ADDITIONAL INFORMATION CONCERNING
NEW YORK MUNICIPAL OBLIGATIONS
The following information is a summary
of certain factors affecting the credit and financial condition of the State of New York (“New York” or the “State”). The sources of payment for New York municipal obligations and the marketability thereof may be affected by
financial or other difficulties experienced by the State and certain of its municipalities and public authorities. This summary does not purport to be a complete description and, with the exception of the last paragraph hereof, is derived solely
from information provided by the State in its Annual Information Statement, dated June 19, 2013, as supplemented as of August 28, 2013 and further supplemented as of October 15, 2013, November 25, 2013 and February 27,
2014. Any estimates of future results and other projections are statements of opinion made by the State in, and as of the date of, such Annual Information Statement and are subject to risks and uncertainties that may cause actual results to differ
materially. None of the funds has independently verified, and the funds are not responsible for, the accuracy, completeness or timeliness of this information, and the funds do not undertake any obligation to update such information. Such information
is included herein without the express authority of any New York issuer and is provided without regard to any events that have occurred since the date of the most recent statement.
ECONOMY
New York is the third most populous state in the nation and has a relatively high level of personal wealth. The State’s economy is
diverse, with a comparatively large share of the nation’s financial activities, information, education, and health services employment, and a very small share of the nation’s farming and mining activity. The State’s location and its
air transport facilities and natural harbors have made it an important link in international commerce. Travel and tourism constitute an important part of the economy. Like the rest of the nation, New York has a declining proportion of its workforce
engaged in manufacturing, and an increasing proportion engaged in service industries.
The National Economy
As of August 28, 2013, the national economy appeared weaker than anticipated in the Enacted Budget forecast completed in April 2013,
due in large part to an unusually large revision to the U.S. Bureau of Economic Analysis (“BEA”) estimate for the first quarter of the 2013 calendar year. Real U.S. Gross Domestic Product (“GDP”) growth for the first quarter of
2013 was revised down by 1.9 percentage points to 1.1 percent, following revised 2012 fourth quarter growth of only 0.1 percent. Virtually every major component of GDP was revised downward—from household spending to inventories—indicating
a bigger impact from the payroll tax hike, a shrinking government sector, and weaker global growth than was reflected in the original estimate. However, the labor market and pent-up demand for autos remain bright spots, while equity and home prices
have continued to advance. Going forward, these factors were expected to offset respective impacts from Federal fiscal policy, supporting the State Division of Budget’s (“DOB”) outlook for much stronger growth in the 2014 calendar
year. As of August 28, 2013, real U.S. GDP growth of 1.7 percent was projected for calendar year 2013, followed by growth of 2.9 percent for calendar year 2014.
Even after the BEA’s most recent downward revision, real household spending grew at 2.3 percent in the first quarter of 2013, the strongest growth since the second quarter of 2012. While the
expiration of the two-year old payroll tax holiday likely depressed spending among low-income households, accelerating equity market prices may have induced higher-income households to spend more. High-income taxpayers may also have felt richer due
to a large shift of taxable income—including dividends and capital gains realizations—from 2013 into late 2012, in advance of rising personal income tax rates at the Federal level. Real consumer spending growth was estimated to have
moderated during the second quarter, but with the impact of tax law changes receding, as
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of August 28, 2013, steady household spending growth was expected for the second half of the calendar year 2013 supported by a gradually improving labor market and rising wealth, with real
spending growth rising to 3 percent by the second quarter of 2014.
Uncertainty surrounding domestic and global demand was
expected to restrain private business spending more than anticipated in the Enacted Budget Financial Plan forecast completed in April 2013. Estimates of real growth in private nonresidential fixed investment had been revised down to 4.1 percent for
2013. Although the euro-zone economies appeared to be stabilizing, the outlook for the emerging market economies was weaker, leading to a downward revision to real U.S. export growth to 1.9 percent for 2013. But with the Federal spending sequester
taking effect more gradually than expected, the U.S. economy was expected to exhibit second-quarter growth of 1.7 percent, 0.2 percent above the April forecast. Growth was still expected to improve in the second half of the year and into 2014, with
real quarterly growth in U.S. GDP remaining above 3 percent for every quarter of next year.
In contrast with weaker output
growth, as of August 28, 2013, the national labor market had been stronger than reflected in the Enacted Budget Financial Plan forecast. The nation’s private sector demonstrated monthly average growth of 195,600 jobs over the first seven
months of calendar year 2013. As a result, an upward revision had been made to employment growth for 2013, while the outlook for wage growth was largely unchanged. Employment growth of 1.7 percent was projected for all of 2013, accompanied by wage
growth of 3.8 percent. Overall, personal income growth of 3.2 percent was projected for 2013, virtually unchanged from the April forecast, with stronger growth in the non-wage components of income offsetting the downward revision to wages. Slightly
stronger employment growth of 1.8 percent was projected for 2014, with personal income and wage growth accelerating to 5.8 percent and 6.2 percent, respectively.
Since the conclusion of the Federal Open Market Committee meeting on June 19, 2013, as of August 28, 2013, expectations as to when the Federal Reserve would start to reduce its long-term asset
purchases had dominated the bond market, resulting in an approximately 40 basis-point increase in the 10-year Treasury yield over the subsequent period. These purchases, commonly known as quantitative easing or QE, had resulted in a near quadrupling
of the size of the central bank’s balance sheet since 2007. As a result, DOB had revised its outlook for the 10-year Treasury yield upward to an average of 2.7 percent for the fourth quarter of 2013. The growth in consumer prices for 2013 had
been revised down to 1.5 percent for 2013, largely due to gasoline price volatility. However, DOB’s overall inflation and monetary policy outlook remained unchanged.
The 16-day Federal government shutdown and the uncertainty engendered by political wrangling in the nation’s capital were expected to reduce growth during the fourth quarter of 2013. In contrast, as
of November 25, 2013, real U.S. export growth had been stronger than anticipated, supporting the possibility that the global economy bottomed out earlier in 2013, while the drag from Federal fiscal policy and the Congressional sequestration was
expected to diminish by early 2014. Equity markets were at record highs and gasoline prices were at near-term lows. Due in part to these factors, the DOB’s outlook for stronger growth in the 2014 calendar year remained unchanged. As of
November 25, 2013, real U.S. GDP growth of 1.5 percent was projected for 2013, followed by growth of 2.4 percent for 2014.
Consistent with weaker domestic final sales growth, as of November 25, 2013, recent employment gains had also been lower than
anticipated in the in the first Quarterly Update to the Annual Information Statement dated August 28, 2013 (“First Quarterly Update”) to the Financial Plan. Private sector job growth had been on a downward trend since the end of 2012,
but that trend accelerated in the third quarter of 2013. Average monthly private sector job gains fell from 212,000 in the first quarter of 2013 to 190,000 jobs in the second quarter and 129,000 in the third quarter. The largest contributors to the
deceleration had been professional and business services and leisure and hospitality. As a result, downward revisions had been made to employment growth for both 2013 and 2014. As of November 25, 2013, employment growth of 1.6 percent had been
projected for both 2013 and 2014.
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Consistent with weaker job growth, as of November 25, 2013, estimated growth in
wages and total personal income for 2013 and 2014 had also been revised down, although weaker growth in wages was expected to be partially offset by stronger growth in some of the non-wage components of income, such as proprietor’s and dividend
income. Growth of 2.8 percent was estimated for both wages and personal income for 2013, with growth accelerating to 4.5 percent for both measures in 2014. The relatively large swing in income growth between 2013 and 2014 reflected the shifting of
income from 2013 into 2012 in advance of increases in the two top Federal marginal tax rates at the beginning of 2013.
As of
November 25, 2013, the euro-zone economies appeared to be stabilizing, leading to an upward revision in real U.S. export growth to 2.7 percent for 2013. However, uncertainty surrounding domestic demand was expected to restrain private business
spending by even more than anticipated in the July update forecast. Real growth in private nonresidential fixed investment had been revised down to 2.4 percent for 2013. With growth expected to remain weak over the near-term, the Federal Reserve was
likely to delay the tapering of its long-term asset purchases into the first half of 2014 and was not expected to start to raise its federal funds rate target until early 2015. With gasoline prices at their lowest levels since the beginning of 2013
and the overall outlook for inflation remaining moderate, the central bank had room to maintain its accommodative stance well into the near future. As of November 25, 2013, the growth in consumer prices for 2013 remained at 1.5 percent for
2013, but it had been revised down to 1.8 percent from 2.1 percent for 2014 in anticipation of continuing low energy prices.
The response of financial markets to the timing of Federal Reserve “tapering” presented a significant headwind to national
economic growth in 2014, particularly given the lack of experience on which to draw. Energy prices continued to be volatile and presented both upside and downside risk to the household consumption forecast, as do home and equity price growth.
Finally, the cost to the economy of the government shutdown remained uncertain, but the preliminary evidence was not encouraging. With the battle over the Federal budget and the debt ceiling pushed back to January and February 2014, displays of
political gridlock represented substantial risk to economic activity in early 2014.
As of February 27, 2014, although
severe winter weather had resulted in a temporary lull in economic activity, the nation’s housing and labor markets were expected to resume their course of steady improvement in calendar year 2014. With households feeling wealthier and more
certain about future job prospects, real household spending was expected to grow in calendar year 2014 at a faster rate than in calendar year 2013. The Euro-zone economies also appeared to be stabilizing, although substantial risks remain. Stronger
growth in both domestic and global demand was expected to stimulate private business investment. These positive economic forces were expected to more than compensate for the expected weakness in the public sector economy that continues to represent
a drag on economic growth. The DOB projected Real U.S. GDP to grow 2.7 percent in calendar year 2014, following 1.9 percent growth in calendar year 2013. Inflation was expected to remain below the Federal Reserve’s 2 percent target, with
inflation of 1.7 percent projected for 2014, following a rate of 1.5 percent in 2013.
There are significant risks to this
forecast. Severe weather could continue to depress household spending, leaving retailers and producers with unwanted inventories and ultimately resulting in a pullback in production. Slower than anticipated global growth could result in slower
export growth, which could in turn result in weaker corporate profits and investment, and fewer jobs. In contrast, faster than expected global growth could result in a more rapid upturn in the demand for U.S. exports and other related indicators.
As of February 27, 2014, DOB’s outlook rested on the underlying health of the US economic recovery and was
consistent with the Federal Reserve continuing the gradual tapering of its historically unprecedented balance sheet growth. However, the response of global financial markets to the unwinding of central bank accommodation remained a significant risk,
particularly given the lack of experience upon which to draw. Energy prices continued to be volatile in the wake of unusually cold weather and presented both upside and downside
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risk to the household consumption forecast, as did equity price growth. Finally, the Federal budgetary decision-making process and possible gridlock presented both upside and downside risk to
economic activity for the remainder of the year.
The New York State Economy
As of February 27, 2014, the State economy had performed well in the context of a challenging national and global economic
environment. State employment continued to grow, with the private sector labor market exhibiting robust growth in professional and business services, private educational services, and tourism-related leisure and hospitality services. Real estate and
construction activity also remained strong.
In contrast with recent private labor market trends, public sector employment was
expected to continue to decline well into 2014. The ongoing downsizing of both the State’s finance and government sectors had been contributing to unusually weak income growth over the past two years. In advance of Federal tax increases at the
start of calendar year 2013, a sizable magnitude of wages, dividends, and capital gains were accelerated into the fourth quarter of 2012. Consequently, it is more instructive to view State income growth on a fiscal year basis rather than on a
calendar year basis. As of November 25, 2013, weaker growth of 3.8 percent was estimated for the State 2014 fiscal year in progress, but offsetting that revision was stronger growth in the non-wage components of personal income. On balance,
personal income growth of 3.7 percent was projected for fiscal year 2014, followed by growth of 4.9 percent for fiscal year 2015. These projections represent only marginal revisions from the First Quarterly Update Financial Plan forecast.
As of February 27, 2014, the weakening in several national economic indicators, largely in response to unusually harsh
winter weather, posed a risk to the New York forecast going forward. State labor market growth had held up well, but a weaker than projected labor market could result in lower wages, as well as lower household spending. As the nation’s
financial capital, financial market volatility posed a particularly large degree of uncertainty for New York. As of February 27, 2014, events have demonstrated how sensitive markets can be to shifting expectations surrounding Federal Reserve
policy. The resulting market gyrations were likely to have a larger impact on the State economy than on the nation as a whole. Should financial and real estate markets be weaker than expected, taxable capital gains realizations could be adversely
affected. In addition, both the bonus and non-bonus components of employee pay had become more difficult to estimate as Wall Street continued to adjust its compensation practices in the wake of new financial reform measures. Securities industry
revenues have, in the past, been a useful predictor of bonus payouts but that relationship had become much more erratic in recent years.
All of the risks to the U.S. forecast apply to the State forecast as well, although as the volume of financial market activity and equity market volatility pose a particularly large degree of uncertainty
for New York as the nation’s financial capital. As of November 25, 2013, events had demonstrated how sensitive markets can be to shifting expectations surrounding Federal Reserve policy. The resulting market gyrations were likely to have a
greater impact on the State economy than on the nation as a whole. Thus, the recent volatility in long-term interest rates added an additional degree of risk to the finance and insurance sector bonus forecast. In addition, with Wall Street still
adjusting its compensation practices in the wake of the passage of financial reform, both the bonus and non-bonus components of employee pay were becoming more difficult to estimate. Securities industry revenues have in the past been a useful
predictor of bonus payouts, but that relationship had become much more erratic in recent years.
Economic and Demographic Trends
In calendar years 1990 through 1998, the State’s rate of economic growth was somewhat slower than that of the nation.
In particular, during the 1990-91 recession and post-recession period, the economies of the State and much of the rest of the Northeast were more heavily damaged than the nation as a whole and were slower to recover. However, the situation
subsequently improved. In 1999, for the first time in 13 years, State employment
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growth surpassed that of the nation, and in 2000 the rates were essentially the same. In 2001, the September 11th attack resulted in a downturn in New York that was more severe than for the
nation as a whole. In contrast, the State labor market fared better than that of the nation as a whole during the downturn that began in 2008, though New York experienced a historically large wage decline in 2009. The State unemployment rate was
higher than the national rate from 1991 to 2000, but as of June 19, 2013, the gap between them had closed, with the State rate below that of the nation from the start of the national recession through the end of 2011, but rose above the national
rate again in 2012. Total State nonagricultural employment has declined as a share of national nonagricultural employment.
State per capita personal income has historically been significantly higher than the national average, although the ratio has varied
substantially over time. Because New York City is an employment center for a multi-state region, State personal income measured on a residence basis understates the relative importance of the State to the national economy and the size of the base to
which State taxation applies.
FINANCIAL PLAN OVERVIEW
Overview of the Updated Financial Plan
Summary
As of February 27, 2014, DOB estimated that the State would end fiscal year 2014 with a General Fund operating surplus of $310
million on a cash basis of accounting. The estimated surplus largely reflected stronger than expected tax receipts. DOB expected the surplus to be carried forward into fiscal year 2015, where it would be used to fund initiatives proposed with the
Executive Budget. Year-to-date operating results were generally in line with expectations.
General Fund receipts, including
transfers from other funds, were expected to total $61.96 billion, an increase of $320 million from the estimate in the Quarterly Update to the Annual Information Statement dated November 25, 2013 (“Prior Quarterly Update”), before
accounting for transactions to make the fiscal year 2014 surplus available in fiscal year 2015. As of February 27, 2014, the estimate for annual tax receipts had been increased by $432 million, reflecting higher estimated personal income tax
(“PIT”) payments and estate tax payments, partially offset by declines in business and other tax receipts. In addition, higher costs for debt service on the State’s PIT bonds resulted in a decrease in tax receipts transferred to the
General Fund after payment of debt service. The increase in PIT debt service mainly reflected the refunding with PIT Revenue Bonds of higher-cost debt that had been issued under older State bond programs, and had been offset by lower transfers to
the General Debt Service Fund. As of February 27, 2014, the estimate for miscellaneous receipts had been lowered by $55 million, based on a review of collections. Non-tax transfers had been reduced by $57 million, based on a review of balances
and expected needs.
The surplus in fiscal year 2014 was expected to be made available in fiscal year 2015 through the payment
of an additional $310 million in tax refunds in the 2014 fiscal year, which had the effect of reducing net tax collections in the 2014 fiscal year and increasing net tax collections by the same amount in fiscal year 2015. After accounting for these
payments, General Fund receipts were expected to total $61.65 billion in fiscal year 2014, or $10 million above the level estimated in the Prior Quarterly Update.
General Fund disbursements, including transfers to other funds, were expected to total $61.46 billion, an increase of $10 million from the level estimated in the Prior Quarterly Update. The modest
increase was due to a number of factors. Estimated disbursements for local assistance had been increased by $125 million, reflecting an increase in the share of Medicaid expenses that were expected to be paid from the General Fund instead of the
Health Care Reform Act (“HCRA”) (due to lower expected receipts in HCRA), offset in part by lower than expected spending across a range of programs and activities. The estimate for State Operations, including fringe benefits, had been
increased by $68 million, due mainly to costs incurred by the State in the first instance related
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to Superstorm Sandy (these costs were expected to be reimbursed by the Federal government in fiscal year 2015 and fiscal year 2016) and increased overtime costs at the Department of Corrections
and Community Supervision (“DOCCS”). Estimated transfers to other funds had been reduced, reflecting, among other things, savings from refundings, the timing and sizing of bond sales, and the financing mix for capital projects.
As of February 27, 2014, the DOB estimated that the State was to end fiscal year 2014 with a General Fund cash balance of $1.8
billion, unchanged from the estimate in the Prior Quarterly Update. The balance consisted of $1.3 billion in stabilization reserves, $363 million designated for debt management purposes, $68 million in the Community Projects Fund, $45 million for
the costs of labor settlements covering prior periods, and $21 million in the Contingency Reserve Fund.
As of
February 27, 2014, the risks to the budget balance remained in the 2014 fiscal year. For example, tax collections were subject to significant volatility in the final quarter of the fiscal year. In addition, there could be no assurance that
Federal aid for health care, mental hygiene and other purposes would be received at the levels or on the timetable assumed in the Updated Financial Plan. These and other risks and uncertainties are described more fully later in this Appendix.
Multi-Year Financial Plan Revisions (Fiscal Year 2015 and Outyears)
As of February 27, 2014, the DOB estimated that the Executive Budget proposal for fiscal year 2015 would, if enacted without
modification, provide for balanced operations in the General Fund, as provided by law. The Executive Budget proposed recurring savings through targeted reforms, as well as continuation of the spending controls and cost-containment put in place in
prior years. Agency operations were generally expected to remain at current levels across the Financial Plan period. Reserves were expected to remain intact.
The Executive Budget for fiscal year 2015 proposed limiting annual growth in State Operating Funds spending to 2 percent or less, consistent with the spending benchmark adopted by the current
Administration in fiscal year 2012. The Financial Plan projections for fiscal year 2016 and thereafter reflect the savings that the DOB had estimated would occur if the Governor continued to propose, and the Legislature continued to enact, balanced
budgets in future years that limited annual growth in State Operating Funds to no greater than 2 percent.
The Executive
Budget proposed a multi-year tax reduction plan for individuals and businesses, which had been sized to absorb the majority of the surplus that would otherwise occur between projected receipts, using current projections, and disbursements that grow
at 2 percent annually over the Financial Plan period.
Receipts
As of February 27, 2014, General Fund receipts, including transfers from other funds, were expected to total $63.5 billion in fiscal
year 2015, an annual increase of $1.9 billion (3.0 percent). Tax collections, including transfers of tax receipts to the General Fund after payment of debt service, were expected to total $58.6 billion, an increase of $1.2 billion (2.1 percent).
General Fund personal income tax receipts, including transfers after payment of debt service on State personal income tax
revenue bonds, were expected to increase by $1.3 billion (3.5 percent) from fiscal year 2014. This primarily reflected increases in withholding and estimated payments attributable to the 2014 tax year and the payment of additional refunds in fiscal
year 2014 that were initially planned for fiscal year 2015, partially offset by an expected decline in extension payments attributable to the 2013 tax year.
As of February 27, 2014, General Fund user taxes and fees receipts, including transfers after payment of debt service on New York Local Government Assistance Corporation (“LGAC”) and Sales
Tax Revenue Bonds, are estimated to total $12.3 billion in fiscal year 2015, an increase of $260 million (2.2 percent) from fiscal year 2014, reflecting projected consumer spending increases across a broad range of consumption categories.
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As of February 27, 2014, General Fund business tax receipts were estimated at $5.6
billion in fiscal year 2015, a decrease of $376 million (-6.3 percent) from fiscal year 2014 results. The estimate reflected a decline in corporate franchise tax receipts resulting from the first year of repayment of deferred tax credits, partly
offset by growth in all other business taxes.
As of February 27, 2014, other tax receipts in the General Fund, including
transfers, were expected to total approximately $1.9 billion in fiscal year 2015, an increase of $3 million (0.2 percent) from fiscal year 2014. This mainly reflected a decline in expected estate tax receipts, the result of Executive Budget
legislation that is slated to cut the estate tax.
As of February 27, 2014, General Fund miscellaneous receipts were
estimated at $3.9 billion in fiscal year 2015, an annual increase of $606 million. The increase largely reflects the expected deposit of $1 billion from the State Insurance Fund (“SIF”) reserve release in connection with Workers’
Compensation law changes enacted in the fiscal year 2014 budget.
As of February 27, 2014, non-tax transfers to the
General Fund were expected to total $1.1 billion, an increase of $62 million (6.1 percent), largely due to changes in accounting of certain receipts and resources expected to be available from other fund balances.
General Fund receipts were affected by the deposit of dedicated taxes in other funds for debt service and other purposes, the transfer of
balances between funds of the State, and other factors. For a more comprehensive discussion of the State’s projections for tax receipts, miscellaneous receipts, and transfers, see “State Financial Plan Projections” herein.
Disbursements
As of February 27, 2014, General Fund disbursements, including transfers to other funds, were expected to total $63.6 billion in fiscal year 2015, an increase of $2.1 billion (3.4 percent) from
fiscal year 2014 estimates.
Local assistance grants were expected to total $41.8 billion, an annual increase of $1.4 billion
(3.5 percent). Included within local assistance grants, General Fund disbursements were expected to increase by $1 billion for School Aid and $153 million for Medicaid. All other local assistance grants, which include, among other things, payments
for a range of social services, public health, education, and general purpose aid programs, were expected to increase by $246 million.
As of February 27, 2014, State operations disbursements in the General Fund were expected to total $7.8 billion in fiscal year 2015, an annual increase of $187 million (2.4 percent). Personal service
costs were expected to increase by $176 million, mainly reflecting the consolidation of staff under the IT Services that were previously reflected in non-General Fund accounts. Non-personal service costs were expected to increase by $11 million in
fiscal year 2015, in large part due to increased support for indigent legal services and civil legal services.
