Albany must spend smarter, keep a closer watch on pension obligations and total debt.
That’s what two groups concluded in examining how New York State spends money and runs up debt. They say the state should do better in how it pays for retired workers and infrastructure. That’s because New York State’s fiscal health is “below average” compared to other states, a private group contends.
The Mercatus Center of George Mason University and the Citizens Budget Commission (CBC) criticized New York in recent reports and comments. A Mercatus report gave the state low marks compared to other states in managing OPEB (other post-employment benefits) costs. It said New York State’s long-term capital debt and pension fund obligations are, “too high.” It ranked the Empire State 39th out of 50 states in overall spending health.
“New York State’s fiscal health is below average,” said Olivia Gonzalez, a Mercatus research associate. She also said that New York “ranks 21th for outstanding OPEB liability.”
The criticisms triggered debate over the state’s accounting standards and fiscal health. A budget spokesman for Governor Cuomo disputed the study.
Cuomo spokesman Morris Peters said state debt has been declining for five years because the governor has limited annual state spending increases to two percent.
Still, David Friedfel, director of state studies for CBC, said he believed Mercatus’ numbers generally are creditable, but sometimes debatable. For instance, he said New York’s finances were a little better than 39 out of 50 but agreed the state must improve.
The report, which acknowledged New York had made some progress in reining in OPEB costs, said the state should “go further.”
The report also said that “going by objective financial benchmarks, New York must do a better job of funding its capital expenses on a pay as you go basis and look to innovative development tools such as public private partnerships.” This would “expand capital investment more efficiently without increasing the State’s debt burden.” New York’s long-term debt, how it pays for infrastructure projects, is “too high as a share of income,” Mercatus said.
Peters replied, “I cannot speak to how Mercatus arrived at their numbers but I can say unequivocally that their method is inconsistent with generally accepted principles of public finance.”
Pensions, Gonzalez contended, are another problem but not unique to New York. Her group criticized Kentucky and California for unrealistically optimistic public pension funding assumptions. They rated 47 and 43, respectively.
New York and other states underestimate pension obligations and what investments will generate to pay for them, Gonzalez argued.
But Friedfel says Mercatus’ pension standards are too rigorous and would mean the state would be holding too much taxpayer money. Peters, the Cuomo spokesman, says the state uses generally accepted accounting standards; that its finances are based on rating agencies.
S&P in a recent report gave New York a good review, double AA plus. Its pension actuarial assumptions are “probably better than the average state. We would consider it one of the better funded state pension systems,” said David Hitchcock, an S&P analyst. New York’s debt “slightly declined” over the past five years, he added.
The S&P report also said New York State “debt levels remain moderately high, but New York’s debt ratios are within the range of other states in the Northeastern U.S. New York has consistently adhered to statutory caps on state-supported debt.”
But CBC’s Friedfel warns the state’s debt limit could be reached soon. New York State, if it continues to spend at the same pace, could come within about $100 million of its legal state debt limit. Friedfel cited recent state numbers.
“It is possible, if the economy were to go into recession and the state continues spending at this pace,” Friedfel said, “that it could reach its debt limit in a few years.”
The governor’s FY2018 quarterly update, published earlier this month said, “Based on the most recent personal income and debt outstanding forecasts, the available room under the debt outstanding cap is expected to decline from $6.1 billion in FY 2017 to about $82 million in FY2021.”
State Cash Reserve Is Declining, Top State Financial Official Says
New York State Comptroller Thomas DiNapoli says “the State’s budgetary cushion is shrinking.” The latest budget “projects that the General Fund balance will be one-third lower at the end of the current fiscal year than its recent peak two years previously.”
DiNapoli, in a budget document last month, also said the fiscal year 2018 budget relies too much on temporary income, such as the state’s recent $10 billion lawsuit settlement with the banks.
“This year’s Financial Plan relies in part on more than $4.8 billion in temporary and nonrecurring resources (excluding federal aid),” DiNapoli wrote. “The continuing use of such temporary resources show that more progress is needed to put the State on a strong financial footing for the longer term.”
He says how these one-time funds are used is important.
“The State is also using settlement funds for cash flow and debt management purposes that are presented as temporary in nature,” DiNapoli wrote. “The flexibility of these resources and their use for ongoing purposes may obscure the State’s underlying fiscal position and create uncertainty regarding other commitments.”
DiNapoli also noted that the latest budget had no contribution to the rainy-day fund.
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