Comments on Governor’s Budget Address on January 18th, 2005
Joan Scheuer 1/22/05 


On Tuesday, January 18th. Governor Pataki delivered yet another canny budget proposal that purports to offer fiscal savings, property tax relief and comprehensive reform in the fields of health and education. Politically, the proposal pits two powerful constituencies representing health and education against each other. It fans upstate versus downstate rivalry by restricting aid for New York City while targeting help to upstate cities and counties. It disappoints hopeful policy advocates as Transportation and the MTA get short shrift and the looming appropriation required in FY 2006 to meet the demands of the successful lawsuit brought by the Campaign for Fiscal Equity (CFE) receives only a reformulation of recommendations made last year by the Governor’s own Zarb Commission – recommendations that were largely rejected by the Court and the Special Masters appointed to help the Court resolve the case. 

Hovering over the Governor’s proposals is the question of which level of government is responsible for correcting educational inequities that have accumulated for decades and for containing costs while restructuring Medicaid. Referring to education funding reform, Governor Pataki says: “You and I know that we didn’t need a court to tell us that the school funding formula was broken and unfair.” Yet how to assign responsibility for the solution is still at issue. He continues to call for more help in the form of federal aid and to make additional grants to local school districts dependent on demonstrable cuts in costs. The Governor implies that New York City should contribute to the solution of the problem. Mayor Bloomberg insists that it is the state’s school funding formula not the City’s delivery of educational services that the court held in need of repair. He has continued to resist any suggestion that the city’s contribution to school aid should be raised. 

The Governor’s treatment of school aid illustrates his political acumen. He describes the proposed statewide increase in school aid, $526 million as the highest ever, as indeed it is, but does not explain that much of the increase is driven by unavoidable built-in costs that existing formulas would generate for school districts in the coming year if no changes whatever were made in the aid formulas. Of the proposed $526 million statewide increase in school aid, $201 million is assigned to consolidate operating aids called, as in last year’s proposal, “Flex Aid”. Flex Aid would be protected by built-in save-harmless provisions. The remaining $325 million “will be targeted to our 5-year Sound Basic Education Aid.” nearly 86 percent of which is for 207 of the neediest districts in the state, among them, New York City. New York City will receive 60 percent of total SBE aid or $195 million in Sound Basic Education Aid, permitting the Governor to announce that the measure will help realize his long-time goal of “replacing our archaic school aid formula with a statewide solution that will provide every child with a quality education.” But, although labeling his program “SBE” to reflect CFE’s demand for a Sound Basic Education for every child, the Governor is far from meeting the required aid increase called for in the CFE decision: $ 1.4 billion for New York City in 2006 alone. The Governor’s proposed increase of $195 million as part of a new “SBE” aid for New York City simply flies in the face Court of Appeals decision.  

Moving on to higher education, the Governor announces that this year’s budget will continue his record of strong support for SUNY and CUNY with new investments in operating aid and capital programs. However, the proposed $500 increase in student tuition is not referred to in the speech.  

The new budget purports to offer property tax relief to local governments but, for the downstate area, Medicaid relief is tied to scarcely attainable containment of costs. Chief among these is the Governor’s proposal for reducing local city and county governments’ responsibility for Medicaid costs. The plan caps local government Medicare expenditures at a maximum growth rate of 3.5 percent beginning in 2006, lowering the rate to 3 percent by 2008 when the full cost of Medicaid costs would be assumed by the state. Rather than simply shifting the cost of Medicaid to the state, the Governor hopes to enforce cost savings at the local level and restructure the delivery of health care services. He expects that caps on expenditures will encourage better use of facilities and create a more accessible and flexible system, suggesting more options in long-term nursing care and home-care alternatives. To implement the plan, he proposes incentives: a new tax reduction program called Co-STAR. It offers a direct property tax rebate to taxpayers in eligible counties (those in which government expenditure growth has been held to 3.5 percent in 2006 and 3 percent thereafter. In 2006 the plan will apply only to senior and farmers). It is assumed that counties will be able to control spending – savings of half of a billion dollars are cited. But caps on growth of this magnitude are hardly realistic in this down-state area where hospitals are already failing and services and jobs have already been drastically reduced. There is no mention of adjustments for regional costs. The notion of tax rebates depending on significant cuts in health care may be both a chimera and yet another source of political division between regions of the state, as well as between taxpayers and local government officials. 

Supplementing the incentives for reducing the costs (and perhaps services) of Medicaid, a new aid, AIM (Incentives for Municipalities) is proposed, providing new state funds to cities, town and villages that have balanced budgets and have held spending growth below 3.5 percent in 2006 and below 3 percent by 2008. School boards will be pressured to restrain costs under the Co-Star program, thereby strengthening the hands of taxpayer groups as they mobilize to defeat school budgets. If they meet the caps, some distressed governments will get welcome grants: $38.5 million to Buffalo, $27 million to Yonkers, $18 million to Rochester and $16 million to Syracuse. New York City is not included in this program. Other relief plans include repeal of the Wicks Law, and “necessary reforms in the state pension system”. 

In this budget, the Governor directs no criticism to the legislature that last year failed to offer any solution for restructuring educational aid or facilitating the state takeover of Medicaid. A recent Court of Appeals decision has limited the ability of the legislature to alter the Governor’s budget to a take it or leave it response. They are not permitted to alter or adjust even the wording of the Governor’s budget proposals. So we can anticipate a season of holdout by legislators in both parties. If and when the budget is approved, local government officials will carry the burden of citizen controversy. Much of the Governor’s proposed tax relief is dependent on local fiscal restraint – in effect he calls for local officials to enforce Spartan reductions in staffing and services. Rather than setting the stage for extended legislative debate, for legislative hearings at which unions, health professionals, teachers, parents, citizens groups of all kinds slug it out in Albany, taxpayers’ displeasure may be redirected at local governments. Local Mayors, school boards and county officials will take the heat rather the state leadership and the legislative representatives who are basically responsible for supplying the services that are traditionally supported in state budgets and called for in the state constitution.