As of
February 27, 2014, General State Charges (“GSCs”) were expected to total $5.3 billion in fiscal year 2015, an annual increase of $361 million (7.4 percent) from the 2014 fiscal year. The State’s annual pension payment was
expected to increase by $284 million, reflecting both growth in normal costs and repayment of amounts amortized in prior years. The State expects to continue to amortize pension costs in excess of the amortization thresholds established in law. In
fiscal year 2015, costs in excess of 13.5 percent of payroll for the Employees’ Retirement System (“ERS”) and 21.5 percent for the Police and Fire Retirement System (“PFRS”) were expected to be amortized.
As of February 27, 2014, General Fund transfers to other funds were expected to total $8.7 billion in fiscal year 2015, an increase
of $153 million from the 2014 fiscal year. The growth included increased support for
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capital projects and non-Medicaid Mental Hygiene services, partly offset by declines in the State’s share of Medicaid for Mental Hygiene, and the planned pre-payment of debt service in
fiscal year 2014 for expenses due in fiscal year 2015.
General Fund disbursements are affected by the level of financing
sources available in other funds, transfers of balances between funds of the State, and other factors that may change from year to year. For a more comprehensive discussion of the State’s disbursements projections by major activity, see
“State Financial Plan Projections” herein.
Closing Balance for Fiscal Year 2015
As of February 27, 2014, the DOB projected that the State was to end fiscal year 2015 with a General Fund cash balance of $1.7
billion, a decrease of $60 million from the fiscal year 2014 estimate reflected in the Updated Financial Plan. The Community Projects Fund, which finances discretionary grants allocated by the Legislature and Governor, was expected to decrease by
$68 million in fiscal year 2015, reflecting disbursements from prior year appropriations. This decrease was offset by an $8 million increase in amounts set aside for the costs of prior-year labor agreements.
As of February 27, 2014, balances in the State’s principal “rainy day” reserve funds, the Tax Stabilization Reserve
Fund and the Rainy Day Reserve Fund, were expected to remain unchanged in fiscal year 2015. The combined balance of the two funds was equal to approximately 2.2 percent of estimated General Fund disbursements in fiscal year 2015.
As of February 27, 2014, the Financial Plan continued to set aside money in the General Fund balance to cover the costs of potential
retroactive labor settlements with unions that had not agreed to terms for prior contract periods. The amount identified was calculated based on the “pattern” settlement for the fiscal year 2008 through fiscal year 2011 period that was
agreed to by the State’s largest unions. The amount set aside was expected to be reduced as labor agreements for prior periods were reached with unsettled unions.
As of February 27, 2014, the Executive Budget proposed to reserve $363 million for debt management purposes in fiscal year 2015, unchanged from the level reserved in fiscal year 2014.
Spending Changes
As of February 27, 2014, the Executive Budget proposed to reduce spending in fiscal year 2015 by nearly $2 billion compared to prior projections. The savings were recurring and were expected to grow
in value in subsequent years.
Explanation of the Fiscal Year
2014 Enacted Budget Gap-Closing Plan
The Fiscal Year 2014 Enacted Budget gap-closing plan provides recurring savings and other actions over the Financial Plan
period, reducing the General Fund budget gaps by a projected $2.0 billion in fiscal year 2015, $2.3 billion in fiscal year 2016, and $2.7 billion in fiscal year 2017. The Fiscal Year 2015 General Fund budget gap equals approximately 3.2 percent of
projected General Fund receipts for fiscal year 2015. In total, the combined General Fund budget gap estimates for fiscal years 2014 through 2017 is approximately $7.8 billion. By comparison, the budget gap closed in fiscal year 2012 alone was
estimated at $10 billion.
During negotiations, the Governor and Legislature agreed to approximately $553 million in gross
spending restorations and additions to the Executive Budget. Restorations, which are costs from the rejection of certain savings proposals contained in the Executive Budget, totaled approximately $177 million. The impact of the restorations is
accounted for in “spending control”. The largest restorations were in the areas of mental hygiene, health care, and education. Additions, which represent distinct new spending added to the Executive Budget by
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the Legislature, totaled approximately $376 million. The most significant additions were for School Aid and other education programs. The Governor and Legislature also reached agreement on the
reprogramming of certain spending initiatives proposed in the Executive Budget.
Resources were identified to fund the
restorations and additions, and to provide for a balanced budget in fiscal year 2014. These include forecast revisions to receipts and disbursements, based on updated economic data, receipts collections, and year-end operating results for fiscal
year 2013. In addition, $500 million from the SIF reserve release related to Workers’ Compensation Law changes has been redirected from pay-as-you-go capital in fiscal year 2014, as had been proposed in the Executive Budget, to reduce the
budget gap in fiscal year 2015. As of June 19, 2013, the total reserve release used to reduce the fiscal year 2015 budget gap totaled $1.0 billion.
Spending Control
Agency Operations
Operating costs for State agencies include salaries, wages, fringe benefits, and non-personal service costs (i.e., supplies, utilities).
As of February 27, 2014, these costs have significantly declined over the past several years through ongoing State agency redesign and cost-control efforts. As of February 27, 2014, reductions from the prior projections for agency
operations contributed $358 million to the General Fund gap-closing plan , specifically:
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Executive Agencies:
The Executive Budget proposed to hold personal service and non-personal service spending flat with limited exceptions, such
as costs attributable to the NY State of Health marketplace and IT consolidation efforts. Agencies were expected to continue to utilize less costly forms of service deliveries, improve administrative practices and pursue statewide solutions,
particularly at State-operated facilities in the areas of mental hygiene and public protection. The size of the Executive State workforce was projected at 119,173 Full-Time Equivalents (“FTEs”), a decline of 240 FTEs.
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Independent Officials:
Spending for Judiciary personal service and non-personal service expenses was projected to grow by 2.8 percent to support
mandated court operations, statutory salary increases, and additional Family Court Judges. Spending for the Department of Audit and Control was expected to grow by 1.4 percent to support additional pre-school special education audits. Spending for
the Department of Law was expected to increase by 2 percent. Spending in future years is expected to remain at fiscal year 2015 levels for all independent officials.
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Fringe Benefits/Fixed Costs:
Estimates for the State’s health insurance and pension costs were revised downward to reflect the impact of
the 2014 Empire Plan action, and revised pension contribution estimates. In addition, savings were expected from the proposed elimination of Medicare Part B reimbursements for high income retirees and a revised Workers’ Compensation assessment
method.
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Local Assistance
Local assistance spending included financial aid to local governments and non-profit organizations, as well as entitlement payments to
individuals. As of February 27, 2014, reductions from the prior projections for local assistance spending were expected to generate $1.6 billion in General Fund savings. Savings were expected from both targeted actions and continuation of
prior-year cost containment actions. Specifically:
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Human Services Cost-of-Living Adjustments (“COLA”)/Trends:
The Executive Budget deferred the planned two percent annual human services
COLA and maintained existing rates for other programs.
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Mental Hygiene:
Program spending was reduced to reflect revised forecasts for community-based bed development and expansion; efforts to return
individuals from more costly out-of-state placements; and continued efforts to expand community services to reduce institutional costs.
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Healthcare:
Lower spending reflected a downward trend in reimbursement of claims submitted by local governments under the General Public Health
Works (“GPHW”) program and utilizing other insurance for prenatal care services; and lower Child Health Plus (“CHP”) costs expected pursuant to the transfer of rate-setting responsibilities from the Department of Financial
Services (“DFS”) to the Department of Health (“DOH”) to align with the programmatic oversight, consistent with the oversight of Medicaid Managed Care and Family Health Plus (“FHP”). In addition, projected spending under
the Medicaid Global Cap had been adjusted in each year of the Financial Plan to reflect updated estimates of the medical component of the CPI index.
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Department of Health (“DOH”) Global Cap:
The Executive Budget included $300 million in annual State-share Medicaid savings beginning
in fiscal year 2015 (growing to $688 million in fiscal year 2018) achieved though the shift of certain Office for People with Developmental Disabilities (“OPWDD”)-related Medicaid costs to DOH under the Medicaid Global Cap. Projected
savings from the continuation of successful Medicaid Redesign Team (“MRT”) initiatives, improved cash management, and utilization of Federal resources associated with ACA were expected to fully accommodate this change in funding.
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Education:
The Executive Budget proposed special education program reforms targeted to improve fiscal practices and service delivery. Estimated
spending had also been revised downward based on revised school district data.
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School Tax Relief (“STAR”):
The Executive Budget proposed eliminating the income threshold inflation adjustment for enhanced STAR
benefits. In addition, spending had been reduced to reflect a reduction in the estimated number of STAR exemption recipients. As part of the State’s review of recipient data to ensure unlawful exemptions were excluded from State payments,
existing STAR recipients were also required to re-register for their benefit by the end of calendar year 2013.
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Social Services/Housing:
Lower spending was expected in several programs, including Child Welfare Services, Adult Protective Services and
Domestic Violence, Public Assistance and Supplemental Security Income (“SSI”) benefits, based on updated claiming data and revised growth (caseload) assumptions, and savings from the State takeover of administering the SSI supplementation
program.
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All Other:
Spending reductions were expected to be achieved across multiple functions and program areas including: elimination of certain
miscellaneous financial assistance to local governments; utilization of capital financing for eligible homeland security capital needs; revisions to disaster assistance aid; and elimination of certain legislative grants
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Capital Projects/Debt Management
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Capital/Debt Revisions:
Savings are expected to be achieved through a variety of debt-management actions, including continuing the use of
competitive sales, refunding of higher-cost debt, as market conditions permit, and efficiencies from the consolidation of bond sales. In addition, projections reflect the impact of revised capital spending estimates and future bonding assumptions.
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Metro Mass Transportation Operating Aid (“MMTOA”) Debt Service Offset:
The Executive Budget proposed to offset General Fund support
for the Metropolitan Transportation Authority (“MTA”) debt service costs by utilizing $40 million in dedicated resources from the MMTOA account to the General Debt Service Fund, with $20 million in resources available for the same purpose
on an annual basis beginning in fiscal year 2016.
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Initiatives
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Joint Legislative Additions:
During negotiations, the Executive and Legislature agreed to approximately $553 million in gross spending
restorations and additions to the Executive Budget proposal for fiscal year 2014. Restorations, which are costs from the rejection of certain Executive
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Budget savings proposals totaled approximately $177 million. The largest restorations were in the areas of mental hygiene, health care, and education. Additions, which represent distinct new
spending added to the Executive Budget proposal by the Legislature, totaled approximately $376 million. The most significant additions were for School Aid and other education programs.
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Executive Budget Investments:
As part of budget negotiations, the Executive and Legislature reached agreement on the reprogramming of certain
spending initiatives proposed in the Executive Budget. The largest of these were in the areas of education and health care.
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Thruway Authority:
The personnel and fringe benefit costs for a unit of the New York State Police that handles traffic enforcement for the
Thruway Authority, as well as certain operating costs of the Authority, are to be financed from general revenues of the State. The State’s assumption of these costs, which were previously financed by revenues generated from Thruway toll
collections, is expected to help the Thruway Authority maintain fiscal stability without an immediate toll increase.
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Capital Commitment Plan:
Consistent with the long-term planning goals of New York Works, DOB, as of August 28, 2013, had for the first time
formulated 10-year capital commitment and disbursement projections for State agencies. The total commitment and disbursement levels permissible over the 10-year capital planning horizon reflect, among other things, projected capacity under the
State’s debt limit, anticipated levels of Federal aid, and the timing of capital activity based on known needs and historical patterns. The Financial Plan reflects the estimated debt service costs from the capital plan.
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All Other:
Other investments and initiatives include, among other things, an accelerated Payment in Lieu of Taxes (“PILOT”)
payment to the City of Albany, the promotion of tourism and economic development opportunities in conjunction with Super Bowl XLVIII, and the advance of Tribal State Compact revenues to the City of Salamanca.
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School Aid/Education Aid Initiatives:
The Executive Budget provided an $807 million increase in education aid for the 2014-15 school year, $608
million of which was provided to school districts as formula-based School Aid. The State is expected to provide $300 million in funding for the universal pre-kindergarten program through fiscal year 2016. In addition, the State is expected to
provide $160 million to expand after school programs in fiscal year 2016.
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Roswell Park Cancer Institute (“RPCI”):
The Executive Budget proposed $25 million in additional State support to the RPCI to replace
expiring capital grant funding and maintain total annual support at prior-year levels.
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Debt Service for New Initiatives:
The Financial Plan reflects the costs of new capital initiatives, the most significant of which are the Smart
Schools bond act and Health Care Facility Restructuring.
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Smart Schools Bond Act:
Reflects the estimated debt service costs associated with the proposed $2.0 billion Smart Schools bond act. If approved
by voters, the Smart Schools bond act is slated to fund enhanced education technology in schools, with eligible projects including infrastructure improvements to bring high-speed broadband to schools and communities in their school district and the
purchase of classroom technology for use by students. Additionally, Smart Schools are expected to enable long-term investments in full day prekindergarten through the construction of new pre-kindergarten classroom space.
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Health Care Facility Restructuring:
Reflects the projected debt service impact of $1.2 billion in capital projects initiatives that are expected
to improve the financial viability and efficiency of the State’s health care delivery system. Funding would be targeted for long-term care, hospitals, primary care, and behavioral/substance abuse services. Priority projects are expected to
include those that: align hospital and nursing home bed capacity to regional needs, enable facility integration, merge and consolidate facilities, expand primary care and facilitate transformation to care management models.
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Science, Technology, Engineering and Math (“STEM”) Scholarship:
The Executive Budget included a new full-tuition STEM scholarship for
high school students who graduate in the top 10 percent of their class to any State University of New York (“SUNY”) or the City University of New
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York (“CUNY”) college or university if they pursue a STEM career and agree to then work in New York State for five years. The new STEM scholarship was designed to encourage top-ranked
students to pursue STEM related college degrees and build their careers in New York State, in one of the fastest growing sectors of the economy.
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Election Law Enforcement:
The Executive Budget provided $5.3 million for a new, independent Division of Election Law Enforcement to promote
increased enforcement of, and compliance with, the State’s campaign finance and election laws. In addition, legislation accompanying the Executive Budget established a public campaign financing program as well as other reforms.
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Tax Receipts:
The estimate for annual tax receipts had been revised to reflect updated economic forecast data, and included downward adjustments
to business tax and cigarette tax collections, partly offset by upward changes to personal income and estate tax collections.
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Miscellaneous Receipts:
As of February 27, 2014, the estimate for miscellaneous receipts had been revised based on a review of collections,
the projected receipt of various banking and insurance related settlements and recoveries, and other transactions. In addition, resources were expected to be made available through transfers from public authorities and the expected sale of surplus
properties.
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Extenders/Initiatives:
The Executive Budget proposed extending the following credits that impact the General Fund: Alternative Fuels Tax
Exemptions; Non-Custodial Earned Income Tax Credit (“EITC”); and Commercial Production Tax Credit. In addition, the Executive Budget proposed the authorization of a Professional and Business License Tax Clearance that would decrease tax
avoidance by refusing to issue a professional or business license to an applicant who has outstanding tax liabilities.
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Tax Actions
As of February 27, 2014, the Executive Budget had
proposed a set of tax actions valued at $2 billion when fully phased in within three years. These proposals were designed to simplify the tax code and were estimated to result in a net reduction to taxes and assessments of $504 million in fiscal
year 2015 and $1.6 billion in fiscal year 2016.
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Establish the Real Property Tax Freeze Personal Income Tax Credit:
The Executive Budget proposed to freeze property taxes for two years, subject
to two conditions. In year one (fiscal year 2015), the State would provide tax credits only to homeowners, with qualifying incomes of $500,000 or less, who live in a jurisdiction that stayed within the 2 percent property tax cap (the
“cap”).
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In year two (fiscal year 2016), the State would provide tax credits only to homeowners who
live in a locality that stays within the cap and also agrees to implement a shared services or administrative consolidation plan that would generate savings equal to 3 percent of the property tax levy over the subsequent three years. In fiscal year
2016, the program would benefit 2.8 million homeowners for a total cost of $976 million, yielding an average benefit of $354 per household. New York City homeowners would not be eligible, as the City was not subject to the cap.
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Establish the Residential Real Property Personal Income Tax Credit:
The Executive Budget proposed to create a refundable tax credit against the
PIT to provide targeted real property tax relief based on an individual homeowner’s ability to pay. The credit was available statewide, but in areas outside of New York City, only residents of jurisdictions that adhered to the cap would
qualify. When fully phased in, the program, valued at almost $1 billion would benefit approximately 2 million homeowners yielding an average benefit of $500.
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Establish a Renter’s Personal Income Tax Credit:
The Executive Budget proposed to create a refundable credit. This tax relief would be
composed of a base credit that declined with qualifying incomes up to $100,000 for married taxpayers who were filing jointly and had related dependents,
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taxpayers filing as head of household, and married seniors filing jointly. Single seniors with incomes up to $50,000 would also qualify. Non-senior singles and married taxpayers without related
dependents would be ineligible. The base credit would be supplemented with an additional credit per Federal exemption, where the value of the supplement also declined with income. When fully phased in, the program would save approximately
1.3 million households a total of $400 million.
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Corporate Tax Reform:
The Executive Budget would combine the corporate franchise and bank taxes to provide tax simplification and relief, and
improve voluntary compliance. Further, the tax rate on net income would be reduced from 7.1 percent to 6.5 percent, the lowest rate since 1968.
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Establish a 20 Percent Real Property Tax Credit for Manufacturers:
The Executive Budget would provide a refundable credit equal to 20 percent of
property taxes paid by manufacturers who own or lease property.
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Eliminate the Net Income Tax on Upstate Manufacturers:
The Executive Budget proposed to eliminate the tax rate on income for upstate
manufacturers (currently 5.9 percent) in calendar year 2014 and thereafter.
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Eliminate Section 18-a Temporary Assessment for Industrial Customers, Accelerate Phase Out for All Others:
The temporary assessment was
scheduled to be eliminated by March 2017, but the Executive Budget proposed to eliminate the assessment on industrial customers immediately, and to accelerate the phase-out for all other customers. The phase-out would save businesses and residents
$600 million over the next three years.
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Reform the Estate Tax:
The Executive Budget proposed to increase the exclusion threshold of the estate tax from $1 million to $5.25 million over
four years, to conform estate tax with the Federal exemption amount beginning in 2019, and to reduce the top rate from 16 to 10 percent over four years. These actions would be coupled with proposals that would require the value of gifts to be added
back to the estate.
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Streamline Corporate Audit Procedures:
The Executive Budget proposed to implement various initiatives which would increase audit efficiency and
improve voluntary compliance.
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Reform the Investment Tax Credit (“ITC”):
New York offers a tax credit to businesses for investments in buildings and tangible
personal property including assets acquired by purchase, with a useful life of four years or more and used in production. This proposal would tighten existing eligibility criteria in order to more effectively target the State’s investment
toward originally intended and more productive uses. For example, a credit would no longer be allowed for assets acquired by purchase when a former owner has claimed the ITC for investments in those assets.
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Repeal the Financial Services ITC:
This complex credit used by a narrow segment of the financial services industry would be eliminated. In the
most recent year for which data are available, only 28 filers availed themselves of this credit.
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Close the Resident Trust Loophole:
In general, a trust is a legal agreement that represents a place where assets from an estate are held. The
trust provides certain tax and legal benefits not available if the assets are not placed in trust. As of February 27, 2014, New York conformed to Federal law, which resulted in New York PIT immunity for the trust grantor and the trust
beneficiary. This proposal would decouple New York from Federal treatment of trusts and impose the PIT on the trust grantor.
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Federal Revenue Reduction Plan
The Enacted Budget addresses reductions in
Federal Medicaid revenue related to reimbursement for State-operated developmental disability services. (See “Financial Plan Overview—Risks and Uncertainties Related to the State Financial Plan” herein.) Savings in the future years of
the Financial Plan depend on approval by the Federal government of specific aid.
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Revenues/Extenders
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18-a Utility Assessment:
The Temporary Utility Assessment on electric, gas, water and steam utilities is extended and phased out over three and
one-half years beginning in fiscal year 2015. The rate of 2 percent for public utilities is expected to be lowered to 1.75 percent in fiscal year 2016, 1.5 percent in fiscal year 2017 and 0 percent in fiscal year 2018. The rate of 1 percent for Long
Island Power Authority (“LIPA”) is to decrease to 0.75 percent, 0.5 percent and 0 percent over the same timeframe.
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High Income Charitable Contribution Deduction Limitation:
The Enacted Budget extends for three years, starting with tax year 2013, the existing
limitation on charitable contribution deductions for New York State and New York City taxpayers with adjusted gross income over $10 million.
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Warrantless Wage Garnishment:
The Enacted Budget allows Department of Taxation and Finance (“DTF”) to garnish wages of delinquent
taxpayers without filing a warrant with the Department of State (“DOS”) or County Clerks. The warrant requirement is replaced with a faster public notification requirement. Warrants offer no additional protection for delinquent taxpayers
and requiring counties to receive the warrants from DTF represents an unfunded mandate. Wages are only to be garnished if a taxpayer fails to negotiate a repayment agreement with DTF.
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Delinquent Taxpayers’ Driver’s Licenses:
The Enacted Budget creates a new program to aid in the enforcement of past-due tax
liabilities by suspending, with certain exceptions, the New York State driver’s licenses of taxpayers who owe taxes in excess of $10,000. A “past-due tax liability” refers to any tax liability that has become fixed and final such that
the taxpayer no longer has any right to administrative or judicial review. The program is to be modeled after the State’s successful use of license suspensions to compel legally owed child support payments.
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New York Film Production Tax Credit:
The Enacted Budget extends the Empire State film production tax credit totaling $420 million per year for
an additional five years. Restrictions on the post-production portion of the credit are to be reduced and additional reporting is to be required to document the effectiveness of the credit in creating jobs. In 2015 through 2019, film and post
production projects are eligible for an additional 10 percent credit for wages and salaries (excluding writers, directors, music directors, producers and performers) paid as part of projects undertaken in certain upstate New York counties.
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Tax Modernization Provisions:
The tax modernization provisions enacted in 2011, and extended last year, are extended again until
December 31, 2016. These provisions, including mandatory e-filing and e-payment for preparers and taxpayers, sales tax payment requirements, and segregated accounts for non-complying vendors, would have otherwise expired at the outset of the
tax year 2013 filing season on December 31, 2013.
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Tax Reductions:
The Enacted Budget includes several new tax reductions. These include a refundable $350 credit in each of tax years 2014-2016 to
taxpayers with dependents under the age of 17, zero or positive tax liability, and income between $40,000 and $300,000; a refundable tax credit for tax years 2014-2018 for a portion of the minimum wage paid to students age 16-19; a phased in
manufacturing tax rate reduction of 9.2 percent in tax year 2014, 12.3 percent in 2015, 15.4 percent in 2016 and 2017, and 25 percent effective tax year 2018; a refundable tax credit for hiring veterans; and a four year refundable tax credit capped
at $6 million per year for tax years 2014 through 2017 for hiring unemployed, low-income, or at-risk youth in qualifying areas.
