Report on the State Fiscal Year 2017-18 Executive Budget February 2017 Message from the Comptroller February 2017 This year’s Executive Budget contains important new proposals including tuition-free access to higher education for thousands of additional students, and increased investment in clean water for New Yorkers. It would also boost investments for school aid, health care and capital projects. The Budget would reduce projected out-year budget gaps because of a proposed extension of the higher tax rate on upper-income earners and other actions, while also proposing significant new authorizations for borrowing. The $162.2 billion proposal comes at a time of significant risk involving the federal budget. It would rely on $54.3 billion in federal assistance, or one of every three dollars in total. Those resources help the State pay for essential investments in human services, transportation, education, environment and especially in health care. Federal Medicaid support has increased by billions of dollars as a result of the Affordable Care Act and other policy changes, and is projected to rise another $3.3 billion over the next four years. The current budget debate in Washington threatens much of that funding. Partly in response to such risk, proposed appropriations for school aid, Medicaid and numerous other local assistance programs would authorize the Director of the Budget to reduce available funds during the fiscal year if revenues – including but not only federal funds – are lower than projected. While the Executive historically has had certain powers to limit spending, this new proposal would extend such authority considerably. Other proposals would broadly authorize shifts of funds among State agencies and public authorities and between programs, further increasing the Executive’s ability to change the Budget after it has been approved by the Legislature. Such measures and certain others in the proposed Budget raise issues regarding checks and balances over key decisions on the use of the public’s dollars, the level of transparency and independent oversight associated with those choices, and the State’s accountability to taxpayers and stakeholders. As always, the level of funding provided for essential programs will be part of the budget debate in Albany this year. Each of these issues deserves close scrutiny and careful consideration. Thomas P. DiNapoli State Comptroller Table of Contents I. EXECUTIVE SUMMARY ....................................................................................................... 1 II. FINANCIAL PLAN OVERVIEW ........................................................................................... 4 State Fiscal Year 2016-17 ............................................................................................................. 4 State Fiscal Year 2017-18 ............................................................................................................. 6 Structural Imbalance .................................................................................................................... 10 Non-Recurring and Temporary Resources .................................................................................. 14 Settlements .................................................................................................................................. 14 Reserves ...................................................................................................................................... 16 Risks to the Financial Plan .......................................................................................................... 17 Transparency, Accountability and Oversight Issues ................................................................... 18 III. ECONOMY AND REVENUE ............................................................................................. 25 Economic Outlook ........................................................................................................................ 25 Revenue ...................................................................................................................................... 27 IV. DEBT AND CAPITAL ....................................................................................................... 35 Debt Outstanding and Debt Service ............................................................................................ 36 Capital Program and Financing Plan ........................................................................................... 40 New Debt Authorizations ............................................................................................................. 42 Debt Management and Potential Savings ................................................................................... 43 Dedicated Infrastructure and Investment Fund ........................................................................... 45 V. PROGRAM AREA HIGHLIGHTS ...................................................................................... 47 Education ..................................................................................................................................... 47 Higher Education ......................................................................................................................... 50 Health/Medicaid ........................................................................................................................... 52 Mental Hygiene ............................................................................................................................ 58 Human Services / Labor .............................................................................................................. 60 Transportation .............................................................................................................................. 62 Economic Development ............................................................................................................... 67 Housing ........................................................................................................................................ 70 Environment and Parks ............................................................................................................... 72 Agriculture .................................................................................................................................... 74 Energy.......................................................................................................................................... 75 Public Protection / Criminal Justice ............................................................................................. 76 Lottery and Gambling .................................................................................................................. 78 State Workforce ........................................................................................................................... 79 General State Charges ................................................................................................................ 80 Local Governments ...................................................................................................................... 82 New York City .............................................................................................................................. 84 Metropolitan Transportation Authority ......................................................................................... 85 Public Authorities ......................................................................................................................... 86 Other Issues ................................................................................................................................ 91 VI. APPENDICES................................................................................................................... 94 Appendix A: Multiyear Gap-Closing Plan ................................................................................... 94 Appendix B: Capital Spending Plan Comparison ....................................................................... 95 I. Executive Summary The State Fiscal Year (SFY) 2017-18 Executive Budget proposes new investments in education, higher education, Medicaid and certain other program areas while limiting growth in the costs of State agency operations. Capital investments in areas such as economic development, environmental protection and health would also increase. The Budget projects total All Funds spending of $162.2 billion in SFY 2017-18, up 3.8 percent from the current year. These figures include federal aid associated with the Affordable Care Act and disaster-related assistance, which the Division of the Budget (DOB) excludes from its primary presentation of $152.3 billion in All Funds spending. All Funds revenues in the coming year are projected at $160.4 billion, an increase of 4.4 percent. Although DOB has reduced its estimates of current-year tax receipts, it expects such revenues to rise by $4.2 billion or 5.6 percent in SFY 2017-18, in part because of the Executive’s proposal to extend a higher personal income tax (PIT) rate for upper-income earners for three years. Federal aid is projected to rise by $1.4 billion or 2.6 percent in the coming year and by an additional $3 billion over the following two years. Compared to DOB’s November 2016 revenue estimates, the Executive Budget reduces projections