State Local Assistance Funding to New York City
After years of financial pressure necessitating various deficit reduction plans, the State Fiscal Year (SFY) 2016 budget will benefit from a one-time windfall of $5.1 billion in settlement revenue from financial institutions for actions related to the 2008 financial crisis. After accounting for the portion already projected for SFY 2016, the budget will have $4.8 billion of settlement resources. As of the mid-year update from the end of October, reflecting the first two quarters of SFY 2015, the State Operating Funds closing balance for SFY 2015 was projected to be $9.3 billion, almost double the SFY 2015 opening balance. Clearly, not all of these funds need to remain in reserve to carry into subsequent state fiscal years. The average opening balance for the four years from SFY 2011 through SFY 2014 was $4.2 billion. If the State continues carrying a State Operating Funds balance at that level, a surplus of $5 billion will roll into SFY 2016.
Due to the surplus, the State is entering a budget process that is different from any that we have seen in recent years; one in which the debate will center on how to allocate additional resources instead of how to address a deficit.
CLOSING THE STATE BUDGET GAPS THROUGH $14 BILLION IN LOCAL ASSISTANCE CUTS
New York State only provides direct services in a few areas, including transportation, parks and recreation, courts and correction. The majority of the State budget takes the form of pass-through funding to localities to provide state and federally mandated services. In recent years, the State has in large part addressed its budget deficits by cutting local assistance. Reductions in local assistance have forced New York City and other localities to use their own dollars to meet these mandates.
Looking at how the State closed its budget gaps in the last five fiscal years – SFY 2011 through SFY 2014 – illustrates that the budget was balanced in large part by local assistance cuts1. Of the cumulative $27.5 billion gap closing measures during those years, over half – $14 billion – was achieved through cuts to local assistance funding. Localities had to absorb reductions to State funding for social services, including Safety Net Assistance (SNA) and shelter subsidies, criminal justice, and transportation funding. The State also reduced its local assistance spending by reducing its Medicaid costs.
Specifically, the State has failed to meet its promise of additional school aid based on the Campaign for Fiscal Equity (CFE) litigation. In SFY 2008, the State committed to phase in CFE funding but ceased the phase-in after two years. Cumulatively, between FY 2008 and FY 2015, the City is $15.1 billion short of CFE funding. The shortfall to the City for the current fiscal year alone is $2.5 billion.
Aside from local assistance cuts, other measures taken by the State to close budget gaps have included reducing state operation costs, capital cost management to reduce debt service, revenue actions such as increased audits and the utilization of non-recurring resources.
1. The State’s Local Assistance account funds grants to localities or State expenses on behalf of localities, contractual payments to localities; advances for reimbursable costs; and certain financial assistance to individuals and non-profit organizations.