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Personal Income Tax Brackets and Rates with Indexing:
The Enacted Budget extends the December 2011 personal income tax reform program for three
additional tax years, 2015-2017.
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Historic Commercial Properties Rehabilitation Tax Credit:
This law change provides assurance to developers who are rehabilitating historic
commercial property, or are considering doing so, by extending the existing $5 million per project tax credit for five years (2015-2019) and makes the credit refundable beginning in tax year 2015.
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Historic Homes Rehabilitation Credit:
The Enacted Budget extends for five years the maximum credit amount of $50,000 (scheduled to revert to
$25,000), and the refundability of the credit for persons with incomes under $60,000 (scheduled to revert to nonrefundable).
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Other
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Workers’ Compensation Legislation:
The Workers’ Compensation Board (“WCB”) assesses its administrative and special fund
costs to the industry which includes carriers, the State agency for the SIF, and the self-insurers including municipal self-insurers. Historically, SIF’s share of the various assessments was based on their share of the total paid indemnity
reported. As a result, prior to 2013 legislative changes, accounting standards required SIF to accrue and fund a long term assessment liability on its financial statements. Based upon a review of SIF’s financial statements, it had a WCB
assessment liability in excess of $2 billion. Legislation passed in 2013 includes a complete redesign of the assessment process to an employer-based assessment that is to require carriers to collect the necessary amounts from the employers and remit
amounts directly to the WCB. As a result of this legislation, SIF’s assessments are not to be based on the long-term indemnity. Therefore, accounting standards no longer require SIF to accrue a long term assessment liability. Additionally, the
legislation states: “Effective immediately, notwithstanding any law to the contrary, pursuant to the provisions of this chapter, the assessment reserves held by the state insurance fund for the payment of future assessments are no longer
required and all funds and investments held by the state insurance fund related to the assessment reserves shall be transferred to the chair of the workers’ compensation board as soon as possible.” The legislation goes on to describe how
the funds are to be incrementally transferred from the WCB to the State’s General Fund from April 1, 2013 to April 1, 2016. As a result of the legislation, SIF is expected to release approximately $2 billion in reserves that would no
longer be required to fund future liabilities under the assessment and accounting changes provided for in the law. The Financial Plan assumes $250 million of released reserves are to be used in fiscal year 2014 for debt management purposes, and $1.5
billion is to be used to reduce budget gaps in future years ($1 billion in fiscal year 2015 and $250 million in both fiscal year 2018 and fiscal year 2019). The remaining amounts of reserves being released are expected to be used to stabilize SIF
premiums for a period of time.
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Debt Management Set-Aside:
The Enacted Budget sets aside an additional $250 million for debt management purposes, which is expected to be
financed with $250 million from the release of SIF reserves.
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Tax Receipts Forecast Revisions:
This reflects the net impact of changes to the tax receipts forecast since the release of the original
Executive Budget submission in January 2013. It includes adjustments made in the amended Executive Budget Financial Plan and as part of the consensus revenue forecasting process undertaken with the Legislature in March 2013.
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Undesignated Fund Balance:
The Financial Plan assumes that the undesignated balance of $100 million at the close of fiscal year 2013 will be
used in fiscal year 2014 to cover the timing of certain costs related to disaster assistance that were budgeted in fiscal year 2013, but as of June 19, 2013 were expected to be charged to the General Fund in fiscal year 2014.
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Updated Financial Plan
In the Updated Financial Plan, as of August 28, 2013, DOB estimated that the General Fund would remain in balance in fiscal year 2014 on a budgetary (cash) basis of accounting, based on review of
operating results through the first quarter of the fiscal year and other information.
As of August 28, 2013, General
Fund receipts, including transfers from other funds, were expected to total $61.7 billion in fiscal year 2014, an increase of $434 million from the Enacted Budget Financial Plan. In June 2013, the State reached separate financial settlements with a
bank and a consultancy that were expected to result
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in miscellaneous receipts of approximately $260 million above the Enacted Budget estimate. In addition, the State and certain Tribal Nations had resolved several long-standing disputes concerning
exclusivity rights related to gaming, which was expected to result in the release of certain payments owed to the State under the Tribal-State Compact. The resolution was expected to provide an estimated $204 million in General Fund receipts in
fiscal year 2014 above budgeted levels, and reduce the risk that future compact payments would fall below the levels budgeted (approximately $110 million annually). In fiscal year 2014, the additional resources from the financial settlements and the
Tribal-State Compact were expected to be offset in part by an adverse judgment from the Court of Appeals concerning recertification requirements in the Empire Zones program ($20 million) and costs related to the restructuring and oversight of LIPA
($10 million in fiscal year 2014 growing to $32 million thereafter). In addition, the START-UP NY program, which creates certain tax-free zones on or near qualifying university and college campuses, was expected to result in reduced receipts growth,
starting in fiscal year 2015.
General Fund disbursements, including transfers to other funds, were expected to total $61.5
billion in fiscal year 2014, an increase of $340 million from the Enacted Budget Financial Plan. The Updated Financial Plan includes $16 million to assist areas affected by recent flooding. In addition, as of August 28, 2013, DOB expected to
prepay approximately $318 million in expenses due to be paid in fiscal year 2015. For planning purposes, the Updated Financial Plan assumes the prepayment of debt service, but DOB, as of August 28, 2013, would determine the specific prepayments
that would be made later in the fiscal year. The level of prepayments may change, depending on the State’s fiscal position. Lastly, the State reached a labor settlement covering prior contract periods with the State union representing
lifeguards. The retroactive costs of the settlement would be funded from the portion of the General Fund balance identified by DOB for this purpose ($6 million in fiscal year 2014).
As of August 28, 2013, the General Fund budget gap for fiscal year 2015 was projected at $1.74 billion, a decrease of $272 million
compared to the Enacted Budget Financial Plan. The change in the fiscal year 2015 budget gap reflected the planned prepayment of expenses, offset by factors described above. The budget gaps projected for future years remained at approximately $2.9
billion in both fiscal year 2016 and fiscal year 2017.
As of August 28, 2013, DOB expected the State to end fiscal year
2014 with a General Fund closing balance of $1.8 billion, an increase of $94 million from the Enacted Budget Financial Plan. This reflects a $100 million increase in the undesignated fund balance, offset by the use of $6 million to fund the
retroactive labor settlement with lifeguards. As of August 28, 2013, DOB was evaluating options for the use of this increase in the undesignated fund balance, including a deposit to the State’s reserves or a reduction in the amount of
pension costs that will be amortized in fiscal year 2014.
Operating results through the first quarter of fiscal year 2014
were positive in comparison to the estimate in the Enacted Budget Financial Plan. (See “First Quarter Operating Results (April-June 2013)” herein.) General Fund receipts, including transfers from other funds, totaled $18.2 billion through
June 2013, $763 million above the Enacted Budget forecast. The positive variance is mainly due to final 2012 personal income tax collections and 2013 quarterly tax payments ($287 million above planned levels); the financial settlements described
above; and the budgeted release of $250 million in reserves from the SIF to the State in June rather than August 2013. The higher receipts in these areas were partly offset by lower than expected SONYMA receipts ($76 million below planned levels)
and abandoned property collections ($60 million below planned levels), both of which DOB attributes to timing. DOB will continue to monitor the uncertainties and risks regarding the economic and receipts forecast.
General Fund disbursements, including transfers to other funds, totaled $15 billion through June 2013, approximately $445 million below
the level estimated in the Enacted Budget Financial Plan. This mainly reflected lower than anticipated spending in local assistance ($582 million) offset by higher General Fund transfers to other State funds ($181 million). After adjusting for these
variances, which DOB, as of August 28, 2013, believed were timing related, disbursements appeared to be generally consistent with the Enacted Budget forecast.
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Multi-Year Financial Plan Revisions
Receipts Revisions
Financial Settlements
: In June 2013, the State received two unanticipated payments totaling $260 million as a result of settlements reached by the State’s DFS.
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Bank of Tokyo-Mitsubishi UFJ (“BTMU”) paid $250 million for violations of New York Banking Law in connection with transactions involving
countries and entities subject to international sanctions. Between 2002 and 2007, BTMU moved billions of dollars through New York for government and privately owned entities in Iran, Sudan, and Myanmar, and entities on the Specially Designated
Nationals list issued by the U.S. Treasury Department’s Office of Foreign Assets Control. BTMU agreed that the conduct at issue involved approximately $28,000 clearing transactions through New York totaling an estimated $100 billion.
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Deloitte Financial Advisory Services (“Deloitte”) and DFS reached an agreement regarding the company’s misconduct, violations of law,
and lack of autonomy during its consulting work at Standard Chartered Bank on anti-money laundering issues. Under the agreement, Deloitte agreed to a one-year, voluntary suspension from consulting work at financial institutions regulated by DFS,
made a $10 million payment to the State, and as of August 28, 2013, was implementing a set of reforms designed to help address conflicts of interest in the consulting industry.
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Potential Financial Settlements: In light of recent financial settlements, including those with Standard Chartered Bank, BTMU, and Deloitte, the
Updated Financial Plan includes estimates of potential future settlements that may be realized by DFS from current or future investigations.
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Tribal-State Compact
: As of August 28, 2013, the State had resolved multi-year disputes with the St. Regis Mohawk Tribe and the Seneca Nation of Indians over tribal nation gaming exclusivity
zones and resulting exclusivity payments to the State. As part of the agreements, the State will receive a negotiated amount of the slot machine revenues that were withheld by the tribal nations during the dispute, and on-going exclusivity payments
to the State from their casino operations will resume. By statute, the State shares a portion of the exclusivity payments with the localities affected by their proximity to the gaming operations. As of August 28, 2013, the State expected to
receive a total General Fund benefit of $308 million in fiscal year 2014 as a result of the agreements, $204 million more than the $104 million that was previously reflected with the Enacted Budget Financial Plan.
Empire Zone Recertification Litigation
: Several Empire Zone Program participants sued the State in response to fiscal year 2010
legislation that retroactively decertified them from the Empire Zones Program. These participants contested that retroactive decertification was illegal. In June 2013, the Court of Appeals ruled in their favor. This would result in the State paying
$20 million in tax refunds to Empire Zone participants in fiscal year 2014.
Legislative Session
: During the 2013
session, the Legislature and Governor approved the following legislation, which would have a fiscal impact on the State, as described below.
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LIPA Restructuring: LIPA will remit a lower amount of corporation and utilities taxes, and a portion of the additional temporary 18-a assessment
formerly directed to the General Fund will be used for regulating the restructured entity.
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START-UP NY: Provides for the establishment of tax-free zones on or near qualifying university and college campuses. Qualifying businesses operating
within such zones are exempt from taxation under the corporation, corporation franchise, personal income, Metropolitan Transportation Authority (“MTA”) mobility, sales and use and real estate transfer taxes. Qualifying new employees are
exempt from New York State and New York City personal income tax on wages earned while working in a tax-free zone.
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As of November 25 2013, the projections for General Fund budget gaps in future
years remained unchanged from the First Quarterly Update, with gaps of $1.7 billion in fiscal year 2015, $2.9 billion in fiscal year 2016, and $2.9 billion in fiscal year 2017. By law, the Governor must propose, and the Legislature must enact, a
General Fund budget that is balanced on a cash basis of accounting.
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Section 18-a Temporary Utility Assessments
: Collections of assessments on utility companies through September 2013 were lower than planned.
The lower collections were attributable to declines in utility prices and energy consumption.
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State Pension Payment
: As of November 25, 2013, the State’s 2014 pension bill had been recalculated to reflect updated information.
Monthly prepayments applied to the State’s fiscal year 2014 pension bill had resulted in net interest savings.
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General Public Health Work Program
: The State’s estimated annual reimbursement to local health departments for a share of costs associated
with providing certain public health services had been lowered as a result of lower than anticipated municipal claims on various services.
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New York State Flood Recovery
: As of November 25, 2013, the Financial Plan had been updated to include an additional $13 million in
recovery assistance aid to homeowners, business operators and farmers in five counties impacted by severe flooding that occurred between June 26 and July 3, 2013. State aid for flooding costs since budget enactment totaled $29 million.
Homeowners and renters may apply for up to $31,900 in assistance, and small business owners and farmers may apply for up to $50,000 in assistance.
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Disbursement Revisions
Balance for Fiscal Management Purposes
: As
of August 28, 2013, DOB was evaluating options for the use of this $100 million balance, including a deposit to the State’s reserves or a reduction in the amount of pension costs that will be amortized in fiscal year 2014.
Projected Closing Balances
As of August 28, 2013, DOB expected the State to end fiscal year 2014 with a General Fund closing balance of $1.8 billion, an increase of $94 million from the Enacted Budget Financial Plan. This
reflects a $100 million increase in the undesignated fund balance, offset by the use of $6 million to fund the retroactive labor settlement with lifeguards.
As of August 28, 2013, balances in the State’s principal “rainy day” reserve funds, the Tax Stabilization Reserve Fund and the Rainy Day Reserve Fund, were expected to remain unchanged
in fiscal year 2014. The combined balance of the two funds was equal to approximately 2.1 percent of estimated General Fund disbursements in fiscal year 2014. The estimated balance in the Community Projects Fund, which finances discretionary grants
allocated by the Legislature and the Governor from existing reappropriations, also had not changed since June 19, 2013.
As of August 28, 2013, the State indicated that the Financial Plan continued to reserve money in the General Fund balance to cover
the costs of potential retroactive labor settlements with unions that have not agreed to terms for prior contract periods. The reserve is calculated based on the pattern settlement for the fiscal year 2008 through fiscal year 2011 period that was
agreed to by the State’s largest unions. In fiscal year 2014, DOB estimated, as of August 28, 2013, that the reserve would be reduced by a total of $32 million to fund the fiscal year 2014 costs of the labor settlements covering prior
contract periods ($26 million for NYSCOPBA and $6 million for lifeguards represented by the United University Professions (“UUP”)). The remaining balance was expected to be reduced as labor agreements for prior periods were reached with
other unions.
As of August 28, 2013, the State indicated that the Financial Plan continued to reserve $263 million for
debt management purposes in fiscal year 2014, which is consistent with the Enacted Budget Financial Plan.
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Annual Spending Growth
As of November 25, 2013, DOB estimated that State Operating Funds spending would total $90.7 billion in fiscal year 2014, an increase
of $1.8 billion (2.1 percent) from fiscal year 2013 results. Excluding the impact of planned prepayments, State Operating Funds spending growth was estimated at 1.7 percent.
All Governmental Funds (“All Funds”) spending excluding extraordinary Federal aid for Superstorm Sandy disaster assistance and the Affordable Healthcare Act (“ACA”), which includes
capital projects and Federal Operating Funds, was expected to total $135.3 billion, an increase of $2.8 billion (2.1 percent) from fiscal year 2013 results. Excluding the impact of planned prepayments, All Funds spending growth (again excluding
Superstorm Sandy and ACA), was estimated at 1.8 percent.
As of November 25, 2013, local assistance spending in fiscal
year 2014 was expected to increase by $1.1 billion, or 1.9 percent, over fiscal year 2013 results. On a school year basis, School Aid was expected to increase by 4.9 percent in 2014, which is above the growth rate in personal income. School Aid in
the future years of the Financial Plan was assumed to increase at levels based on the growth in New York State personal income. State-funded Department of Health (“DOH”) Medicaid spending was projected to increase by 3.9 percent, excluding
the impact of the State’s takeover of Medicaid administration, consistent with the statutory growth cap. In addition, the Affordable Care Act (“ACA”) continues to provide additional Federal resources to finance Medicaid spending.
Transportation spending growth is the result of increased dedicated tax receipts and State subsidy payments to the MTA. Growth in other local assistance includes increases across several programs and activities. In addition, results in fiscal year
2013 fell below planned levels in many areas, which, absent other changes, has the effect of increasing the annual growth rate in fiscal year 2014 in those areas.
As of November 25, 2013, agency spending on personal and non-personal service was expected to remain nearly flat on an annual basis. This reflected ongoing efforts to redesign State agency operations
initiated in fiscal year 2013. Spending on fringe benefits was projected to increase by $622 million. This included an increase of $381 million in the State’s annual pension contribution, including repayment of amounts amortized in prior years.
As of November 25, 2013, the Financial Plan assumed the State would continue to amortize a percentage of its annual pension costs, consistent with legislation approved in 2010.
As of November 25, 2013, the State has indicated that consistent with past years, the aggregate spending projections (i.e., the sum
of all projected spending by individual agencies) in special revenue funds had been adjusted downward based on typical spending patterns and the observed variance over time between estimated and actual results.
The Executive Budget proposal holds fiscal year 2015 annual spending growth in State Operating Funds to 1.7 percent, below the 2 percent
spending benchmark. All Funds spending, which includes spending from capital funds and Federal funds, is expected to increase by 1.4 percent from the level estimated for 2014, excluding extraordinary Federal aid related to Superstorm Sandy
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and the implementation of the Affordable Care Act (the
“ACA”).
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In October 2012, Superstorm Sandy caused widespread flooding, power failures, and wind damage to public and private property in New York City, Long Island, and other
downstate areas. Public infrastructure, including mass transit systems, public schools, and municipal buildings, sustained serious damage. The Executive Budget reflects Federal aid which will flow to local governments, public authorities, and
not-for-profits over the next three years to continue the State’s recovery from Superstorm Sandy.
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April
—December 2013 Operating Results
General Fund Results
The State ended the month of December 2013 with a closing balance of $5.9 billion in the General Fund, $2.0 billion higher than projected in the Enacted Budget Financial Plan reflected with the Annual
Information Statement (“AIS”) (and $140 million higher than the revised projections of the Prior Quarterly Update). The higher balance was mainly due to lower than planned spending ($1.4 billion), due in large part, to the timing of
education related payments.
Through December 2013, General Fund receipts, including transfers from other funds, were $669
million higher than the fiscal year 2014 AIS projections, mainly reflecting higher non-tax revenue, with $353 million in higher miscellaneous receipts and $375 million in higher transfers from other funds.
Tax receipts were $59 million lower than Enacted Budget Financial Plan projections, largely due to lower gross collections from the
insurance and bank taxes ($535 million) caused by the weakness in 2013 liability payments. This was offset in part by higher user receipts ($189 million), due to increases in taxable purchases caused partially by Superstorm Sandy recovery spending,
and higher other taxes ($268 million), based on strong real estate prices and estate tax receipts.
Higher than anticipated
miscellaneous receipts included unanticipated settlement payments from the Bank of Tokyo-Mitsubishi UFJ (“BTMU”) ($250 million) and the Royal Bank of Scotland ($50 million) for their violation of banking laws concerning interactions with
countries subject to international sanctions; and from Deloitte Financial Advisory Services ($10 million) for its violation of banking laws during its consulting work at Standard Chartered Bank. These additional receipts were partly offset by lower
abandoned property collections ($96 million).
Transfers were higher than initially estimated due to the additional revenue
generated by the settlements between New York State and the Saint Regis Mohawk Tribe and the Seneca Nation of Indians ($230 million); and earlier than planned utilization of Federal revenues ($115 million).
In the Prior Quarterly Update, the projection for General Fund receipts through December 2013 was revised upward by $873 million to
account for the strong performance across most tax receipt categories during the first half of the fiscal year; the receipt of the unanticipated bank settlement payments; the Tribal-State compact revenue agreements; and the accelerated utilization
of Federal funding. In addition, business tax receipts were lowered to reflect the loss of revenue associated with Empire Zone tax refunds, the Long Island Power Authority (“LIPA”) restructuring, and the weakness in 2013 liability
payments.
In comparison to the Prior Quarterly Update projections, General Fund revenue collections through December 2013
were $204 million lower than planned, driven mainly by lower overall tax collections, including lower personal income tax (“PIT”) receipts ($224 million) from higher than expected refunds and lower business taxes ($357 million) due to
weakness in insurance and bank tax collections. These lower revenue collections were partly offset by higher receipts in other taxes ($143 million) as a result of the continued strength associated with real estate tax activity and higher than
expected estate tax receipts.
Through December 2013, General Fund disbursements, including transfers to other funds, were
$1.4 billion lower than AIS projections due most significantly to lower spending in local assistance programs ($989 million).
The variance in local assistance spending was primarily attributable to lower spending in education ($841 million). This was primarily
due to less than expected School Aid disbursements through December 2013 (which do not impact annual disbursement estimates), and pre-school special education payments that were processed in January 2014 instead of December 2013. The lower spending
in higher education ($84 million) reflected SUNY community college payments disbursed later than expected in the fiscal year.
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Non-personal service costs ($146 million) were lower across a number of agencies,
including DOH ($54 million); the Office of Temporary and Disability Assistance (“OTDA”) ($41 million); Judiciary ($26 million); and the Department of Taxation and Finance (“DTF”) ($18 million); partly due to the ongoing
consolidation of certain technology functions to the State’s ITS agency. The DOH variance also reflected lower spending for administrative Medicaid costs due to lower contractual services and other costs associated with the State takeover of
local administrative duties. Higher spending for General State Charges (“GSCs”) reflected lower than assumed escrow payments ($34 million); earlier than planned payments for worker’s compensation ($37 million); and higher than assumed
litigant payments ($35 million).
General Fund transfers were $429 million below initial projections due to lower transfers
for the support of capital projects ($295 million) and lower non-Medicaid support for operational costs at mental hygiene facilities ($115 million). The lower capital projects transfer reflected underspending in areas such as the Health Care
Efficiency and Affordability Law for New Yorkers (“HEAL NY”) and the environmental conservation capital programs. The variance in mental hygiene transfers was a function of timing associated with the submission of claims for payment.
In the Prior Quarterly Update, the projection for General Fund spending through December 2013 was reduced by $1.0 billion,
largely driven by adjustments in education ($383 million) and transfers to other funds ($468 million). The education spending adjustment primarily reflected the timing of the payments to school districts. General Fund transfers were lowered through
December 2013 mainly to reflect reduced support for capital projects costs ($317 million) that resulted from slower spending in the areas of health care and economic development; and lower non-Medicaid support for mental hygiene costs ($115 million)
based on updated cashflow needs. Health care costs were also adjusted downward ($144 million) to reflect both the timing of available HCRA resources to support Medicaid costs and lower public health spending for the GPHW program due to fewer than
anticipated claim submissions.
In comparison to these revised projections, General Fund spending through December 2013 was
$344 million lower than planned, largely due to lower school aid payments ($193 million) and pre-school claims that were processed in January 2014 rather than December 2013, and SUNY community college ($116 million) payments. Partly offsetting the
overall under-spending was higher than planned spending for health care ($116 million) due to the timing of Medicaid and public health payments; and higher spending for GSCs ($79 million) as a result of a higher than expected health insurance and
worker’s compensation payments.
State Operating Funds Results Versus Enacted Budget
The State ended December 2013 with a closing balance of $8.1 billion in State Operating Funds, $2.2 billion above the Enacted Budget
Financial Plan estimate ($49 million below the revised estimate included with the Prior Quarterly Update). The higher balance was mainly due to lower than planned local assistance spending ($1.3 billion), due, in large part, to the timing of
education-related payments.
