said one big problem is the date, April 1, that the state budget is due.
“It is unrealistic, since the state does not really know where it stands financially until April 15, when tax revenues start coming in.”
DiNapoli called for the state to create a two-year spending plan to be better prepared for the future. Connecticut and many other states have two-year budgets.
In a veiled reference to the three-men-in-a-room procedure of determining the state budget, he said, “we also need to go back to legislative conference committees. These are open to the press, and the public can find out what”™s going on … it is a more open, honest forum.”
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In closing the budget gap, DiNapoli said the state has already cut $1.8 billion through agency reductions. Those cuts include $1.3 billion to local municipalities.
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“The debate has already started on what cuts make sense and what ones do not. The budget was based on the premise that the recovery would be faster than it is has been,” he said.
DiNapoli”™s report found that the greater Orange County metropolitan area, which includes Poughkeepsie, Newburgh, and Middletown, experienced “an impressive growth rate” from 2000-08, adding 11,250 jobs during that period in the educational and health services sectors. Unemployment, however, rose by nearly 3 percent during the first nine months of this year.
DiNapoli said his office expects to complete its audit of all school districts and BOCES within the state by March 2010.
An audit of the New York State Health Insurance Plan found between $479 million to $600 million in excess reserves “that could translate into taxpayer savings,” he said.
“Health care and education is where the state does most of its spending … and Medicaid fraud is an area where we need to be especially vigilant. We have identified close to $30 million where we can save in Medicaid. At a time when we are making cuts, we need to tighten up to do a better job,” DiNapoli said.
The state is currently working with the Department of Health on a new software program that will catch abuses in Medicaid more easily.
