NEWS

For Immediate Release – December 20, 2010

Media contact: Heather Trela – (518) 443-5831 / trelah@rockinst.org

New York State Faces A Clear Choice Between Fiscal Reform and
Growing Budget Crises, Report Says

Study points to international trend for budget accountability and transparency; warns
New York may suffer if it does not follow suit

Albany, N.Y. — New York lawmakers must act to reverse years of structural budget
imbalances created by repeated fiscal gimmickry, or risk even worse financial crises
and damage to essential services in the years ahead, according to a new report from
the Rockefeller Institute of Government.

Hidden in Plain Sight: New York’s Unbalanced Budgets, written by Senior Fellow Carol
O’Cleireacain, reviews the 2010-11 state budget and the practices that have led to
current gaps. It also highlights an international trend toward fiscal accountability
mechanisms that force attention to the long-term implications of current budget
practices – “an area of ongoing failure in New York,” according to the report.

The report is the last in a series of papers produced as part of Lieutenant Governor
Richard Ravitch’s initiative to develop proposals that would lead New York State to
structural budget balance.

“The budget process described in this report is not a story of heroes and villains,”
Lieutenant Governor Ravitch said. “Instead, it is a case study in the political and fiscal
urgency of the fact that the expenditures of many American states are rising faster than
their recurring revenues. This structural budget imbalance in the states is a problem of
the greatest importance, and I hope it will begin to receive the national attention that it
deserves.”

The new report notes that New York State law does not require the entire budget be
balanced – only that revenues match expenditures in the General Fund, now around 40
percent of annual receipts and expenditures. Accepted practice at the Capitol allows a
variety of financial maneuvers that satisfy the short-term goal of patching up budget
problems, while allowing gaps to be carried forward. As such gaps are rolled over in this
“deficit shuffle,” they often grow – creating a larger threat to the maintenance of critical
services such as education and transportation.

“New York has chosen to roll the deficit from one year to the next for the past two
years,” O’Cleireacain writes. “Without intervention, such will again be the case on April
1, 2011.”

Throughout the past year, Lieutenant Governor Ravitch issued a series of budget
process and policy recommendations to bring the state to long-term structural budgetary
balance. His first report, issued in March, called for process reforms including new
requirements for adoption and maintenance of balanced budgets, a multiyear financial
planning process that would require ongoing balance, new accounting rules that would
force formal recognition of expenses when they are incurred rather than in future years,
and the creation of an independent monitoring board to certify adherence to the more
disciplined process.

“In many ways, the Lieutenant Governor’s proposal was ahead of its time,”
O’Cleireacain writes. “A similar approach in the future may well benefit from this year’s
exercise.”

In countries around the world, longstanding fiscal challenges and financial crises in
recent years have prompted leaders to adopt strict new budget processes that force
attention to longer-term implications of current policy decisions, according to the report.
O’Cleireacain points to examples such as Canada, the Netherlands, the United
Kingdom, Ireland and Chile. Leaders in those locations have adopted new
accountability mechanisms to reduce the possibility of extreme shortfalls that could
block governments’ ability to maintain normal financial activity, she writes.

“The global financial crisis has shown us the catastrophic failures that occur when
liquidity dries up,” she writes. “It has produced a move towards greater discipline,
regulation, and transparency in a wide range of our public and private institutions. The
state of New York cannot risk being left behind. Capital markets are unforgiving in their
judgments, which they provide with little warning.”

Other reports in the Ravitch project have examined gubernatorial powers to address
midyear budget shortfalls, Medicaid expenditures, transportation infrastructure, and the
cost of health benefits for public employees and retirees. Those, and O’Cleireacain’s
new report, are available at www.rockinst.org.

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About the Rockefeller Institute of Government

The Nelson A. Rockefeller Institute of Government, at the University at Albany, is the public policy
research arm of the State University of New York. The Institute conducts fiscal and programmatic
research on American state and local governments. Journalists can find useful information on the
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The Nelson A. Rockefeller Institute of Government

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