Through December 2013, total receipts in State Operating Funds were $487 million higher than
projected in the AIS, reflecting the net impact of higher non-tax revenue ($681 million) and lower tax collections ($194 million).
Consistent with the General Fund results, the State Operating Funds tax receipts variance reflected higher user and estate tax receipts, offset by lower business tax receipts. In addition, there were $120
million in lower business tax revenues dedicated for transit aid due to the general weakness in statewide banking and insurance tax collections.
Higher non-tax receipts are based on the aforementioned banking institution financial settlement payments and the revenue associated with the settlement of Tribal-State compact agreements. Partly
offsetting the overall higher miscellaneous receipts collections was lower HCRA revenue attributable to the impact of the Medicaid
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Redesign Team (“MRT”) initiatives on reducing costs throughout the State’s health care industry; and lower SUNY miscellaneous receipts.
In the Prior Quarterly Update, the DOB revised the projection for State Operating Funds receipts through December 2013 upward by $901
million to reflect higher miscellaneous receipts ($582 million) and taxes ($319 million). The revisions to miscellaneous receipts included the receipt of the financial settlement payments ($260 million), the Tribal-State compact revenues ($490
million), and SUNY debt service reimbursements ($147 million); partly offset by reductions in the SUNY Dormitory Income Reimbursement Fund ($235 million); HCRA revenue ($89 million); and receipts dedicated for the transit operating funds ($42
million). Updated tax projections were mainly consistent with the General Fund adjustments, but also included lowered projections for taxes dedicated to the transit operating funds ($43 million) to account for the overall weakness in statewide
business tax collections.
Compared to these revised estimates, total State Operating Funds receipts were $414 million lower
than planned due to lower taxes ($513 million) and higher miscellaneous receipts ($99 million). The tax variance was consistent with the variances noted in the General Fund. The lower miscellaneous receipts reflected lower SUNY receipts.
State Operating Funds spending was $1.3 billion below planned levels due to lower spending in local assistance ($1.3 billion), mainly in
the areas of education and health care.
In addition to the $900 million in education and higher education variance noted in
the General Fund operating results, the State Operating Fund spending variance also reflected lower spending in the Federal-State Health Reform Partnership (“F-SHRP”) program ($104 million) due to slower than anticipated project costs;
lower spending in various HCRA-supported programs, including Medicaid ($91 million) and Elderly Pharmaceutical Insurance Coverage (“EPIC”) ($43 million), due to lack of available resources; and lower spending in transit operating costs
($64 million) as a result of fewer available resources in certain dedicated revenues, including business taxes.
In the Prior
Quarterly Update, the projection for State Operating Funds spending through December 2013 was revised downward by $633 million, consistent with the adjustments described for the General Fund. Compared to the revised projections, spending was $676
million lower than planned. This variance reflected lower health care costs ($73 million) due to continued under-spending for the F-SHRP program and reduced Medicaid support from the provider assessment account in the month of December due to the
timing concerning available resources. This variance also reflected lower transportation costs ($48 million), due largely to the reversal of a previous accounting adjustment, which shifted spending between Financial Plan categories; and lower
spending across multiple local assistance program areas ($118 million), including the STAR program.
As compared to initial
projections in the AIS, other financing sources were $378 million higher, largely as a result of the lower General Fund transfer to support capital projects ($295 million) and the accelerated utilization of Federal funding ($115 million). Compared
to revised projections, other financing sources were $311 million lower, mainly as a result of timing associated with the Federal reimbursement of mental hygiene costs ($241 million).
All Governmental Funds Results
The State ended December 2013 with an All Governmental Funds closing balance of $7.1 billion, $2.4 billion above the 2014 Enacted Budget Financial Plan estimate ($320 million higher than the revised
estimate included with the Prior Quarterly Update). The higher balance was comprised of lower than projected spending ($3.6 billion), partly offset by lower available resources ($1.2 billion).
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Through December 2013, total receipts in All Funds were $1.2 billion lower than initial
projections, reflecting the combined impact of lower Federal aid ($1.8 billion); lower tax collections ($223 million); and higher miscellaneous receipts ($767 million).
In addition to the tax collection and miscellaneous receipts variances noted earlier, other significant variances included higher than planned miscellaneous receipts for capital projects ($104 million)
due to the timing of bond reimbursements associated with certain economic development and environmental programs; and lower than anticipated Federal grants ($1.8 billion), which was roughly commensurate to the spending variances described below.
In addition to the General Fund and State Operating Funds spending variances described earlier, the most notable variances
were attributable to lower Federal spending ($2.1 billion) due to a combination of lower spending in areas such as disaster assistance ($2.2 billion), reflecting the uncertain nature of timing associated with storm recovery costs; and health care
($696 million) due to timing associated with the impact of ACA relative to initial assumptions. Partly offsetting the overall lower Federal spending was higher costs for Temporary Assistance for Needy Families (“TANF”) ($507 million),
reflecting the receipt of additional Federal funding above the base grant award; and higher Federal education costs ($255 million), due to the acceleration of Title I and the Federal Race to the Top funds designed to implement education reforms.
Lower capital spending ($166 million) was driven mainly by slower than anticipated spending across a number of programs, most
notably for projects in the health care and economic development sectors.
All Governmental Funds Annual Change
The All Governmental Funds balance through December 2013 was $7.1 billion, or $655 million higher than the prior year. The
growth in the fund balance in the 2014 fiscal year was attributable to a higher opening balance ($516 million), greater available resources from All Governmental Funds receipts ($5.2 billion), partly offset by higher year-to-date spending ($5.0
billion).
All Governmental Funds tax receipts through December 2013 were $2.6 billion higher than receipts collected during
the same time period of the prior year, with 79 percent of the growth attributable to higher PIT collections ($2.0 billion). This was due in part to strong extension payment growth in the April 2013 settlement, the result of taxpayer accelerations
of income into the 2012 tax year to avoid increased 2013 Federal tax rates. The surging 2013 stock market also led to strong estimated payment growth in December 2013. Other growth in tax receipts included higher user tax collections ($496 million)
associated with recurring and non-recurring taxable purchases such as auto sales, entertainment activities, and expenses for post-Sandy repair work; and higher other taxes ($291 million), which was attributable to growth in real estate transfer tax
liability (particularly in New York City) and growth in estate tax receipts, both in terms of volume and average amount. Decreased business tax receipts ($244 million) were driven by lower gross collections for insurance and bank taxes due to
reduced 2013 liability payments. Growth in miscellaneous receipts were mainly attributable to the additional Tribal-State revenues pursuant to the recently settled compact agreements ($435 million); increased SUNY receipts ($332 million); and
Lottery revenue ($97 million) due to higher draw games sales and increased VLT activity throughout the State. These receipts were offset by the loss of Medicaid payments from Monroe County ($120 million) which entered the State’s Medicaid local
cap program in February 2013. The remaining growth in receipts was in Federal grants ($1.6 billion) and is generally a result of increased Federal program spending, as described in greater detail below.
Nearly half of the $5.0 billion annual increase in All Governmental Funds spending through December 2013 was attributable to higher
Federal spending ($2.4 billion), mainly in the areas of health care ($814 million) due to the delayed approval of Federal rate packages in 2013; disaster assistance ($641 million) associated with Sandy-related storm recovery activities; public
assistance programs ($481 million) as a result of additional spending beyond the base TANF grant award; and education ($323 million) where payments assumed for fiscal year 2013 were not paid until the early part of fiscal year 2014.
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State Operating Funds spending had increased by $2.1 billion through December 2013
compared to the same time period of the prior year, comprised of a $617 million increase in local assistance; a $1.7 billion increase in operational costs; and a $247 million decrease in debt service.
Growth in local assistance spending included higher Medicaid spending ($907 million) due to artificially suppressed spending during the
first half of the prior year as a result of delayed Federal approval of certain rate increases; increased transit aid spending ($319 million) based on the timing of available resources; and increased higher education spending ($164 million) as a
result of budgeted growth and the timing of certain payments.
Agency operations spending growth included higher personal
service costs ($224 million) due to increased compensation and overtime payments; and higher non-personal service costs ($362 million) due to increased spending by SUNY as a result of the expansion of services being provided at campuses and teaching
hospitals. The GSC increase from the prior year ($1.1 billion) reflected the monthly payment of the State’s pension costs instead of one payment in the final month of the fiscal year—a change in practice which generated additional interest
savings.
The debt service annual change reflected increased debt service costs, offset by declines for fiscal year 2013
pre-payments and fiscal year 2014 SUNY dormitory debt service costs migrating to a new non-State credit structure.
Capital
projects spending had increased by $540 million from the prior year, which was a result of budgeted growth, particularly for DOT-related costs in the Dedicated Highway and Bridge Trust Fund (“DHBTF”), and the timing of certain transactions
relative to the prior year.
Risks and Uncertainties Related to the State Financial Plan
General
The Updated Financial Plan is subject to many complex economic, social, financial, political, and environmental risks and uncertainties, many of which are outside the ability of the State to control. DOB
believes that the projections of receipts and disbursements in the Updated Financial Plan are based on reasonable assumptions, but there can be no assurance that actual results will not differ materially and adversely from these projections. In
certain fiscal years, actual receipts collections have fallen substantially below the levels forecast in the Updated Financial Plan. In addition, the Updated Financial Plan projections are based on the assumption that annual growth in State
Operating Funds in future years is limited to 2 percent, and that all savings that result from the 2 percent limit are made available to the General Fund.
The Updated Financial Plan is based on numerous assumptions, including the condition of the State and national economies and the concomitant receipt of economically sensitive tax receipts in the amounts
projected. Other uncertainties and risks concerning the economic and receipts forecasts include the impact of the following: national and international events, such as Federal budget and debt ceiling negotiations; ongoing financial instability in
the Euro-zone; changes in consumer confidence, oil supplies and oil prices; major terrorist event, hostilities or war; climate change and extreme weather events; Federal statutory and regulatory changes concerning financial sector activities;
changes concerning financial sector bonus payouts, as well as any future legislation governing the structure of compensation; shifts in monetary policy affecting interest rates and the financial markets; financial and real estate market developments
which may adversely affect bonus income and capital gains realizations; possible changes in Federal tax law relating to the taxation of interest on municipal bonds; and the levels of household debt, which may adversely affect consumer spending and
State tax collections.
The Updated Financial Plan is subject to various other uncertainties and contingencies relating to the
extent, if any, to which wage increases for State employees exceed projected annual wage costs; changes in the size of the State’s workforce; the realization of the projected rate of return for pension fund assets and current
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assumptions with respect to wages for State employees affecting the State’s required pension fund contributions; the extent to which litigation-related judgments against the State results in
new or higher than projected costs; the willingness and ability of the Federal government to provide the aid contemplated by the Updated Financial Plan; the ability of the State to implement cost reduction initiatives, including reductions in State
agency operations, and the success with which the State controls expenditures; and the ability of the State and its public authorities to market securities successfully in the public credit markets. Some of these specific issues are described in
more detail herein. The projections and assumptions contained in the Updated Financial Plan are subject to revisions which may involve substantial changes resulting from the occurrence of one or more uncertainties. No assurance can be given that
these estimates and projections, which depend in part upon actions the State expects to be taken but that are not within the State’s control, will be realized.
Budget Risks and Uncertainties
The DOB expects the General Fund to
remain in balance in the 2014 fiscal year, and that the Executive Budget Financial Plan for fiscal year 2015 would, if enacted without modification by the Legislature, provide for balanced operations in fiscal year 2015. There can be no assurance,
however, that the State’s financial position will not change materially and adversely from projections as of February 27, 2014. If this were to occur, the State would be required to take additional gap-closing actions. Such actions may
include, but are not limited to, additional reductions in State agency operations; delays or reductions in payments to local governments or other recipients of State aid; delays in or suspension of capital maintenance and construction; extraordinary
financing of operating expenses; or other measures. In some cases, the ability of the State to implement such actions requires the approval of the Legislature and cannot be implemented solely by the action of the Governor.
The Updated Financial Plan projections generally assume that School Aid and Medicaid disbursements will be limited to the growth in New
York State personal income and the ten-year average growth in the Medicaid component of the Consumer Price Index (“CPI”), respectively. However, the fiscal year 2014 Enacted Budget authorized spending for School Aid to increase in excess
of the growth in personal income for school year 2014. A proposal is included in the fiscal year 2015 Executive Budget that would allow School Aid to grow at approximately 4 percent in school year 2015, in parity with Medicaid, but above the 3.1
percent growth in personal income that would otherwise be used to calculate School Aid increases. Higher spending for education may occur if voters approve the Smart Schools bond act in November 2014.
State law grants the Governor certain powers to achieve the Medicaid savings assumed in the Updated Financial Plan. However, there can be
no assurance that these powers will be sufficient to limit the rate of annual growth in DOH State Funds Medicaid spending to the levels estimated in the Updated Financial Plan. In addition, savings are dependent upon timely Federal approvals,
revenue performance in the State’s HCRA fund (which finances approximately one-third of the DOH State-share costs of Medicaid), and the participation of health care industry stakeholders.
The forecast contains specific transaction risks and other uncertainties including, but not limited to, the receipt of certain payments
from public authorities; the receipt of miscellaneous revenues at the levels expected in the Updated Financial Plan, including payments pursuant to the Tribal-State Compact that have failed to materialize in prior years, but which were received in
the current year as part of an agreement between the State and certain tribal nations; and the achievement of cost-saving measures including, but not limited to, the transfer of available fund balances to the General Fund at the levels projected as
of February 27, 2014. Such risks and uncertainties, if they were to materialize, could have an adverse impact on the Updated Financial Plan in the current year or future years.
Federal Issues
The State receives a substantial amount of Federal aid for health care, education, transportation, and other governmental purposes, as well as Federal funding to address response and recovery to severe
weather events.
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Any reduction in Federal funding levels could have a materially adverse impact on the Updated Financial Plan. In addition, the Updated Financial Plan may be adversely affected by other actions
taken by the Federal government, including audits, disallowances, and changes to Federal participation rates or other Medicaid rules. Issues of particular concern are described below.
Medicaid Redesign Team Medicaid Waiver
Pursuant to discussions with the Federal Government, the Centers for Medicare and Medicaid Services (“CMS”) and the State have reached an agreement in principle authorizing up to $8 billion in
Federal funding, over multiple years, for use in transforming New York’s health care system. The final terms of this agreement are still being negotiated and upon final CMS approval are expected to be reflected as an amendment to the
State’s Partnership Plan 1115 Medicaid waiver.
Federal Reimbursement for State Mental Hygiene Services
Pursuant to discussions with the Federal government, the State has lowered Medicaid developmental disability center
payment rates effective April 1, 2013. Full implementation of this change is expected to reduce Federal funding to the State by approximately $1.1 billion annually, beginning in fiscal year 2014. The 2014 Enacted Budget included a plan to
address the loss in Federal aid, including $90 million in the Office for People with Developmental Disabilities (“OPWDD”) savings associated with reduced administrative costs, enhanced audit recoveries and improved program efficiencies.
The plan is subject to implementation risks and is dependent, in part, on the approval of the Federal government. In addition, as described below, the CMS may seek to retroactively recover Federal funds paid to the State regarding this matter.
Audit Disallowance
In addition to the reductions in rates that commenced on April 1, 2013, on February 8, 2013, the U.S. Department of Health & Human Services Office of the Inspector General, at the
direction of the CMS, began a review to determine the allowability of Medicaid costs for services provided in prior years to the Medicaid population in New York State-Operated Intermediate Care Facilities for the Developmentally Disabled
(“ICF/DD”). The initial review period includes claims for services provided from April 1, 2010 through March 31, 2011. As a result of this review, CMS may seek to recover Federal funds for any payments that it determines to have
been in excess of Federal requirements. The State has attempted to address CMS concerns regarding its prospective payments to ICF/DDs with a State plan change effective April 1, 2013, and continues to have discussions with CMS to resolve the
concerns related to the April 1, 2010 through March 31, 2011 period. As noted above, the changes begun in fiscal year 2014 are expected to result in a reduction in Federal aid of an estimated $1.1 billion annually beginning in fiscal year
2014. A comparable amount of Federal aid is at risk for any prior period that may be pursued by CMS. Matters of this type are sometimes resolved with a prospective solution (as already commenced by the State), and the State is not aware of any
similar attempts by the Federal government to retroactively recover Federal aid of this magnitude that was paid pursuant to an approved State plan. The State continues to seek CMS approval to proceed with the development of a sustainable system of
service funding and delivery for individuals with developmental disabilities. However, there can be no assurance that Federal action in this matter will not result in materially adverse changes to the Executive Budget Financial Plan.
Budget Control Act
The Federal Budget Control Act (“BCA”) of 2011 imposed annual caps on Federal discretionary spending over a ten-year period and mandated an additional $1.2 trillion in deficit reduction, which,
if not enacted, would be achieved through the sequestration of funds in Federal Fiscal Year (“FFY”) 2013 and lowered discretionary spending caps in the following years. As the required deficit reduction was not achieved by the
March 1, 2013 deadline, an across-the-board 5 percent reduction in FFY 2013 funding for Federal nondefense discretionary
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programs was implemented. In December 2013, the spending caps for FFY 2014 and 2015 were revised upward by the Bipartisan Budget Act (“BBA”) of 2013. While the BBA provided minor
discretionary cap relief over two years, BCA caps in the remaining years were not addressed. Although specific funding levels will be determined through the annual congressional budget process if the lowered spending caps remain in place. DOB
estimates that New York State and local governments could lose approximately $5 billion in Federal funding over nine years, including reductions in Federal funding that passes through the State budget for school districts, as well as environmental,
criminal justice and social services programs.
Debt Ceiling
In October 2013, an impasse in Congress caused a temporary Federal government shutdown and raised concern for a time that the Federal debt
ceiling would not be raised in a timely manner. A Federal government default on payments, particularly if it persisted for a prolonged period, could have a materially adverse effect on the national and state economies, financial markets, and
intergovernmental aid payments.
The specific effects on the Executive Budget Financial Plan of a Federal government payment
default in the future are unknown and impossible to predict. However, data from past economic downturns suggest that the State’s revenue loss could be substantial if the economy goes into a recession due to a Federal default.
A payment default by the United States may adversely affect the municipal bond market. Municipal issuers, as well as the State, could
face higher borrowing costs and impaired market access. This would jeopardize planned capital investments in roads and bridges, higher education facilities, hazardous waste remediation, environmental projects, and economic development projects.
Additionally, the market for and market value of outstanding municipal obligations, including municipal obligations of the State, could be adversely affected.
Health Insurance Company Conversions
State law permits a health
insurance company to convert its organizational status from a not-for- profit to a for-profit corporation (a “health care conversion”), subject to a number of terms, conditions, and approvals. Under State law, the State is entitled to
proceeds from the monetization of a health service corporation, from a not-for-profit to a for-profit corporation, and such proceeds must be used by the State for health-care related expenses. In recent years, the Financial Plan has counted on
proceeds from conversions ($175 million in fiscal year 2014, and $300 million annually in fiscal year 2015, fiscal year 2016, and fiscal year 2017 in the fiscal year 2014 Enacted Budget), which have not been realized. For planning purposes, the
Executive Budget Financial Plan no longer counts on conversion proceeds.
Status of Labor Negotiations for the Contract
Period Starting in Fiscal Year 2012
As of February 27, 2014, the State had settled collective bargaining agreements
for the contract period commencing in fiscal year 2012 with 90 percent of the State workforce, and nearly the entire workforce subject to direct Executive control. Five-year agreements were reached with the Civil Service Employees Association
(“CSEA”), the United University Professions (“UUP”), the New York State Correctional Officers and Police Benevolent Association (“NYSCOPBA”), and Council 82. Four-year agreements were reached with the Public Employees
Federation (“PEF”) and the New York State Police Benevolent Association (“NYSPBA”).
The settled
agreements yielded wage and benefit concessions in exchange for contingent employee job protection through the respective contract periods. Nevertheless, reductions in force may be authorized if the State’s fiscal circumstances change
materially or unexpectedly, or if such reductions are associated with the closure or restructuring of facilities authorized by legislation or by a Spending and Government Efficiency Commission (“SAGE”) determination.
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The agreements have provided: two-year Deficit Reduction Plan (“DRP”) savings
of $300 million; no general salary increases for the three-year period fiscal year 2012 through fiscal year 2014; a 2 percent general salary increase in fiscal year 2015; and a 2 percent general salary increase in fiscal year 2016 for the employees
with five-year agreements. Additionally, the agreements provided full-annual health benefit savings of $230 million resulting from increases to employee/retiree premium shares, co-pays, out-of-network deductibles and coinsurance.
Two lump sum payments—$775 in fiscal year 2014 and $225 in fiscal year 2015—were or are expected to be paid to employees
represented by CSEA, NYSPBA, NYSCOPBA and Council 82. PEF did not negotiate these lump sum payments, but covered employees are expected to receive repayment for all DRP reductions over an extended time at the end of the contract term. The employees
represented by unions which negotiated the lump sum payments are expected to be repaid a portion of their DRP reductions over an extended term at the end of their respective contract terms. UUP employees may receive lump sum payments of similar
value in the form of the Chancellor’s Power of SUNY Awards and Presidential Discretionary Awards.
The unions
representing Graduate Students, State Police Troopers, Investigators and Commissioned/Non-Commissioned Officers, as well as employees represented by District Council-37 (Housing) in the Division of Homes and Community Renewal (“DHCR”),
continue to have unsettled contracts for the current contract period. The Updated Financial Plan does not include a General Fund reserve for this purpose.
Labor Settlements for Prior Contract Periods
The Updated Financial Plan
continues to include a General Fund reserve to cover the costs of a pattern settlement for unsettled contracts prior to fiscal year 2011. There is no assurance this reserve will fully fund these unsettled contracts. In addition, the State’s
ability to fund all future agreements in fiscal year 2015 and beyond depends on the achievement of balanced budgets in those years.
Cash-Flow Projections
The State authorizes the General Fund to borrow
resources temporarily from available funds in the Short-Term Investment Pool (“STIP”) for up to four months, or to the end of the fiscal year, whichever period is shorter. The amount of resources that can be borrowed by the General Fund is
limited to the available balances in STIP, as determined by the State Comptroller. Available balances include money in the State’s governmental funds and a relatively small amount of other moneys belonging to the State. Several accounts in Debt
Service Funds and Capital Projects Funds that are part of All Governmental Funds are excluded from the balances deemed available in STIP. These excluded funds consist of bond proceeds and money obligated for debt service payments.
As of February 27, 2014, the DOB expected that the State would have sufficient liquidity to make payments as they become due
throughout the remainder of fiscal year 2014 and fiscal year 2015, but that the General Fund might, from time to time on a daily basis, need to borrow resources temporarily from other funds in STIP. The State continues to reserve money on a
quarterly basis for debt service payments that are financed with General Fund resources. Money to pay debt service on bonds secured by dedicated receipts, including personal income tax bonds and Sales Tax bonds, continues to be set aside as required
by law and bond covenants.
