Having not yet reached an agreement with New York State lawmakers on a multiyear gap closing plan, Gov. Mario M. Cuomo yesterday instead proposed a plan just to close a now projected $875 million fiscal 1992 budget gap through spending cuts and a $95 million deficit note sale, with no new taxes.
Under the plan, local governments around the state will have to brace themselves for even further cuts in state aid. New York City, for example, is now facing at least a $110 million gap in its 1992 budget, which began July 1, a city official said yesterday. The city recently proposed a plan to close a $210 million gap.
The governor's spending reduction plan is expected to yield $780 million in fiscal 1992, which began April 1, with the note sale filling the rest of the gap. The budget division has re-estimated the fiscal 1992 gap to be $875 million from the $689 million projected in late October, mainly because of higher than expected Medicaid spending.
Gov. Cuomo also asked legislative leaders to call back their members to a special session this week to work on his gap closing proposals or devise their own plans. This is a holiday week, however, and it may be unlikely that lawmakers, enjoying their Thanksgiving dinner, will trek to the state capital in Albany.
While admitting the state has made its share of budget mistakes, Gov. Cuomo again blamed the national recession as the main culprit for budget gaps cropping up in New York and other states.
Although state lawmakers have been mulling a proposal to close the fiscal 1992 gap and a projected $3.6 billion budget gap in fiscal 1993, Gov. Cuomo concluded that an agreement on the plan with the Legislature cannot be reached in a timely manner.
"I regret that we have not been able to agree on the details of implementation of the accelerated budget approach that all parties know would be the most intelligent approach to our fiscal challenge," Gov. Cuomo said in a statement.
"I suspect that achieving budgetary balance through a deficit reduction plan and again through another budget-making process next year will prove twice as difficult, but I am left with no choice but to insist that we deal separately with the immediate problem," he added.
Assembly Speaker Mel Miller, D-Brooklyn, said he regrets the failure of the negotiations on a multi-year plan that would have outlined a plan covering 16 months.
And while acknowledging that there can be no "sacred cows" in the deficit reduction plan, Mr. Miller said the budget cannot be balanced by cutting into spending programs for the elderly and poor.
He said he asked the Assembly's Ways and Means Committee to review Gov. Cuomo's plan so that he can begin consulting with members of the Assembly.
Senate Majority Leader Ralph Marino, R-Muttontown, said the state "desperately needs direction" but that the governor's plan falls short of "charting a new course by failing to address the explosion of Medicaid and social welfare spending."
He said he would not agree to any deficit reduction plan that cuts "our schools and raises local property taxes in order to pay for uncontrolled growth in Medicaid and other social programs."
The proposed deficit note sale of $95 million, which marks the fourth consecutive year the state has resorted to such a borrowing, is much smaller than what some observers thought would be needed.
Bond raters have warned Albany that deficit borrowing could damage the state's already precarious fiscal condition and may lead to a downgrading of its GO rating. The size of the proposed note issue seems to indicate Gov. Cuomo took these warning seriously.
"The amount [of the note sale] is fairly insignificant," said Vladimir Stadnyk, a managing director with Standard & Poor's Corp. Based on his discussions with budget officials yesterday, the state may even choose to borrow instead from its short-term investment pool rather than tap the public markets, he said.
But Mr. Stadnyk warned that the state's ratings would be jeopardized if Gov. Cuomo and lawmakers do not implement long term budget solutions. One way to cause a drop in ratings would be to dramatically increase the size of the note sale, he said. Standard & Poor's rates the state's bonds A with a negative outlook.
To that end, the agency said in a statement, the deficit reduction plan proposed by Gov. Cuomo "lays a foundation for expenditure curtailment, not only for fiscal 1992 but also for fiscal 1993 and beyond." If the plan is adopted and in effect for all fiscal 1993, the state could see savings worth $1.4 billion, the agency said.
Only about $270 million of one shot revenue gainers, including the note sale and funds transfers, are included in the plan, an amount Standard & Poor's says is "limited."
George W. Leung, a vice president and managing director with Moody's Investors Service, said, "Gov. Cuomo has addressed some of our concerns."
"We have seen elements of this plan before and they have been shot down by the lawmakers," Mr. Leung said. "The concern we have is whether or not the Legislature will act to approve these plans."
Mr. Leung added, "The clock is ticking as we move closer to the end of the year and the ability of the state to contain the problems to this year is more constrained the later it gets and this is a concern." Moody's rates the state's GOs A.
The bulk of the proposed gap closing plan is being directed at reducing spending and wringing out whatever savings can be found in the fiscal 1992 budget.
Gov. Cuomo proposes garnering $214 million of savings -- through a variety of actions -- in the state's Department of Social Services, including Medicaid and income services.
He also proposes to pare the the state's workforce in fiscal 1992 by 1,500 through attrition, transfers, layoffs, or the elimination of posts currently vacant. To generate an additional $256 million of savings in fiscal 1992, he proposes a 3% reduction in school aid to be distributed among districts based on their size and wealth, but capped at 1.5% of any districts budget.
In fiscal 1993, Gov. Cuomo is calling for cutting the payroll by 6,000 jobs, with layoffs knocking out about 1,200. When the fiscal 1992 budget was assembled, he included a 10% reduction in the number of state employees, or roughly 18,000.
Turning his sights on state government itself, Gov. Cuomo is also proposing to cut by 3% the budgets of the Executive Chamber, the lieutenant governor, the judiciary, the Legislature, the comptroller, the attorney general, and the division of the budget to yield $36 million in savings. And state lawmakers could see their budget for legislative initiatives cut by 50% to produce $10 million in savings.