Pension Amortization
Under legislation enacted in August 2010, the State and local governments may amortize (defer paying) a portion of their annual pension
costs beginning in fiscal year 2011. Amortization temporarily reduces the pension costs that must be paid by public employers in a given fiscal year, but results in higher costs overall when repaid with interest.
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The 2010 legislation enacted a formula to set an amortization threshold for each year.
The amortization threshold (the “graded rate”) may increase or decrease in the direction of the actuarial contribution rate (the “normal rate”) by up to one percentage point annually. Pension contribution costs in excess of the
graded rate may be amortized. Amortization is permitted in all years if the normal rate is greater than the graded rate. However, when the graded rate equals or exceeds the normal rate, amortization is not allowed.
In fiscal year 2015, the graded contribution rates for the Employees’ Retirement System (“ERS”) and the Police and Fire
Retirement System (“PFRS”) will be 13.5 percent and 21.5 percent, respectively. The Executive Budget Financial Plan assumes the State will continue to amortize its pension costs in fiscal year 2015 at these rates.
As of February 27, 2014, the Updated Financial Plan forecast assumes that the State will continue to amortize a portion of its
pension costs, pursuant to the fiscal year 2011 legislation. The State’s minimum ERS pension contribution rate, as a percentage of payroll, was 9.5 percent in fiscal year 2011, 10.5 percent in fiscal year 2012, 11.5 percent in fiscal year 2013,
and is expected to be 12.5 percent in fiscal year 2014. DOB projects the rate to be 13.5 percent in fiscal year 2015, 14.5 percent in fiscal year 2016, and 15.5 percent in fiscal year 2017. The fiscal year 2018 amortization threshold is projected by
DOB to equal the normal contribution rate of 15.6 percent of payroll. Therefore, no amortization of ERS costs is expected to be applicable for fiscal year 2018 and beyond.
For both ERS and PFRS, the DOB projects the fiscal year 2016 graded rates will be equal to, or more than, the normal contribution rates. As such, continued amortization is not expected. Furthermore, the
DOB projects the graded rates are expected to exceed the normal contribution rates in fiscal year 2017 through fiscal year 2020. In these years, contributions that exceed the normal contributions are expected to be used to pay outstanding costs of
prior year amortizations, as required by statute. These projections are based on projected market returns and numerous actuarial assumptions. The next five-year experience study conducted by the Retirement Systems’ Actuary is scheduled to take
place in 2015 and could change these projections materially.
The State is required to begin repayment on each new
amortization in the fiscal year immediately following the year in which the deferral was made. The full amount of the amortization, with interest, must be repaid within ten years, but the amount can be paid-off sooner. The annual interest rate on
each new amortization is determined by the Office of the State Comptroller, and is fixed for the entire term of the deferral.
In fiscal year 2013, the State made pension payments to the New York State & Local Retirement System (“NYSLRS”) of
$1.217 billion, of which $674.1 million was amortized. In addition, the State’s Office of Court Administration (“OCA”) made its pension payment of $189.4 million, of which $104.4 million was amortized. The total deferred
amount—$778.5 million—will be repaid with interest over the next ten years, beginning in fiscal year 2014.
For
amounts amortized in fiscal year 2011, fiscal year 2012, fiscal year 2013, and fiscal year 2014, the State Comptroller set interest rates of 5 percent, 3.75 percent, 3 percent, and 3.67 percent, respectively. The Executive Budget Financial Plan
assumes that both the State and OCA are expected to elect to amortize pension costs in future years, consistent with the provisions of the authorizing legislation, and repay such amounts at an interest cost assumed by DOB to be 3.67 percent per
annum over ten years from the date of each deferred payment, consistent with the interest rate charged on the fiscal year 2014 amortized amounts.
Part TT of Chapter 57 of the Laws of 2010 requires that: (a) the State make additional contributions in upcoming fiscal years, above the actuarially required contribution and (b) once all
outstanding amortizations are paid off, additional contributions be set aside as reserves for rate increases, to be invested by the State Comptroller and used to offset future rate increases.
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As noted above, DOB’s most recent pension contribution rate forecast assumes that
the normal contribution rate is to equal the graded rate in fiscal year 2016. Therefore, the State would not have the option to amortize any of its pension costs in 2016, or in the immediately succeeding fiscal years. In addition, this forecast
assumes the State will make amortization payments on prior deferrals pursuant to the formula in the statute. These payments are projected to occur in fiscal year 2017 through fiscal year 2021. Projections are based on certain DOB assumptions about
actuarial factors on investment earnings and benefits to be paid, and while DOB believes such assumptions to be reasonable, actual results may vary from the projections, and such variances could be substantial.
Other Post-Employment Benefits (“OPEB”)
State employees become eligible for post-employment benefits (i.e., health insurance) if they reach retirement while working for the State, are enrolled in the New York State Health Insurance Program
(“NYSHIP”), or are enrolled in the State’s opt-out program at the time they have reached retirement, and have at least ten years of eligible service for NYSHIP benefits. The cost of providing post-retirement health insurance is shared
between the State and the retired employee. Contributions are established by law and may be amended by the Legislature. The State pays its share of costs on a pay-as-you-go basis as required by law.
In accordance with the Governmental Accounting Standards Board (“GASB”) Statement 45, the State must perform an actuarial
valuation every two years for purposes of calculating OPEB liabilities. As disclosed in Note 13 of the State’s Basic Financial Statements for fiscal year 2013, the Annual Required Contribution (“ARC”) represents the projected annual
level of funding that, if set aside on an ongoing basis, is projected to cover projected normal costs each year and to amortize any unfunded liabilities of the plan over a period not to exceed 30 years. Amounts required but not actually set aside to
pay for these benefits are accumulated, with interest, as part of the net OPEB obligation, after adjusting for amounts previously required.
As reported in the State’s Basic Financial Statements for fiscal year 2013, the projected unfunded actuarial accrued liability for fiscal year 2013 is $66.5 billion ($54.3 billion for the State and
$12.2 billion for SUNY), a decline of $5.5 billion from fiscal year 2012 ($5.4 billion for the State and $0.1 billion for SUNY). The unfunded actuarial accrued liability for fiscal year 2013 used an actuarial valuation of OPEB liabilities as of
April 1, 2012 for the State and as of April 1, 2010 for SUNY. These valuations were determined using the Frozen Entry Age actuarial cost method, and are amortized over an open period of 30 years using the level percentage of projected
payroll amortization method.
The actuarially determined annual OPEB cost for fiscal year 2013 totaled $3.4 billion ($2.6
billion for the State and $0.8 billion for SUNY), a decline of $520 million from fiscal year 2012 ($490 million for the State and $30 million for SUNY). The actuarially determined cost was calculated using the Frozen Entry Age actuarial cost method,
allocating costs on a level basis over earnings. The actuarially determined cost was $2.0 billion ($1.4 billion for the State and $0.6 billion for SUNY) greater than the cash payments for retiree costs made by the State in fiscal year 2013. This
difference between the State’s pay-as-you-go costs, and the actuarially determined required annual contribution under Governmental Accounting Standards Bureau Statement 45, reduced the State’s net asset condition at the end of fiscal year
2013 by $2.0 billion.
The Governmental Accounting Standards Bureau does not require the additional costs to be funded on the
State’s budgetary (cash) basis, and no funding is assumed for this purpose in the Executive Budget Financial Plan. The State continues to finance these costs, along with all other employee health care expenses, on a pay-as-you-go basis.
As of February 27, 2014, there was no provision in the Updated Financial Plan to fund the actuarial required
contribution for OPEB. If the State began making the actuarial required contribution, the additional cost above the pay-as-you-go amounts would be lowered. The State’s Health Insurance Council, which consists of The Governor’s Office of
Employee Relations (“GOER”), Civil Service and DOB, will continue to review this matter
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and seek input from the State Comptroller, the legislative fiscal committees and other outside parties. However, it is not expected that the State will alter its planned funding practices in
light of existing fiscal conditions.
Financial Settlements
The State periodically receives financial settlements that are deposited to the General Fund. Based on recent experience, the Updated
Financial Plan includes additional expected receipts from settlement proceeds of approximately $275 million in fiscal year 2015, $250 million in fiscal year 2016, and $100 million in fiscal year 2017 and fiscal year 2018. There can be no assurance
that State settlement proceeds in upcoming fiscal years will be received at the levels assumed in the Updated Financial Plan.
Litigation
Litigation against the State may include potential challenges to the constitutionality of various actions. The State may also be affected by adverse decisions that are the result of various lawsuits. Such
adverse decisions may not meet the materiality threshold to warrant individual description but, in the aggregate, could still adversely affect the Updated Financial Plan. For more information on litigation affecting the State, see the section
entitled “Litigation and Arbitration” later in this appendix.
Update on Storm Recovery
Within the last three years, New York State has sustained damage from three powerful storms that crippled entire regions. In August 2011,
Hurricane Irene disrupted power and caused extensive flooding to various New York State counties. In September 2011, Tropical Storm Lee caused flooding in additional New York State counties and, in some cases, exacerbated the damage caused by
Hurricane Irene two weeks earlier. Little more than one year later, on October 29, 2012, Superstorm Sandy struck the East Coast, causing widespread infrastructure damage and economic losses to the greater New York region. The frequency and
intensity of these storms presents economic and financial risks to the State. State claims for reimbursement for the costs of the immediate response are in process, and both recovery and future mitigation efforts have begun, largely supported by
Federal funds. In January 2013, the Federal government approved approximately $60 billion in Federal disaster aid for general recovery, rebuilding and mitigation activity nationwide. New York anticipates receiving approximately one-half of this
amount over the coming years for response, recovery, and mitigation costs. There can be no assurance that all anticipated Federal disaster aid described above will be provided to the State and its affected entities, or that such Federal disaster aid
will be provided on the expected schedule.
Climate Change Adaptation
Climate change is expected to cause long-term threats to physical and biological systems. Potential hazards and risks related to climate
change for the State include, among other things, rising sea levels, more severe coastal flooding and erosion hazards, and more intense storms. Storms in recent years, including Superstorm Sandy, Hurricane Irene, and Tropical Storm Lee, have
demonstrated vulnerabilities in the State’s infrastructure, including mass transit systems, power transmission and distribution systems, and other critical lifelines, to extreme weather events, including coastal flooding caused by storm surges.
Significant long-term planning and investment by the Federal government, State, and municipalities is expected to be needed to adapt existing infrastructure to the risks posed by climate change.
Financial Condition of New York State Localities
The fiscal demands on the State may be affected by the fiscal conditions of New York City and potentially other localities, which rely in part on State aid to balance their budgets and meet their cash
requirements. Certain localities outside New York City, including cities, and counties, have experienced financial problems and have requested and received additional State assistance during the last several State fiscal years. In 2013, the
Financial
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Restructuring Board for Local Governments was created to provide assistance to distressed local governments by performing comprehensive reviews and providing grants and loans as a condition of
implementing recommended efficiency initiatives. For more information, see the section entitled “Authorities and Localities” later in this appendix.
Bond Market
Implementation of the Executive Budget Financial Plan is
dependent on the State’s ability to market its bonds successfully. The State finances much of its capital spending in the first instance from the General Fund or STIP, which it then reimburses with proceeds from the sale of bonds. If the State
cannot sell bonds at the levels (or on the timetable) expected in the capital plan, the State’s overall cash position and capital funding plan may be adversely affected. The success of projected public sales is expected to, among other things,
be subject to prevailing market conditions. Future developments in the financial markets, including possible changes in Federal tax law relating to the taxation of interest on municipal bonds, as well as future developments concerning the State and
public discussion of such developments, generally may affect the market for outstanding State-supported and State-related debt.
Capital Commitment Plan
The State continues to implement the best practices put forth by the New York Works Task Force (the “Task Force”). The Task Force was formed in May 2012 to assist in the coordination of
long-term capital planning among State agencies and public authorities. Consistent with the long-term planning goals of New York Works, the DOB formulated 10-year capital commitment and disbursement projections. The total commitment and disbursement
levels permissible over the 10-year capital planning horizon reflect, among other things, projected capacity under the State’s statutory debt limit, anticipated levels of Federal aid, and the timing of capital activity based on known needs and
historical patterns.
Consolidated Public Health Laboratory
The Executive Budget includes authorization for the Executive to evaluate and, if appropriate, enter into a public-private partnership for
the design, construction, operations, maintenance and financing of a new public health laboratory facility in Albany to consolidate and replace the five Wadsworth (Department of Health) lab locations and co-locate certain laboratory functions of the
Department of Environmental Conservation. The current laboratory facilities are nearing the end of their useful lives and are not readily adaptable to meet current research functions. A new facility is expected to take 5 years to construct and would
be sized to deliver existing laboratory functions in a smaller footprint while also creating opportunities to expand research capabilities. The location of the facility would be proximate to other State laboratories (i.e., Agriculture &
Markets, State Police, Homeland Security), which the Executive expects to provide shared service efficiencies. Given the size, scope and technical complexity of this project, the Executive believes that a public-private partnership may offer
advantages compared to traditional design and construction options. The Executive believes such advantages may include accelerated project delivery, coordinated project delivery with a single point of accountability, transference of development
risks to the private sector, and avoidance of up-front State financial outlay. The agreement might also permit use of the facility by private or not-for-profit users that are complementary to the public laboratory function, and could last up to 50
years
Debt Reform Act Limit
The Debt Reform Act of 2000 (the “Debt Reform Act”) restricts the issuance of State-supported debt to capital purposes only and limits such debt to a maximum term of 30 years. The Debt Reform
Act limits the amount of new State-supported debt to 4 percent of State personal income and new State-supported debt service costs to 5 percent of All Funds receipts. The restrictions apply to all new State-supported debt issued since April 1,
2000. The cap on new State-supported debt outstanding began at 0.75 percent of personal income in
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fiscal year 2001 and was fully phased-in at 4 percent of personal income during fiscal year 2011, while the cap on new State-supported debt service costs began at 0.75 percent of All Funds
receipts in fiscal year 2001 and is slated to be fully phased in at 5 percent during fiscal year 2014. The State was in compliance with the statutory caps for the most recent calculation period (fiscal year 2013).
Projections as of February 27, 2014 reflected that debt outstanding and debt service were expected to continue to remain below the
limits imposed by the Debt Reform Act. Based on the most recent personal income and debt outstanding forecasts, as of February 27, 2014, the available room under the debt outstanding cap is expected to decline from $3.2 billion in fiscal year
2013 to $101 million in fiscal year 2016. This includes the estimated impact of the bond-financed portion of proposed increased capital commitment levels. Debt outstanding and debt service caps continue to include the existing SUNY Dormitory
Facilities lease revenue bonds, which are backed by the State. Bonds issued under the new SUNY Dormitory Facilities Revenue credit implemented in 2013 are not included in the State’s calculation of debt caps. The State has indicated that
capital spending priorities and debt financing practices may be adjusted from time to time to preserve available debt capacity and stay within the statutory limits, as events warrant.
Debt Financing Changes
Sales Tax Revenue Bond Program
Legislation adopted with the Fiscal
Year 2014 Enacted Budget creates a new Sales Tax Revenue Bond Program that are to constitute “State-supported debt” and are slated to be subject to the Debt Reform Act debt caps described above. The legislation creates the Sales Tax
Revenue Bond Tax Fund, a sub-fund within the General Debt Service Fund that is to provide for the payment of these bonds. The new Sales Tax Revenue Bonds are secured by the dedication of payments from this fund, which is to receive one
(1) percent of the State’s four (4) percent sales and use tax receipts. With a limited exception, upon the satisfaction of all of the obligations and liabilities of the Local Government Assistance Corporation (“LGAC”), the
amount of sales tax receipts directed to this fund is to increase to two percent. Tax receipts in excess of debt service requirements would be transferred to the State’s General Fund.
The Sales Tax Revenue Bonds are to be used interchangeably with personal income tax bonds to finance most of the State’s capital
needs. As of February 27, 2014, based on projections and anticipated coverage requirements, the State expects to issue about $1 billion of Sales Tax Revenue Bonds annually. The first bonds for the Sales Tax Revenue Bond Program were issued in
October 2013.
SUNY Dormitory Facilities
Revenue Bond Program
Legislation included in the Fiscal Year 2014 Enacted Budget created a new bonding program for SUNY Dormitory Facilities. The new bonding
program is to be supported solely by third party revenues generated by student rents. All rental revenues are to flow to the newly created Dormitory Facilities Revenue Fund held by the Commissioner of Taxation and Finance as assigned to the
Dormitory Authority of the State of New York (“DASNY”) for the payment of debt service without an appropriation. Unlike the existing program, the new program is not expected to include a SUNY general obligation pledge, thereby eliminating
any recourse to the State. Accordingly, such bonds would not be classified as State-supported debt for purposes of the Debt Reform Act. It is expected that future SUNY Dormitory Facilities capital needs are to be funded through the new credit. Under
this legislation, the existing SUNY Dormitory Facilities lease revenue bonds and associated debt service are expected to continue to be counted as State-supported debt until they are refunded into the new program or are paid off at maturity. The
first bonds on the new SUNY Dormitory Facilities credit were issued in August 2013.
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Secured Hospital Program
Under the Secured Hospital Program, the State entered into service contracts to enable certain financially distressed not-for-profit
hospitals to have tax-exempt debt issued on their behalf to pay for the cost of upgrading their primary health care facilities. In the event of shortfalls in revenues to pay debt service on the Secured Hospital bonds (which include hospital payments
made under loan agreements between the Dormitory Authority of the State of New York (“DASNY”) and the hospitals and certain reserve funds held by the applicable trustees for the bonds) the service contracts obligate the State to pay debt
service, subject to annual appropriations by the Legislature, on bonds issued by the New York State Medical Care Facilities Financing Agency (“MCFFA”) and by DASNY through the Secured Hospital Program. As of January 1, 2014, there was
approximately $390 million of bonds outstanding for this program.
The financial condition of hospitals in the State’s
Secured Hospital Program continues to deteriorate. Of the six remaining hospitals in the program, two are experiencing significant operating losses that have impaired their ability to remain current on their loan agreements with DASNY. In relation
to the Secured Hospital Program, the State expects to pay debt service costs of $13 million in fiscal year 2014, approximately $30 million annually for fiscal year 2015 through fiscal year 2017, and $17 million in fiscal year 2018. These amounts are
based on the actual experience through November 25, 2013 of the participants in the program, and would cover the debt service costs for two hospitals that, as of November 25, 2013, were not meeting the terms of their legal agreements with
DASNY, as well as the debt service costs of a third hospital that, as of November 25, 2013, was closed. The State has estimated additional exposure of up to $36 million annually, if all hospitals in the program failed to meet the terms of their
agreement with DASNY and if available reserve funds were depleted.
SUNY Downstate Hospital and Long Island College
Hospital
In May 2011, the New York State Supreme Court issued an order (the “May 2011 Order”) that approved the
transfer of real property and other assets of Long Island College Hospital (“LICH”) to a New York State not-for-profit corporation (“Holdings”), the sole member of which is SUNY. Subsequent to such transfer, Holdings leased the
LICH hospital facility to SUNY Downstate Hospital (“Downstate Hospital”). In 2012, DASNY issued a portion of its tax exempt State Personal Income Tax Revenue Bonds (“PIT Bonds”), Series 2012D to refund approximately $100 million
in outstanding debt originally incurred by LICH.
To address the deteriorating financial condition of Downstate Hospital,
which had been caused in part by the deteriorating financial position of LICH, legislation adopted with the fiscal year 2014 Enacted Budget required the Chancellor of SUNY to submit to the Governor and the Legislature a multi-year sustainability
plan for the Downstate Hospital. Specifically, the legislation required the sustainability plan to: 1) set forth recommendations necessary to achieve financial stability for Downstate Hospital, and 2) preserve the academic mission of Downstate
Hospital’s medical school. In accordance with this legislation, the Chancellor of SUNY submitted the sustainability plan for Downstate Hospital on May 31, 2013, and supplemented the plan with changes in a letter dated June 13, 2013.
The supplemented plan was approved by both the Commissioner of Health and the Director of the Budget on June 13, 2013. Generally, the approved sustainability plan anticipates: a) a significant restructuring of health care service lines at
University Hospital Brooklyn in order to achieve financial milestones assumed in the sustainability plan, and supported by State financial assistance from the State Department of Health; and, b) leveraging the LICH asset value to support the costs
associated with Downstate Hospital exiting LICH operations, while accommodating continued health care services consistent with the needs of the community. Pursuant to the sustainability plan, as supplemented, SUNY, together with Holdings, issued a
request for proposals (the “RFP”) to provide healthcare services in or around the LICH facilities and to purchase the LICH real estate.
In 2013, State Supreme Court Judge Demarest, who issued the May 2011 Order, issued, sua sponte, certain additional orders that could have affected the validity of the May 2011 Order. Also, in 2013, State
Supreme Court Judge Baynes issued a series of orders that, effectively, precluded SUNY from awarding the RFP and
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exiting LICH operations. On February 25, 2014, Judges Demarest and Baynes approved a settlement whereby all parties agreed to discharge their claims and the judges vacated their orders. The
settlement requires SUNY, together with Holdings, to issue a new request for proposals that is drafted to increase the likelihood the healthcare services component of the successful proposal would include a full-service hospital. The structure of
the settlement also increases the likelihood that sufficient proceeds from the transaction will be available to support defeasance of the PIT Bonds and other costs associated with SUNY’s exit from LICH. However, there can be no assurance that
the resolution of the legal and financial issues surrounding LICH, including payment of outstanding liabilities, will not have a materially adverse impact on SUNY.
STATE FINANCIAL PLAN PROJECTIONS
Fiscal Years 2014 Through 2018
This section presents the State’s updated multi-year Financial Plan and the projections for receipts and
disbursements, reflecting the impact of the revisions to the Executive Budget Financial Plan. This section includes projections for fiscal years 2014 through 2018, with an emphasis on the fiscal year 2015 projections.
In evaluating the State’s multi-year operating forecast, it should be noted that the reliability of the estimates and projections as
a predictor of the State’s future financial position is likely to diminish the further removed such estimates and projections are from the date of the Updated Financial Plan. Accordingly, in terms of out-year projections (fiscal year 2016
through fiscal year 2018), fiscal year 2016 is the most relevant from a planning perspective.
Summary
As of February 27, 2014, the DOB estimated that the Executive Budget, if enacted as proposed, would limit the increase in State
Operating Funds spending to 1.7 percent and eliminate the General Fund budget gap of $1.7 billion in fiscal year 2015.
As of
November 25, 2013, the 2014 fiscal year All Funds tax receipt estimates had been unchanged from the First Quarterly Update to the Financial Plan. Miscellaneous receipts had been revised down by $47 million, due to the estimated impact of lower
utility bills on section 18-a receipts.
The Revenue Outlook
Receipts in fiscal year 2014 reflect:
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A better than expected 2012 tax year personal income tax settlement, mainly the result of capital gains and income shifted from 2013 and other future
years into 2012 in anticipation of higher Federal tax rates beginning in 2013;
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December 2013 and January 2014 personal income tax estimated payments that exceeded expectations, likely the result of the surging stock market;
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Strong estate tax collections, also likely due in some degree to the increase in net worth generated by stock market gains;
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Robust sales tax collection growth resulting, in part, from Superstorm Sandy recovery spending;
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An uptick in real estate transfer tax collections growth, generally from improved conditions downstate; and
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Disappointing business tax results, mainly from the banking sector, whose profits suffered from fines and increased mortgage rates that reduced taxable
income.
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Receipts in fiscal year 2015 are expected to reflect:
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Personal income tax growth consistent with the estimated wage and personal income growth discussed above, but tempered by increased refunds generated
by the payback of tax credits deferred in the 2010-2012 tax years and tax cuts proposed with the Executive Budget;
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A return to trend taxable consumption growth after the above average growth experienced in fiscal year 2014;
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Another decline in business tax receipts due primarily to the credit deferral payback;
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A decline in estate tax receipts generated by the tax cut proposed with the Executive Budget; and
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A slowdown in real estate transfer tax receipt growth consistent with long-term averages.
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All Funds Receipts Projections
The receipts forecast describes estimates for the State’s principal taxes, miscellaneous receipts, and transfers from other funds. Financial Plan receipts comprise a variety of taxes, fees, and
charges for State-provided services, Federal grants, and other miscellaneous receipts. The receipts estimates and projections have been prepared by the DOB with the assistance of the Department of Taxation and Finance and other agencies responsible
for the collection of State receipts.
All Funds fiscal year 2014 tax receipts growth of 4.7 percent and fiscal year 2015
growth of 2 percent are heavily influenced by timing factors. Growth in fiscal year 2014 was driven up as a result of Superstorm Sandy recovery spending and the movement of realized capital gains and other non-wage income into Tax Year 2012 from
future years in anticipation of higher Federal tax rates in 2013. This manifested itself in strong April 2013 personal income tax settlements. Fiscal year 2014 also marked the last year which contained higher revenue as the result of the tax credit
deferral program. The slowdown in fiscal year 2015 is the result of the first year of tax credit deferral payback, the non-recurring nature of Superstorm Sandy spending by consumers, and tax cuts proposed with the Executive Budget.
Fiscal Year 2014 Overview
As of February 27, 2014:
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Total All Funds fiscal year 2014 receipts were estimated to reach $140.8 billion, an increase of $7.6 billion (5.7 percent) from fiscal year 2013. All
Funds tax receipts were estimated to increase by $3.1 billion, or 4.7 percent. The majority of the increase in tax receipts was attributable to growth in personal income tax collections.
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Total State Funds fiscal year 2014 receipts were estimated to reach $93.2 billion, an increase of $2.9 billion (3.2 percent).
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Total General Fund fiscal year 2014 receipts were estimated at $61.7 billion, an increase of $2.9 billion (4.9 percent). General Fund tax receipts were
estimated to decrease by 1.8 percent primarily as a result of the dedication of former General Fund sales tax revenue to the new Sales Tax Bond Fund. General Fund miscellaneous receipts were estimated to decrease by 7.2 percent, reflecting trends in
motor vehicle fees receipts, the dissolution of the Monroe Medicaid Sales Tax Intercept, and reductions in abandoned property recoveries.
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Base tax fiscal year 2014 receipts growth, which nets out the impact of law changes, is expected to increase by an estimated 5.1 percent after a base
increase of 4.8 percent in fiscal year 2013.
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Fiscal Year 2015 Overview
As of February 27, 2014:
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Total fiscal year 2015 All Funds receipts were projected to reach $141.9 billion, an increase of $1.1 billion (0.8 percent) from fiscal year 2014
estimates. All Funds tax receipts were projected to grow by $1.4 billion (2 percent). This increase is primarily attributable to continued positive economic growth.
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Total State Funds receipts were projected to be $96 billion, an increase of $2.8 billion (3 percent) from fiscal year 2014 estimates.
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Total General Fund receipts were projected to be $63.5 billion, an increase of $1.9 billion, or 3 percent from fiscal year 2014 estimates. General Fund
tax receipts were projected to grow by 1.7 percent, while General Fund miscellaneous receipts were projected to increase by $606 million (18.6 percent) as the result of increased license and fee and abandoned property receipts, and a motor vehicle
fee accounting change. Federal grants revenues were projected to decline by $2 million.
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After controlling for the impact of policy changes, base tax revenue growth was estimated to increase by 4.3 percent for fiscal year 2015.
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Changes from Prior Quarterly Update
(“
Mid-Year Update
”)
As of February 27, 2014:
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All Funds fiscal year 2014 receipts estimates had decreased by $162 million from the Prior Quarterly Update. The upward tax revision of $90 million was
due to stronger than expected personal income and other tax receipts partially offset by a negative business tax variance.
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All Funds miscellaneous receipts estimates in fiscal year 2014 were revised downward by $325 million from the Prior Quarterly Update, which largely
reflected reduced receipts from HCRA financing sources, including no longer assuming proceeds associated with conversion of a health insurance company from a not-for-profit entity to a for-profit entity; and lower abandoned property receipts.
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All Funds Federal grant projections had been revised upward by $73 million in fiscal year 2014, reflecting year-to-date activity in Federal funds.
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General Fund fiscal year 2014 receipts had been revised downward by $25 million, reflecting a downward miscellaneous receipts revision partially offset
by an upward tax revision.
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All Funds receipts estimates had been decreased by $1.5 billion for fiscal year 2015 from the Prior Quarterly Update. The downward tax revision of $307
million is largely a full-year translation of base changes to corporate taxes made to fiscal year 2014.
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All Funds miscellaneous receipts projections in fiscal year 2015 were revised upward by $307 million which largely reflects revenues from licensing
fees associated with commercial gaming and increased bond proceeds to fund economic development projects.
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All Funds Federal grant projections have been revised downward by $1.5 billion in fiscal year 2015, which mainly reflects the impact of changes in
Medicaid associated with the ACA
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General Fund fiscal year 2015 receipts have been revised upward by $291 million. Miscellaneous receipts revisions related to trends in motor vehicle
fees, and financial audit recoveries, account for a large portion of the increase and were bolstered by a $29 million increase in tax receipts.
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Proposed Law Changes
Fiscal Year 2016, Fiscal Year 2017, and Fiscal Year 2018 Overview
Overall, tax receipts growth in the three fiscal years following fiscal year 2015 is expected to remain in the range of 3.4 percent to 4.6
percent. This is consistent with projected trend economic growth in the New York economy during this period and the payback of deferred tax credits.
As of February 27, 2014:
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Total All Funds fiscal year 2016 receipts are projected to be $146 billion, an increase of $4.1 billion from the prior year. All Funds fiscal year 2017
receipts are expected to increase by $3.3 billion from fiscal year 2016 projections. In fiscal year 2018, receipts are expected to increase by $3.3 billion from fiscal year 2017 projections.
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Total State Funds receipts are projected to be $99 billion in fiscal year 2016, $100.9 billion in fiscal year 2017 and $102.5 billion in fiscal year
2018.
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Total General Fund receipts are projected to reach $65.3 billion in fiscal year 2016, $67.4 billion in fiscal year 2017 and $69.2 billion in fiscal
year 2018.
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Base Growth
Base growth, adjusted for law changes, in tax receipts is estimated to be 5.1 percent in fiscal year 2014 and 4.3 percent in fiscal year
2015. Overall base growth in tax receipts is dependent on a multitude of factors.
In general, base tax receipts growth rates
are determined by economic changes, including, but not limited to, changes in interest rates, prices, wages, employment, non-wage income, capital gains realizations, taxable consumption, corporate profits, household net worth, real estate prices and
gasoline prices. Federal law changes can influence taxpayer behavior, which also affect base tax receipts growth.
Multi-Year Receipts
The Updated Financial Plan economic forecast calls for a continuation of the ongoing recovery in employment and wages. This increases the economic base on which the outyear revenue forecast is built.
Overall, receipts in the two fiscal years following fiscal year 2015, as of November 25, 2013, were expected to grow consistently with the projected moderate growth in both the U.S. and New York economies.
Revenue Risks
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Financial Market volatility caused by interest rate uncertainty could result in higher or lower financial sector bonus payments than those embodied in
the forecast.
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If gasoline prices exceed those embodied in the forecast, more disposable consumer income would be diverted to fuel, decreasing consumption of taxable
goods and services.
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If European economic growth is more sluggish than expected, exports could fall, causing corporate profits and tax receipts to grow more slowly than
expected.
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Consumer purchases and the housing market could be negatively impacted if long-term interest rates rise faster than anticipated.
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Bank and corporate franchise tax revenue streams are contingent on the timing and size of anticipated audit proceeds. Negotiations between the State
and taxpayers are subject to unexpected delays, which may force audit proceeds into a subsequent fiscal year.
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Personal Income Tax
As of February 27, 2014, All Funds fiscal year 2014 receipts were estimated to be $42.8 billion, an increase of $2.6 billion (6.5
percent) from fiscal year 2013 results. This increase primarily reflected robust growth in extension (i.e., prior year estimated) payments for the 2012 tax year, strong growth in final returns, moderate growth in 2014 tax year estimated payments for
the 2013 tax year, and modest growth in withholding, partially offset by substantial growth in prior year refunds related to the 2012 tax year, 2014 tax year refunds related to the 2013 tax year, and State-City offsets.
As of February 27, 2014, withholding in fiscal year 2014 was projected to be $1.2 billion (3.8 percent) higher compared to the prior
year. This reflected the net effect of modest wage growth, partially offset by lower withholding due to the first full fiscal year of inflation-indexed withholding tax tables. Total estimated payments were expected to increase $2.5 billion (20.8
percent). Estimated payments for the 2013 tax year (i.e., current year estimated) were projected to be $547 million (6.1 percent) higher. Extension payments (i.e., prior year estimated) for the 2012 tax year were projected to grow 62.2 percent ($2
billion) compared to extensions for the 2011 tax year, due to the widespread acceleration of capital gains realizations into the 2012 tax year. This acceleration occurred in anticipation of higher Federal income tax rates in the 2013 tax year,
attributable to the American Taxpayer Relief Act, in addition to the imposition of the 3.8 percent net investment income tax associated with the ACA. Delinquent collections and final return payments were projected to be $74 million (6.4 percent) and
$230 million (10.7 percent) higher, respectively.
As of February 27, 2014, the increase in total refunds of $1.4 billion
reflected a combination of strong growth in prior year refunds related to the 2012 tax year of $801 million (17.5 percent) due to greater than typical overpayment of extension payments for the 2012 tax year, a $328 million (18.7 percent) increase in
2014 tax year refunds related to the 2013 tax year, and 107.5 percent ($332 million) growth in state-city offsets, stemming from the New York State income tax rate changes that took place between 2011 and 2012.
As of February 27, 2014, All Funds fiscal year 2015 receipts are projected to be $44.1 billion, an increase of $1.3 billion (3
percent) from fiscal year 2014, including the impact of advancing refunds from fiscal year 2015 to fiscal year 2014. This increase primarily reflects increases of $1.9 billion (5.7 percent) in withholding, partially offset by the combination of a
$452 million (3.1 percent) decline in total estimated payments and a $115 million (1.3 percent) increase in total refunds. The decline in total estimated payments results from a $1 billion decrease in extension (i.e., prior year estimated) payments
for the 2013 tax year, following an inflated 2012 tax year amount due to substantial extension overpayment following end-of-year accelerated capital gains realizations. The majority of the decline, however, is offset by a $568 million increase in
estimated payments, as of February 27, 2014, related to the 2014 tax year, partially reflecting $75 million in revenue from closing the resident trust loophole.
As of February 27, 2014, the increase in total refunds of $115 million reflects $400 million in additional credit attributable to new legislation (Real Property Tax Freeze credit), $410 million in
credits for the first year of payments related to the Family Tax Relief credit, and $75 million due to the first repayment of previously deferred tax credits, largely offset by declines of $227 million (4.2 percent), $328 million (15.8 percent), and
$143 million (22.3 percent) in prior year refunds related to the 2013 tax year, current year refunds related to the 2014 tax year, and state-city offsets, respectively. As of February 27, 2014, payments from final returns are expected to
decrease $62 million (2.6 percent), while delinquent collections are projected to increase by $44 million (3.6 percent) compared to the prior year.
General Fund income tax receipts are net of deposits to the STAR Fund, which provide property tax relief, and the Revenue Bond Tax Fund (“RBTF”), which supports debt service payments on State
personal income tax revenue bonds. As of February 27, 2014, General Fund fiscal year 2014 receipts of $28.7 billion were expected to increase by $1.8 billion (6.9 percent) from the prior year, mainly reflecting the increase in All Funds
receipts noted above. The RBTF deposits were estimated to be $10.7 billion while the STAR transfer was estimated to be $3.4 billion.
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As of February 27, 2014, General Fund income tax fiscal year 2015 receipts of $29.7
billion are projected to increase by $937 million (3.3 percent). The RBTF deposit is projected to be $11 billion while the STAR transfer is projected to be $3.4 billion.
As of February 27, 2014, All Funds income tax fiscal year 2016 receipts of $46.7 billion are projected to increase $2.6 billion (5.8 percent) from the prior year. Gross receipts are projected to
increase 7.4 percent ($3.9 billion), reflecting withholding that is projected to grow by $2.2 billion (6.3 percent) and total estimated payments that are projected to grow by $1.5 billion (10.3 percent).
The increase in withholding reflects moderate wage growth. As of February 27, 2014, the increase in estimated payments includes an
additional $150 million compared to the prior year from closing the resident trust loophole. Payments from final returns are expected to increase $162 million (7 percent). Delinquencies are projected to increase $50 million (4 percent) from the
prior year. Total refunds are projected to increase by $1.3 billion (15.1 percent) from the prior year, primarily the result of an additional $576 million compared to the prior year in advanced credit payment attributable to the Real Property Tax
Freeze credit, an additional $200 million in prior year refunds from the Residential Real Property Tax credit, and another $200 million in prior year refunds from the Renter credit.
As of February 27, 2014, General Fund income tax fiscal year 2016 receipts of $31.6 billion are projected to increase by $1.9
billion (6.4 percent). RBTF deposits are projected to be $11.7 billion and the STAR transfer is projected to be $3.5 billion.
As of February 27, 2014, All Funds income tax receipts are projected to be $49.3 billion in fiscal year 2017 and $51.3 billion in
fiscal year 2018. General Fund receipts are projected at $33.4 billion and $34.9 billion, respectively.
User Taxes
and Fees
As of February 27, 2014, All Funds user taxes and fees receipts for fiscal year 2014 were estimated to
be $15.1 billion, an increase of $492 million (3.4 percent) from fiscal year 2013. All Funds sales tax receipts were expected to increase by $606 million (5.1 percent) from the prior year. Contributing factors to a sales tax base growth (i.e.,
absent law changes) of 4.8 percent were estimated strong growth in vehicle sales, construction, utility expenditures, wholesale trade and food services. Cigarette and tobacco tax collections were estimated to decrease by $130 million (8.4 percent)
due to lower consumption of cigarettes as well as increased refunds associated with a change in the way the wholesale cigar tax was administered.
As of February 27, 2014, receipts from General Fund user taxes and fees in fiscal year 2014 were estimated to total $6.5 billion, a decrease of $2.6 billion (28.4 percent) from the prior year. This
decrease reflected the General Fund share of sales tax revenues being reduced from 75 percent to 50 percent. Absent this law change, General Fund sales tax receipts would increase by over $400 million. Also, cigarette and tobacco taxes were
estimated to fall $59 million (13.3 percent), consistent with All Funds changes.
As of February 27, 2014, receipts from
All Funds user taxes and fees in fiscal year 2015 are projected to be nearly $15.5 billion, an increase of $373 million (2.5 percent) from the fiscal year 2014. The increase in sales tax receipts of $393 million (3.1 percent) reflects sales tax base
growth of 3.6 percent. Cigarette and tobacco tax receipts are projected to decline as a result of larger than trend declines in stamp sales, slightly offset by the non-recurrence of prior year cigar tax refunds. The increase in taxicab surcharge
receipts reflects a projected increase in the number of vehicles that, as of February 27, 2014, are expected to be collecting the surcharge.
As of February 27, 2014, receipts from General Fund user taxes and fees are projected to total $6.7 billion in fiscal year 2015, an increase of $189 million (2.9 percent) from fiscal year 2014. This
increase largely reflects the projected increases in All Funds sales tax receipts discussed above.
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As of February 27, 2014, All Funds user taxes and fee receipts are projected to
increase by $458 million (3 percent) in fiscal year 2016, $465 million (2.9 percent) in fiscal year 2017, and $507 million (3.1 percent) in fiscal year 2018. This outyear growth represents a return to historical trends in taxable consumption
growth and trend declines in cigarette consumption, respectively.
As of February 27, 2014, General Fund user taxes and
fees receipts are projected to increase by $215 million (3.2 percent) fiscal year 2016, $225 million (3.2 percent) in fiscal year 2017, and $242 million (3.4 percent) in fiscal year 2018. This outyear growth is consistent with the same trends
associated with All Funds.
Business Taxes
As of February 27, 2014, All Funds business tax fiscal year 2014 receipts were estimated at $8.2 billion, a decrease of $279 million
(3.3 percent) from the prior year. This decrease was mainly driven by bank tax receipts. Liability year 2013 payments were weak compared to the previous year with an expected decline of 25 percent. Partially offsetting the decrease in the bank tax
were higher corporate franchise tax receipts. This was mainly driven by higher estimated audit receipts ($429 million). Corporation and utilities tax and insurance tax receipts were also estimated to be lower than the previous year.
As of February 27, 2014, receipts from All Funds corporate franchise tax in fiscal year 2014 were estimated to be $3.6 billion, an
increase of $552 million (18.3 percent) from fiscal year 2013. The year-to-year increase was mainly attributable to higher audit receipts. Non-audit receipts were estimated to increase $123 million from the prior year as the increase in gross
receipts was larger than the increase in cash refunds expected to be paid.
As of February 27, 2014, receipts from All
Funds corporation and utilities tax in fiscal year 2014 were estimated to be $794 million, a decrease of $101 million (11.3 percent) from fiscal year 2013. The main driver for the year-to-year decrease was a large telecommunications refund paid in
October and lower audit receipts. Gross receipts for fiscal year 2014 were estimated to decline slightly from fiscal year 2013 as the telecommunications sector continues to erode from consumers continued to shift to internet based communication
tools from landline telecommunications.
As of February 27, 2014, receipts from All Funds insurance tax in fiscal year
2014 were estimated to be $1.5 billion, a decrease of $52 million (3.4 percent) from fiscal year 2013. This decrease was driven by the State’s transition of the medical portion of the Empire Plan to self-insurance, effective January 1,
2013. This resulted in lower 2013 liability since the State no longer remitted the insurance tax as part of a premium payment.
As of February 27, 2014, receipts from All Funds bank tax in fiscal year 2014 were estimated to be $1.2 billion, a decrease of $723
million (37.8 percent) from fiscal year 2013. This decrease is mainly attributable to weak liability year 2013 payments from commercial banks and lower audit receipts. Throughout calendar year 2013 banks had reduced their estimated liability and
accompanying estimated payments. Additionally, audits were expected to decline $249 million as fewer large cases were settled.
As of February 27, 2014, receipts from All Funds petroleum business tax in fiscal year 2014 were estimated to be $1.2 billion, an
increase of $45 million (3.9 percent) from fiscal year 2013. This increase was mainly due to the 5 percent increase in the petroleum business tax index effective January 2013 offset by a 0.8 percent decrease effective January 2014. Motor and diesel
fuel taxable consumption were projected to grow compared to the prior fiscal year.
As of February 27, 2014, receipts
from General Fund business tax in fiscal year 2014 of nearly $6 billion were estimated to decrease by $265 million (4.2 percent) from fiscal year 2013. Business tax receipts deposited to the General Fund reflected the All Funds trends discussed
above.
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As of February 27, 2014, projected receipts from All Funds business tax in fiscal
year 2015, of roughly $7.8 billion, reflect a decrease by $351 million (4.3 percent) from the prior year. Corporation franchise tax receipts in fiscal year 2015 are projected to decrease by $668 million (18.8 percent) from fiscal year 2014, driven
by lower audit receipts ($178 million) and an increase in refunds attributable to the first year of the credit deferral payback to taxpayers.
As of February 27, 2014, corporation and utilities taxes are projected to increase by $20 million (2.5 percent). Gross receipts for fiscal year 2015 are expected to show minimal growth compared to
fiscal year 2014. Lower refunds and lower audit receipts basically offset.
Insurance taxes are projected to increase $84
million (5.8 percent). The year-to-year increase reflects underlying growth in premiums, partially offset by the transition of additional portions of the Empire Plan to self-insurance, effective January 1, 2014.
As of February 27, 2014, bank tax receipts are projected to increase by $229 million (19.3 percent) from the previous year. The 2014
tax year liability payments are expected to rebound from the low levels seen in 2013. Additionally, audit receipts are expected to be higher than the previous year.
The projected petroleum business tax decrease of $16 million (1.4 percent) was due to a decrease in the petroleum business tax rate index of 0.8 percent effective in January 2014 and the projected
decrease in the petroleum business tax rate index of 4 percent, effective in January 2015. Motor and diesel fuel taxable consumption are projected to grow compared to the prior fiscal year.
As of February 27, 2014, General Fund business tax fiscal year 2015 receipts of $5.6 billion are projected to decrease $376 million
(6.3 percent) from the prior year. Business tax receipts deposited to the General Fund reflect the All Funds trends discussed above.
All Funds business tax receipts in fiscal year 2016, fiscal year 2017 and fiscal year 2018 reflect trend growth that is determined, in part, by the expected level of corporate profits, the expected
profitability of banks, the change in taxable insurance premiums, residential energy expenditures and the consumption of telecommunications services. Business tax receipts are estimated to decline to $8.1 billion (3.6 percent) in fiscal year 2016,
increase to $8.2 billion (0.6 percent) in fiscal year 2017, and increase to $8.4 billion (2.9 percent) in fiscal year 2018. General Fund business tax receipts projections reflect the factors outlined above, and are projected to increase to $5.9
billion (4.3 percent) in fiscal year 2016, decrease to $5.8 billion (0.3 percent) in fiscal year 2017, and increase to $6 billion (3.1 percent) in fiscal year 2018.
Compared to the Enacted Budget Financial Plan, fiscal year 2015 All Funds business tax receipts were reduced by $43 million as of August 28, 2013. The reduction is the result of downward revisions in
the corporate franchise and the corporation and utilities taxes. As of August 28, 2013, the State has indicated that the change in the corporate franchise tax is the result of the START-UP NY program enacted at the end of the 2013 legislative
session. Businesses that operate in certain tax free zones will pay no corporate franchise tax. The corporation and utilities tax change reflects the end-of-session LIPA restructuring legislation. LIPA is no longer expected to be paying tax under
Section 186 of the Tax Law effective January 1, 2014. The remaining business taxes were unchanged from the Enacted Budget.
Other Taxes
As of February 27, 2014, other All Funds tax receipts
in fiscal year 2014 were estimated to be $2.1 billion, an increase of $281 million (15.7 percent) from fiscal year 2013 receipts, reflecting an increase of $206 million (20.3 percent) in the estate tax, as a result of an increase in the number of
large payments and an increase of $77 million (10.2 percent) in real estate transfer tax receipts, driven by strong growth in the New York City real estate market.
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As of February 27, 2014, other General Fund tax receipts were expected to total
$1.2 billion in fiscal year 2014, an increase of $204 million (19.7 percent), due to increases in the estate tax.
As of
February 27, 2014, other All Funds tax receipts in fiscal year 2015 are projected to be $2.1 billion, a decrease of $6 million (0.3 percent) from fiscal year 2014 reflecting growth in real estate transfer tax collections off-set by lower estate
tax collections. A significant portion ($33 million) of the estimated decline in estate tax receipts is due to Executive Budget legislation that would reform the estate tax.
As of February 27, 2014, other General Fund tax receipts are expected to total $1.2 billion in fiscal year 2015, a decrease of $46 million (3.7 percent), which is attributable to a projected decrease
in estate tax receipts due to fewer large payments and the Executive Budget proposal.
Other All Funds taxes in fiscal year
2016, fiscal year 2017 and fiscal year 2018 receipts reflect growth driven by two major economic variables, household net worth (estate tax) and the value of real property transfers (real estate transfer tax), offset by reductions in estate tax
receipts due to the impact of the aforementioned Executive Budget legislation. All Funds other taxes receipts are estimated to decrease to $2 billion (4.7 percent) in fiscal year 2016, decrease to $1.8 billion (7.4 percent) in fiscal year 2017, and
decrease to just over $1.6 billion (9.8 percent) in fiscal year 2018. General Fund other taxes receipts will reflect decreases due to the estate tax changes noted above, and are projected to decrease to $1.1 billion (11.6 percent) in fiscal year
2016, decrease by $201 million (19.1 percent) in fiscal year 2017, and decrease by $249 million (29.2 percent) in fiscal year 2018.
Miscellaneous Receipts and Federal Grants
All Funds miscellaneous
receipts include monies received from HCRA financing sources, SUNY tuition and patient income, lottery receipts for education, assessments on regulated industries, and a variety of fees and licenses.
As of February 27, 2014, All Funds miscellaneous receipts were estimated to decline in fiscal year 2014, from $24 billion in fiscal
year 2013 to $23.9 billion in fiscal year 2014, and then increase $1.5 billion in fiscal year 2015 to $25.3 billion. The slight annual decline in fiscal year 2014 was mainly due to fluctuations in the level of receipts for unclaimed and abandoned
property. The fiscal year 2015 All Funds annual increase was primarily due to the expected deposit of $1 billion from the State Insurance Fund reserve release in connection with Workers’ Compensation law changes in the fiscal year 2014 budget,
as well as variations in the level of receipts for health care surcharges and other HCRA resources, licensing fees associated with commercial gaming, bond proceeds, atypical fines and the phase-out of the temporary utility assessment.
Aid from the Federal government helps pay for a variety of programs including Medicaid, temporary and disability assistance, mental
hygiene, school aid, public health, and other activities. Annual changes to Federal grants generally correspond to changes in Federally-reimbursed spending. Accordingly, the DOB typically projects Federal reimbursements are expected to be received
in the State fiscal year in which spending occurs, but due to the variable timing of Federal grant receipts, actual results often differ from the plan.
As of February 27, 2014, All Funds Federal grants were expected to grow by $4.7 billion in fiscal year 2014 and then decline by $1.7 billion in fiscal year 2015. The annual changes were mainly due to
the timing of Federal
disaster assistance aid, and the impact on spending associated with the ACA.
All Funds miscellaneous receipts are projected to decrease annually from fiscal year 2015 through fiscal year 2018. The declines are
mainly attributable to reduced transfers from the State Insurance Fund (“SIF”), the phase-out of the temporary utility assessment, and bond proceeds available to fund capital improvement projects.
As of February 27, 2014, All Funds Federal grants are expected to grow to $49.9 billion by fiscal year 2018. This growth is mainly
driven by growth in Medicaid spending associated with continued implementation of ACA.
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Disbursements
As of February 27, 2014, total disbursements in fiscal year 2015 were estimated at $63.6 billion in the General Fund and $92.0 billion in State Operating Funds. Over the multi-year Financial Plan,
State Operating Funds spending projections assume Medicaid and School Aid are expected to grow at their statutorily-indexed rates.
The multi-year disbursements projections take into account various factors, including agency staffing levels, program caseloads, inflation, and funding formulas contained in State and Federal law. Factors
that affect spending estimates vary by program. For example, public assistance spending is based primarily on anticipated caseloads that are estimated by analyzing historical trends and projected economic conditions. Projections account for the
timing of payments, since not all of the amounts enacted into appropriation are disbursed in the same fiscal year. Consistent with past years, the aggregate spending projections (i.e., the sum of all projected spending by individual agencies) in
special revenue funds, as of February 27, 2014, had been adjusted downward in all fiscal years based on typical spending patterns and the observed variance between estimated and actual results over time.
Medicaid, education, pension costs, employee and retiree health benefits, and debt service are significant drivers of annual spending
growth.
Local Assistance Grants
Local assistance spending includes payments to local governments, school districts, health care providers, and other entities, as well as financial assistance to, or on behalf of, individuals, families
and not-for-profit organizations. State-funded local assistance spending is estimated at $60.8 billion in fiscal year 2015 and accounts for nearly 70 percent of total State Operating Funds spending. Education and health care spending account for
approximately two-thirds of local assistance spending.
Education
School Aid
School Aid helps support elementary and secondary education for New York pupils enrolled in 674 major school districts throughout the State. State funding is provided to districts based on statutory aid
formulas and through reimbursement of categorical expenses such as universal pre-kindergarten and bilingual education. State funding for schools assists districts in meeting locally defined needs, supports the construction of school facilities, and
finances school transportation for nearly three million students statewide.
School Year (July 1
—June 30)
As of February 27, 2014, Education Aid was expected to total $21.9 billion in school year 2015,
an increase of $807 million from school year 2014. In addition, the Executive Budget also maintained the two-year appropriation that continues Education Law provisions. School Aid is projected to increase by
an additional $853 million in school year 2016 and $1.07 billion in
school year 2017. School Aid is projected to reach an annual total of $25.0 billion in school year 2018.
Projected School Aid
funding is expected to be a function of both a personal income growth index used to determine allowable growth, and future legislation to allocate the allowable increases. As of November 25, 2013, current law prescribed allowable growth to
include spending for new competitive grant programs to reward school districts that demonstrate significant student performance improvements or undertake long-term structural changes to reduce costs and improve efficiency. Allowable growth also
includes increases in expense-based aid programs (i.e., Building Aid, Transportation Aid) under existing statutory provisions. Any remaining allowable growth is allocated pursuant to a chapter of law for purposes including, but not limited to,
additional spending for competitive grants, increases in Foundation Aid, or restoration of the Gap Elimination Adjustment.
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Based on updated estimates of personal income growth, as of November 25, 2013,
School Aid was projected to increase by an additional $722 million in school year 2015 and $834 million in school year 2016. School Aid was projected to reach an annual total of $24.0 billion in school year 2017.
State Fiscal Year
The State finances School Aid from General Fund receipts and from Lottery Fund receipts, including video lottery terminals (“VLTs”), which are accounted for and disbursed from a dedicated
account. Because the State fiscal year begins on April 1, the State typically pays approximately 70 percent of the annual school year commitment during the State fiscal year in which it is enacted, and pays the remaining 30 percent in the first
three months of the following State fiscal year.
State spending for School Aid is projected to total $21.5 billion in fiscal
year 2015. In future years, receipts available to finance this category of aid from core lottery sales are projected to remain stable. Beginning in fiscal year 2016, School Aid spending is slated to be supplemented by commercial gaming revenues. In
addition to State aid, school districts receive approximately $3 billion annually in Federal categorical aid.
Other
Education Aid
In addition to School Aid, the State provides funding and support for various other education-related
initiatives. These include: special education services; pre-kindergarten through grade 12 education programs; cultural education; higher and professional education programs; and adult career and continuing education services.
In special education, New York State provides a full spectrum of services to over 400,000 students from ages 3 to 21. Major programs
under the Office of Pre-kindergarten through Grade 12 address specialized student needs or reimburse school districts for education-related services, including the school breakfast and lunch programs, and other educational grant programs. Higher and
professional education programs monitor the quality and availability of postsecondary education programs and regulate the licensing and oversight of 50 professions. Adult career and continuing education services focuses on the education and
employment needs of New York State’s adult citizens, including ensuring that such individuals have access to a “one-stop” source for all their employment needs and that they are made aware of the full range of services available in
other agencies.
Special education growth is primarily driven by an increase in program costs and enrollment for preschool
special education and the summer school special education programs. In relation to special education programs, the Executive Budget advances targeted reforms to improve fiscal practice and service delivery. The decrease in other education spending
for fiscal year 2015 relative to fiscal year 2014 is driven primarily by one-time costs associated with targeted aid and grants in fiscal year 2014.
School Tax Relief Program
The STAR program provides school tax relief
to taxpayers by exempting the first $30,000 of every eligible homeowner’s property value from the local school tax levy. Lower-income senior citizens are to receive a $64,200 exemption in fiscal year 2015.
The three components of STAR and their approximate shares in fiscal year 2015 are: the basic school property tax exemption for homeowners
with income under $500,000 (56 percent), the enhanced school property tax exemption for senior citizen homeowners with incomes under $81,900 (26 percent), and a flat refundable credit and rate reduction for income-eligible New York City resident
personal income taxpayers (18 percent).
Spending for the STAR property tax exemption reflects reimbursements made to school
districts to offset the reduction in property tax revenues. As of February 27, 2014, the annual increase in a qualifying homeowner’s
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STAR exemption benefit was limited to 2 percent. Homeowners who earn more than $500,000 a year were not eligible for the STAR property tax exemption. New York City personal income taxpayers with
annual incomes over $500,000 have a reduced benefit.
The Fiscal Year 2014 Enacted Budget Financial Plan established a STAR
re-registration and anti-fraud program. This program is expected to eliminate waste, fraud and abuse in the STAR exemption by (1) authorizing the Department of Taxation and Finance (“DTF”) to require all recipients of a Basic STAR
exemption to be registered with the DTF, and (2) strengthening the penalties for fraud while tightening the standards and procedures for determining eligibility.
The spending growth is primarily a reflection of the number of STAR exemption recipients who are expected to participate in the program.
Higher Education
Local assistance for higher education spending includes funding for the City University of New York (“CUNY”), SUNY and the Higher Education Services Corporation (“HESC”).
The State provides assistance for CUNY’s senior college operations, and works in conjunction with New York City to support
CUNY’s community colleges. The CUNY system is the largest urban public university system in the nation. Funding for SUNY supports 30 community colleges across multiple campuses. The State also provides a sizeable benefit to CUNY and SUNY
through the debt service it pays on bond-financed capital projects at the universities. State debt service payments for capital projects at SUNY and CUNY are expected to total about $1.2 billion in fiscal year 2015 (this is not reflected in the
annual spending totals for the universities). HESC administers the Tuition Assistance Program (“TAP”) that provides awards to income-eligible students. It also provides centralized processing for other student financial aid programs, and
offers prospective students information and guidance on how to finance a college education. The financial aid programs that the HESC administers are funded by the State and the Federal government.
Annual growth by CUNY reflects the net impact of enrollment changes at community colleges, additional fringe benefit costs, and the
timing of aid payments across State fiscal years. Growth in HESC reflects the rising cost of higher education tuition and the consequent demand for increased tuition assistance. SUNY local assistance reflects an increase in community college aid,
which fully annualizes in the outyears.
Health Care
Local assistance for health care-related spending includes Medicaid, statewide public health programs and a variety of mental hygiene
programs. The DOH works with local health departments and social services departments, including New York City (“NYC”), to coordinate and administer statewide health insurance programs and activities. The majority of government-financed
health care programs are included under the DOH, but many programs are supported through multi-agency efforts.
Medicaid
Medicaid is a means-tested program that finances health care services for low-income individuals and long-term care
services for the elderly and disabled, primarily through payments to health care providers. The Medicaid program is financed jointly by the State, the Federal government, and local governments. Eligible services include inpatient hospital care,
outpatient hospital services, clinics, nursing homes, managed care, prescription drugs, home care, family health plus (“FHP”) and services provided in a variety of community-based settings (including mental health, substance abuse
treatment, developmental disabilities services, school-based services and foster care services). The State share of Medicaid spending is budgeted and expended principally through DOH, but State share Medicaid spending also appears in the Financial
Plan estimates for mental hygiene agencies, child welfare programs and the Department of Corrections and Community Supervision (“DOCCS”).
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Chapter 59 of the Laws of 2011 limits the year-to-year growth in
State funds Medicaid spending
to the ten-year average
change in the medical component of the CPI. The statutory provisions of the Medicaid spending cap also allows for flexibility in adjusting Medicaid projections to meet unanticipated costs resulting from the event of a natural or other type of
disaster. The Executive Budget reflects the continuation of the Medicaid spending cap through fiscal year 2016, and the Updated Financial Plan assumes that statutory authority will be extended in subsequent years.
As of February 27, 2014, based on updated data, allowable growth under the cap has been revised downward from 3.9 percent to 3.8
percent for fiscal year 2015. The Updated Financial Plan also includes a forecast beginning in fiscal year 2016 using the DOB medical CPI projection. This would lower the indexed Medicaid growth to 3.6 percent in fiscal year 2016; 3.4 percent in
fiscal year 2017; and 3.3 percent in fiscal year 2018. In total, the updated forecast is to result in Financial Plan savings of $16 million in fiscal year 2015; $64 million in fiscal year 2016; $146 million in fiscal year 2017; and $255 million in
fiscal year 2018.
Factors affecting the level of Medicaid spending growth that must be managed within the cap include
Medicaid enrollment, costs of provider health care services (particularly in managed care) and levels of utilization. The number of Medicaid recipients is expected to exceed 5.8 million at the end of fiscal year 2015, an increase of 6.3 percent
from the fiscal year 2014 caseload of 5.5 million, a result mainly attributable to expanded eligibility pursuant to the ACA. Under the provisions of the ACA, the Federal government was expected to finance a greater share of Medicaid costs, the
impact of which was expected to lower growth in the State share of Medicaid costs beginning in January 2014.
The State share
of DOH Medicaid spending is comprised of the General Fund, HCRA, provider assessment revenue, and indigent care payments. Reflected in the total State share of Medicaid are increased annual statewide savings associated with the shifting of certain
OPWDD-related Medicaid costs to DOH under the Medicaid Global Cap. It is expected that DOH, which has already begun implementing a savings plan designed to mitigate the impact of reduced Federal revenue associated with the reimbursement of Medicaid
costs at State-operated facilities providing developmental disability services, will be able to absorb these additional costs without impact to the Financial Plan by generating savings from the continuation of successful MRT initiatives;
improvements in cash management; and the utilization of Federal resources associated with the ACA.
Total “state
share” Medicaid, which includes Medicaid costs of State agencies in addition to DOH, reflected downward spending adjustments of $820 million in fiscal year 2014, $535 million in fiscal year 2015, and $357 million thereafter. This is
attributable to the impact of reduced Federal revenue associated with the reimbursement of Medicaid costs at State-operated facilities providing developmental disability services. To compensate for the reduced Federal reimbursement for services
provided, as of November 25, 2013, the State was undertaking various actions to reduce overall costs while minimizing any impact on service delivery. These actions include shifting a portion of OPWDD Medicaid costs to DOH, the impact of which
is expected to be managed on a neutral Financial Plan basis through the implementation of several actions, including comprehensive program reforms consistent with other states to generate Federal reimbursement for services already being provided,
and the management of certain MRT investment initiatives. These savings are valued at $730 million in fiscal year 2014, $445 million in fiscal year 2015, and $267 million in each of fiscal years 2016 and 2017, and are part of the Mental Hygiene
Stabilization Fund within the DOH global spending cap.
Public Health/Aging Programs
Public Health includes the Child Health Plus (“CHP”) program that finances health insurance coverage for children of low-income
families up to the age of 19, the General Public Health Work (“GPHW”) program that reimburses local health departments for the cost of providing certain public health services, the Elderly Pharmaceutical Insurance Coverage
(“EPIC”) program that provides prescription drug insurance to low-income seniors, and the Early Intervention (“EI”) program that pays for services to infants and toddlers under the age of three with disabilities or developmental
delays.
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The State Office for the Aging (“SOFA”) promotes and administers programs and
services for New Yorkers 60 years of age and older. SOFA primarily oversees community-based services, including in-home services and nutrition assistance, provided through a network of county Area Agencies on Aging and local providers.
Many public health programs, such as the EI and GPHW programs, are run by county health departments and reimbursed by the State for a
share of program costs. The State spending projections do not include the county share of public health funding. In addition, a significant portion of HCRA spending is included under the public health budget.
Spending growth in the CHP program through fiscal year 2015 largely reflects costs associated with the expectation of additional caseload
growth under the ACA. As CHP enrollment increases, initial costs to the State are incurred; however, these costs are expected to decrease beginning in fiscal year 2016 when enhanced Federal participation rates become effective. The fiscal year 2015
Executive Budget also plans on further reduced costs associated with CHP based on a proposal to transfer the rate-setting responsibilities associated with the CHP program from the DFS to DOH, thereby aligning the rate-setting methodology for the CHP
program with other DOH managed care programs. This proposal would include freezing existing rates for one year, resulting in Financial Plan savings of $17 million in fiscal year 2015; $13 million in fiscal year 2016; and $8 million in fiscal year
2017 and fiscal year 2018.
Based on actual claims in 2012 and estimated claims for 2013, GPHW costs for fiscal year 2014 were
estimated at $178 million, a decline of nearly $70 million over fiscal year 2013 reimbursement levels. The projected disbursements from fiscal year 2014 through fiscal year 2018 reflect modest growth and include annualizing savings from leverage,
other insurance for prenatal care services supported through GPHW as of February 27, 2014.
The projected multiyear
spending for the EPIC program reflects both disbursements and revenue related to enrollment changes, prescription drug medication, increase in generic drug claims, and rebates received from drug manufacturers.
The Executive Budget also includes an additional $25 million HCRA subsidy for the RPCI from fiscal year 2015 to fiscal year 2018, which
is intended to offset the expiration of capital grant awards in order to maintain the current level of State funding for the Roswell Park Cancer Institute (“RPCI”).
The Federal-State Health Reform Partnership (“F-SHRP”) program, which is Federal funding provided to the State on a time-limited basis through a Federal waiver under terms and conditions aimed
at improving the delivery of health care services, is expected to expire at the end of fiscal year 2014.
HCRA
Financial Plan
HCRA was established in 1996 to help finance a portion of State health care activities. Extensions and
modifications to HCRA have financed new health care programs, including FHP (medical assistance for those ineligible for Medicaid) and CHP. HCRA has also provided additional financing for the health care industry, including investments in worker
recruitment and retention, and the Health Care Efficiency and Affordability Law for New Yorkers (“HEAL NY”) program for capital improvements to health care facilities. HCRA authorization is expected to be extended for three years, through
fiscal year 2017, pursuant to legislation included in the Executive Budget.
HCRA is expected to remain in balance over the
multi-year projection period. Under the current HCRA appropriation structure, spending reductions will occur if resources are insufficient to meet spending levels. These spending reductions could potentially affect core HCRA programs. Conversely,
any unanticipated balances in HCRA are expected to finance Medicaid costs that would otherwise be paid for by the General Fund.
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HCRA receipts include surcharges and assessments on hospital revenues, a “covered
lives” assessment paid by insurance carriers, and a portion of cigarette tax revenues. As of February 27, 2014, total HCRA revenues were estimated to grow by approximately 1.8 percent on an annual basis during the Financial Plan period.
In addition to FHP, CHP, and HEAL NY, HCRA helps fund Medicaid, EPIC, physician excess medical malpractice insurance, and
Indigent Care payments, which provide funding to hospitals serving a disproportionate share of individuals without health insurance.
The Executive Budget includes proposals which would lower costs associated with certain programs financed with HCRA revenue, most notably from a proposal to transfer the rate-setting responsibilities
associated with the CHP program from DFS to DOH; and the recognition of new HCRA surcharge revenue dedicated to finance costs associated with the New York State of Health insurance marketplace, which is expected to increase access to public and
private insurance options for certain programs currently supported by the State, providing a net Financial Plan benefit.
The
Executive Budget also includes initiatives to provide financing from increased covered lives assessment revenue for capital costs associated with the implementation of the new All-Payer Claims Database (“APCD”) and Statewide Health
Information Network for New York (“SHIN-NY”), which is expected to improve information capabilities and increase efficiency associated with health insurance claiming; as well as increased annual funding for RPCI from HCRA to offset the
expiration of other capital grant award funding.
Mental Hygiene
The Department of Mental Hygiene is comprised of three independent agencies: Office for People with Developmental Disabilities
(“OPWDD”), Office of Mental Health (“OMH”), and the Office of Alcoholism and Substance Abuse Services (“OASAS”). Services are administered to adults with serious and persistent mental illness; children with serious
emotional disturbances; individuals with developmental disabilities and their families; persons with chemical dependencies; and individuals with compulsive gambling problems. These agencies provide services directly to their patients through
State-operated facilities and indirectly through community service providers. The costs associated with providing these services are funded by reimbursement from Medicaid, Medicare, third-party insurance and State funding. Patient care revenues are
pledged first to the payment of debt service on outstanding mental hygiene bonds, which are issued to finance improvements to infrastructure at mental hygiene facilities throughout the State, with the remaining revenue used to support State
operating costs.
Legislation enacted fiscal year 2013 established the Justice Center for the Protection of People with
Special Needs, which has the primary responsibility for tracking, investigating and pursuing serious abuse/neglect complaints at facilities and provider settings operated, certified, or licensed by six State agencies. The activities of the
Commission on Quality of Care and Advocacy for Persons with Disabilities (“CQCAPD”) were subsumed by the Justice Center when it became operational on June 30, 2013. Additionally, the Federal Protection and Advocacy designation held by
CQCAPD was transferred to an independent entity that directly receives Federal funding for that purpose.
Local assistance
spending in mental hygiene accounts for nearly half of total mental hygiene spending from State Operating Funds, and, as of February 27, 2014, was projected to grow by an average rate of 6.2 percent annually. The main factor driving this level
of growth was the phase-down of the Mental Hygiene Stabilization Fund, whereby certain OPWDD-related Medicaid costs were shifted to the DOH under the Medicaid Global Cap. When adjusting for the phase-down of the Mental Hygiene Stabilization Fund,
local program spending was expected to increase by an average annual rate of 4.8 percent, and was mainly attributable to increases in the projected State share of Medicaid costs and projected expansion of the various mental hygiene service systems,
including costs associated with developing new OPWDD residential and non-residential services; the New York/New York III Supportive Housing agreement; a planned 2.5 percent annual COLA; and community beds that, as
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of February 27, 2014, were under development for adult home and nursing home residents with mental illness. Additional outyear spending is assumed in Financial Plan estimates for costs
associated with efforts to move individuals to the least restrictive setting possible, as well as several chemical dependence treatment and prevention initiatives for individuals receiving services through OASAS.
The Financial Plan achieves lower spending growth by authorizing the elimination of automatic inflationary factors in fiscal year 2014,
including the 1.4 percent Human Services Cost of Living Adjustment and Medicaid trend adjustment, which provides rate reimbursement adjustments for eligible providers of services to the developmentally disabled; improved program efficiencies;
enhanced audit recoveries; reduced administrative costs reimbursed to OPWDD providers; and revised estimates for mental health community bed funding.
OPWDD’s Medicaid-related spending estimates were revised downward in the Enacted Budget Financial Plan by $820 million in fiscal year 2014, $535 million in fiscal year 2015, and $357 million
thereafter. These revisions are attributable to the impact of reduced Federal revenue from Medicaid reimbursement at State-operated facilities providing developmental disability services. To compensate for the reduced Federal reimbursement for
services provided, as of November 25, 2013, the State was undertaking various actions to reduce overall costs in the least disruptive manner possible for service delivery. These actions include shifting a portion of OPWDD Medicaid costs to DOH,
the impact of which is expected to be managed on a neutral Financial Plan basis through the implementation of several actions, including comprehensive program reforms consistent with other states to generate Federal reimbursement for services
already being provided, and the management of certain MRT investment initiatives. These savings were valued at $730 million in fiscal year 2014, $445 million in fiscal year 2015, and $267 million in each of fiscal year 2016 and fiscal year 2017 and
are part of the Mental Hygiene Stabilization Fund within the DOH global spending cap. In addition, $90 million of savings were to be achieved by OPWDD through a combination of actions identified in consultation with all relevant parties. These
include $50 million in savings from reduced administrative costs, improved efficiencies, and collaborative efforts to utilize lower cost community based supports and services as opposed to more costly settings such as institutions and residential
schools. In addition, $40 million in savings were to be generated from increased audit recoveries generated by enhanced audit activity by the Office of Medicaid Inspector General (“OMIG”) related to OPWDD services provided by nonprofit
agencies.
The Executive Budget includes $745 million in annual State-share Medicaid savings beginning in fiscal year 2015 (an
increase of $15 million from fiscal year 2014), declining to $688 million by fiscal year 2018, associated with the Mental Hygiene Stabilization Fund, a statewide savings plan which shifts certain OPWDD-related Medicaid costs to DOH under the
Medicaid Global Cap. It is expected that the DOH, which has already begun implementing a savings plan designed to mitigate the impact of reduced Federal revenue associated with the reimbursement of Medicaid costs at State-operated mental hygiene
facilities, will be able to assume these additional costs without adverse impact to the Updated Financial Plan by generating savings from the continuation of successful MRT initiatives; improving cash management; and utilizing Federal resources
associated with the ACA. In total, the Mental Hygiene Stabilization Fund is expected to provide statewide Medicaid savings of $730 million in fiscal year 2014; $745 million in fiscal year 2015; $715 million in fiscal year 2016; $905 million in
fiscal year 2017; and $688 million in fiscal year 2018.
The Executive Budget also proposed to defer the fiscal year 2015
statutorily-indexed cost-of-living increase for human services agencies, resulting in recurring annual savings of $76 million.
Social Services
The Office of Temporary and Disability Assistance
(“OTDA”) local assistance programs provide cash benefits and supportive services to low-income families. The State’s three main programs include Family Assistance, Safety Net Assistance and Supplemental Security Income
(“SSI”). The Family Assistance program, which is financed by the Federal government, provides time-limited cash assistance to eligible families. The Safety Net Assistance program, financed by the State and local districts, provides cash
assistance for single
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adults, childless couples, and families that have exhausted their five-year limit on Family Assistance imposed by Federal law. The State SSI Supplementation program provides a supplement to the
Federal SSI benefit for the elderly, visually handicapped, and disabled.
The decline in OTDA spending from fiscal year
2014 was driven by savings generated from the State taking over responsibility for administration of the State’s SSI Supplementation program from the Federal government. This proposal was enacted in fiscal year 2013 but due to the
October 1, 2014 effective date of this proposal, savings were not expected until fiscal year 2015. The decline in OTDA spending also reflects revisions to the State’s projected costs for public assistance. As of February 27, 2014, the
average public assistance caseload was projected to total 564,167 recipients in fiscal year 2015, a decrease of 2.8 percent from fiscal year 2014 levels. Approximately 249,131 families are expected to receive benefits through the Family Assistance
program in fiscal year 2015, a decrease of 3.6 percent from fiscal year 2014. In the Safety Net program an average of 120,186 families are expected to be helped in fiscal year 2015, a decrease of 4.2 percent from fiscal year 2014. The caseload for
single adults/childless couples supported through the Safety Net program is projected at 194,850 in fiscal year 2015, a decrease of 0.8 percent from fiscal year 2014.
The Office of Children and Family Services (“OCFS”) provides funding for foster care, adoption, child protective services, preventive services, delinquency prevention, and child care. OCFS
oversees the State’s system of family support and child welfare services administered by social services departments and community-based organizations. Specifically, child welfare services, which are financed jointly by the Federal government,
the State, and local districts, are structured to encourage local governments to invest in preventive services intended to reduce out-of-home placement of children. In addition, the Child Care Block Grant, which is also financed by a combination of
Federal, State and local sources, supports child care subsidies for public assistance and low-income families. The youth facilities program serves youth directed by family or criminal courts to be placed in residential facilities
The OCFS spending growth in fiscal year 2015 is primarily driven by an increase in General Fund spending on Day Care, which is necessary
in order to keep spending on this program constant after a projected decrease in Federal funding. The spending growth also reflects increases in Youth Programs associated with the implementation of the Close to Home initiative. These increases are
partially offset by a decrease in spending on Child Welfare Services, due to lower estimated claims. In addition, the Committees on Special Education growth is based on the five-year historical average of 4.5 percent pursuant to caseload changes and
rate increases for both in-state and out-of-state placements.
Transportation
As of February 27, 2014, in fiscal year 2015, the Department of Transportation (“DOT”) was expected to provide $4.8 billion
in local assistance to support the operating costs of the Statewide mass transit systems, financed from dedicated taxes and fees. The MTA, due to the size and scope of its transit and commuter rail systems, receives the majority of the statewide
mass transit operating aid. Additionally, the MTA receives operating support from the Mobility Tax and MTA Aid Trust Fund, authorized in May 2009 to collect regional taxes and fees imposed within the Metropolitan Commuter Transportation District
(“MCTD”). The State collects these taxes and fees on behalf of, and disburses the entire amount to, the MTA to support the transit and commuter rail systems. Pursuant to legislation enacted in December 2011 to eliminate the MTA payroll tax
for all elementary and secondary schools and small business operators within the MCTD, the General Fund provides additional annual support to the MTA as compensation for the loss of revenue.
As of February 27, 2014, operating aid to the MTA and other transit systems was expected to increase in fiscal year 2015 by 2.0
percent, reflecting the impact of timing associated with the availability of funding resources and growth assumed in the current receipts forecast.
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The Executive Budget proposed to offset General Fund support for MTA-related debt
service costs by transferring $40 million in dedicated resources from the Metro Mass Transportation Operating Aid (“MMTOA”) account to the General Debt Service Fund, with the expectation that $20 million in MMTOA resources will be
available to offset MTA-related debt service costs on an annual basis beginning in fiscal year 2016.
Local Government
Assistance
Direct aid to local governments includes the Aid and Incentives for Municipalities (“AIM”)
program, which was created in fiscal year 2006 to consolidate various unrestricted local aid funding streams; Miscellaneous Financial Assistance for certain counties, towns, and villages; and efficiency-based incentive grants provided to local
governments.
All
other Local Assistance Spending
Other local assistance programs and activities include criminal justice, economic development, aging, and housing. Spending in these areas
is not expected to change materially over the Financial Plan period.
Agency Operations
Agency operating costs include personal service, non-personal service, and General State Charges (“GSCs”). Personal service
costs include the salaries of State employees of the Executive, Legislative, and Judicial branches; as well as the salaries of temporary/seasonal employees. Non-personal service costs reflect the cost of operating State agencies, including real
estate rental, utilities, contractual payments (i.e., consultants, information technology (“IT”), and professional business services), supplies and materials, equipment, and telephone service. GSCs reflect the costs of fringe benefits
(i.e., pensions, health insurance) provided to State employees and retirees of the Executive, Legislative and Judicial branches, and certain fixed costs paid by the State, such as taxes on public lands and litigations. Certain agency operations of
Transportation and Motor Vehicles are included in the capital projects fund type and are not reflected in the State Operating Funds personal service or non-personal service totals.
Approximately 94 percent of the State workforce is unionized. The largest unions include CSEA, which represents office support staff and
administrative personnel, machine operators, skilled trade workers, and therapeutic and custodial care staff; PEF, which represents professional and technical personnel (i.e., attorneys, nurses, accountants, engineers, social workers, and
institution teachers); UUP, which represents faculty and non-teaching professional staff within the State University system; and NYSCOPBA, which represents security personnel (correction officers, safety and security officers).
Beginning in fiscal year 2015, the majority of state agencies will be expected to hold personal service and non-personal service spending
either at or below fiscal year 2014 levels. As appropriate, agencies will need to establish new spending guidelines as well as maintain existing cost-control efforts to offset costs related to increasing operational expenses, including collective
bargaining agreements which include 2 percent salary increases in fiscal year 2015 and fiscal year 2016 (for some unions), applicable lump sum payments of $225, and repayment of a portion of the deficit reduction adjustment made to employee
salaries.
Gaming, Health Care, and SUNY are the primary areas expected to experience limited programmatic growth over the
ensuing four years. The nominal growth in Gaming is attributable to the November 2013 referendum related to casino development. Increases in Health Care operational costs are primarily driven by the State’s participation in NY State of Health,
the State’s insurance marketplace program as mandated by ACA. Beginning in fiscal year 2015, program costs for NY State of Health are to be partially offset by Federal grants; however, the DOH must fully absorb the start-up costs by fiscal year
2016. SUNY spending is driven by tuition funding and reflects anticipated operational needs.
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The only additional exceptions to no growth are technical in nature and reflect funding
reclassifications or administrative reconciliations. For example, growth in Temporary and Disability Assistance reflects the reclassification of local assistance contracts to agency operation spending; while the consolidation of state agency IT
functions into one central agency, IT Services, drives a higher cost in fiscal year 2015 compared to fiscal year 2014. Furthermore, the State’s workforce is paid on a bi-weekly basis, weekly pay cycles that alternate between Administrative and
Institutional payrolls. There are typically 26 pay periods in a fiscal year. In fiscal year 2016, employees in the Mental Hygiene and DOCCS facilities are slated to have one additional institutional payroll.
In fiscal year 2015, $12.6 billion or 13.7 percent of the State Operating Funds Budget is projected to be spent on personal service costs
and supports roughly 98,500 Full-Time Equivalent (“FTE”) employees under direct Executive control and another 15,100 employees of the Legislature and Judiciary. Roughly 75 percent of all personal service spending occurs in four areas:
SUNY, the Mental Hygiene agencies, DOCCS, and Judiciary.
General State Charges
Fringe benefit payments, many of which are mandated by statute or collective bargaining agreements, include employer contributions for
pensions, Social Security, health insurance, workers’ compensation, unemployment insurance and dental and vision benefits. The majority of employee fringe benefit costs are paid centrally from statewide appropriations. However, certain
agencies, including the Judiciary and SUNY, directly pay all or a portion of their employees’ fringe benefit costs from their respective budgets. Employee fringe benefits paid through GSCs are paid from the General Fund in the first instance,
and then partially reimbursed by revenue collected from fringe benefit assessments on Federal funds and other special revenue accounts. The largest General Fund reimbursement comes from the mental hygiene agencies.
GSCs also include certain fixed costs such as State taxes paid to local governments for certain State-owned lands, and payments related
to lawsuits against the State and its public officers.
As of February 27, 2014, GSCs were projected to increase at
an average annual rate of 3.2 percent over the Financial Plan period. This is primarily due to projected growth in health insurance and pension costs. Social security remains relatively stable and will move in tandem with the State’s personal
service assumptions. Fixed Costs are to remain at approximately $395 million over the multi-year plan. The declines in fiscal year 2016 and fiscal year 2017 reflect the fulfillment of certain litigation payments against the State.
Transfers to other Funds (General Fund Basis)
General Fund transfers help finance the State’s share of Medicaid costs for State-operated mental hygiene facilities, debt service for bonds that do not have dedicated revenues, SUNY operating costs,
certain capital initiatives, and a range of other activities.
A significant portion of the capital and operating expenses of
DOT and the Department of Motor Vehicles (“DMV”) are funded from the Dedicated Highway and Bridge Trust Fund (“DHBTF”). The Fund receives various dedicated tax and fee revenues, including the petroleum business tax, motor fuel
tax, and highway use taxes. The Financial Plan includes transfers from the General Fund that effectively subsidize the expenses of the DHBTF. As of November 25, 2013, the subsidy was required because the cumulative expenses of the
fund—capital and operating expenses of DOT and DMV, debt service on certain transportation bonds—exceeded current and projected revenue deposits and bond proceeds.
As of February 27, 2014, General Fund transfers to other funds were expected to total $8.7 billion in fiscal year 2015, a $153 million increase from fiscal year 2014. This increase reflects higher
transfers for capital projects due to the reduced availability of revenue in 2015; and higher costs for operating mental hygiene facilities in lieu of reduced Federal revenue. These higher transfers are offset by reduced debt service transfers due
to the prepayment of fiscal year 2015 expenses in 2014.
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Debt Service
The State pays debt service on all outstanding State-supported bonds. These include general obligation bonds, for which the State is
constitutionally obligated to pay debt service, as well as bonds issued by State public authorities (i.e., Empire State Development, the Dormitory Authority of the State of New York, and the Thruway Authority, subject to an appropriation). Depending
on the credit structure, debt service is financed by transfers from the General Fund, dedicated taxes and fees, and other resources, such as patient income revenues.
As of February 27, 2014, total debt service was projected at $5.7 billion in fiscal year 2015, of which $1.1 billion was paid from the General Fund through transfers, and $4.6 billion from other
State funds. The General Fund transfer finances debt service payments on general obligation and service contract bonds. Debt service is paid directly from other State funds for the State’s revenue bonds, including personal income tax and Sales
Tax bonds, DHBTF bonds, and mental health facilities bonds.
As of February 27, 2014, Updated Financial Plan estimates
for debt service spending had been revised to reflect a number of factors, including actual bond sale results, assumed debt management savings of $85 million in fiscal year 2015, and increased debt service costs associated with proposed additional
capital commitment levels. This includes the debt service impact resulting from 30 day amendments to increase SUNY bonded capital spending by $19 million. Also, fiscal year 2014 spending estimates continue to assume the prepayment of $318 million of
debt service that is due during fiscal year 2015.
PRIOR FISCAL YEARS
Cash-Basis Results
General Fund Fiscal Years 2012 through 2013
The General Fund is the principal operating fund of the State and is used to account for all financial transactions, except those required by law to be accounted for in another fund. It is the
State’s largest single fund and receives most State taxes and other resources not dedicated to particular purposes. General Fund moneys are also transferred to other funds, primarily to support certain State share Medicaid payments, capital
projects and debt service payments in other fund types. In some cases, the fiscal year results provided below may exclude certain timing-related transactions which have no net impact on operations.
In the cash basis of accounting, the State defines a balanced budget in the General Fund as (a) the ability to make all planned
payments anticipated in the Financial Plan, including tax refunds, without the issuance of deficit bonds or notes or extraordinary cash management actions, (b) the restoration of the balances in the Tax Stabilization Reserve and Rainy Day
Reserve (together, the “rainy day reserves”) to a level equal to or greater than the level at the start of the fiscal year, and (c) maintenance of other designated balances, as required by law.
Recent Trends
With State receipts slowly recovering, the State has allowed limited spending growth to meet the demand for services. In addition, rainy day reserve fund balances have been supported and maintained.
Fiscal Year 2013
The State ended fiscal year 2013 in balance on a cash basis in the General Fund, and maintained a closing balance of $1.61 billion, consisting of $1.1 billion in the Tax Stabilization Reserve, $175
million in the Rainy Day Reserve, $93 million in the Community Projects Fund, $21 million in the Contingency Reserve, $77 million reserved for potential retroactive labor settlements, and $113 million in an undesignated fund balance. The fiscal year
2013 closing balance was $177 million lesser than the fiscal year 2012 closing balance, which largely reflects the use of designated resources to address costs associated with retroactive labor agreements.
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General Fund receipts, including transfers from other funds, totaled $58.8 billion in
fiscal year 2013. Total receipts during fiscal year 2013 were $1.9 billion (3.3 percent) higher than in the prior fiscal year. Total tax receipts were $1.5 billion higher than the previous fiscal year, mainly due to growth in personal income tax
collections ($1.0 billion) and business tax collections ($493 million). General Fund miscellaneous receipts also increased, largely due to one-time receipts from a settlement between DFS and Standard Chartered Bank.
General Fund disbursements, including transfers to other funds, totaled $59.0 billion in fiscal year 2013, $2.5 billion (4.4 percent)
higher than in the prior fiscal year. This reflected expected growth in various local assistance programs, including education and Medicaid, both of which were subject to an annual cap; increased personal service costs associated with retroactive
labor settlements; and increased transfers in support of debt service payments.
Fiscal Year 2013 Results Compared to
Fiscal Year 2013 Enacted Budget
The Fiscal Year 2013 General Fund closing balance of $1.6 billion was $209 million lower
than initially estimated in the Fiscal Year 2013 Enacted Budget which reflected the combined impact of lower than planned receipts ($119 million) and higher than planned spending ($90 million).
Receipts
Total receipts through March 2013 were $119 million below initial projections, reflecting the net impact of higher tax collections ($25
million); higher non-tax receipts and grants ($277 million); and lower than projected transfer support from other State funds ($421 million).
The variance in tax collections was a function of higher than anticipated business tax collections ($214 million) due to higher gross receipts and audit collections offset by lower than planned user taxes
($199 million) from slower than expected growth in taxable consumption. The variance in non-tax receipts represented a $340 million settlement payment to the State from Standard Chartered Bank based on claims that the bank did not comply with
financial regulations; $75 million from the Manhattan District Attorney (“DA”) due to increased settlement activity; and lower than anticipated collections for abandoned property ($71 million) and licensing and fees ($54 million).
The lower than initially estimated transfers to the General Fund was mainly attributable to the ongoing revenue arbitration
between the State and the Seneca Nation regarding the Tribe’s exclusivity zone ($104 million), and the delayed collection of receipts from localities for their share of youth facilities costs due to the timing of approval of the rate packages
($77 million). In addition, transfers were lower than initially projected due to the timing of certain mental hygiene transfers.
Spending
General Fund spending through March 2013 was $90 million above
initial projections due to higher than anticipated spending in local assistance ($115 million), personal service ($238 million), and GSCs ($146 million), offset by lower than anticipated spending in non-personal service costs ($118 million) and
lower than projected General Fund transfers to other State funds ($291 million).
The local assistance spending variance
included $468 million in higher than projected spending for health care due almost entirely to revenue shortfalls in the HCRA fund that would otherwise offset Medicaid spending, and $124 million in higher-than-projected School Aid disbursements.
These increased costs were largely offset by lower disbursements across a range of programs and activities.
Personal service
spending exceeded initial estimates due almost exclusively to retroactive payments related to labor settlements reached between the State and two public employee unions after enactment of the fiscal year
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2013 budget. These payments were financed from General Fund balances designated for this purpose. Non-personal service under-spending was reflected across a number of State agencies and programs,
including: DOH Medicaid ($30 million) due to lower than planned contractual costs; the Labor Management Committees ($16 million) due to lower than anticipated costs for negotiated employee benefits; and disaster-related costs ($16 million) due to
lower than assumed State outlays associated with Hurricane Irene and Tropical Storm Lee.
GSCs were higher than initially
projected due mainly to the impact of higher than anticipated Workers’ Compensation payments, large one-time litigation payments and lower reimbursement payments from non-General Fund financing sources.
General Fund transfers to other funds were below initial estimates because of lower than projected operational costs for mental hygiene
facilities ($132 million) and lower transfers needed to support the financing costs of Capital Projects ($139 million). The reduced transfers to the Capital Projects Fund reflected several factors that occurred throughout fiscal year 2013, including
savings from refunding, the timing and size of bond sales, and the financing mix for capital projects, most of which were recognized and accounted for through subsequent updates to the Fiscal Year 2013 Financial Plan. The overall lower transfers
were partially offset through higher debt service transfers ($67 million)—a reflection of a decision to pre-pay a portion of fiscal year 2014 debt service costs during fiscal year 2013 in order to achieve future savings.
Fiscal Year 2012
The State ended fiscal year 2012 in balance on a cash basis in the General Fund, and maintained a closing balance of $1.79 billion, consisting of $1.1 billion in the Tax Stabilization Reserve, $175
million in the Rainy Day Reserve, $102 million in the Community Projects Fund, $21 million in the Contingency Reserve, $283 million reserved for potential retroactive labor settlements, and $75 million in an undesignated fund balance. The fiscal
year 2012 closing balance was $411 million greater than the fiscal year 2011 closing balance, which largely reflected actions to establish designated resources that could be used to address costs associated with potential retroactive labor
agreements, and to build the State’s general emergency reserve fund balances. The State made a $100 million deposit to the Tax Stabilization Reserve at the close of the fiscal year 2012, the first deposit to the State’s rainy day reserves
since fiscal year 2008.
General Fund receipts, including transfers from other funds, totaled $56.9 billion in fiscal
year 2012. Total receipts during fiscal year 2012 were $2.5 billion (4.5 percent) higher than in the prior fiscal year. Total tax receipts were $3.1 billion higher than the previous fiscal year, mainly due to growth in personal income tax
collections ($2.4 billion) and business tax collections ($481 million). A decrease in the level of excess balances transferred from other funds partly offset the annual increase in tax receipts.
General Fund disbursements, including transfers to other funds, totaled $56.5 billion in fiscal year 2012, $1.1 billion (2.0 percent)
higher than in the prior fiscal year. Excluding the impact of a $2.1 billion school aid deferral from March 2010 to the statutory deadline of June 2010, annual spending grew by $3.2 billion. Spending growth was largely due to the phase-out of
extraordinary Federal aid (including the enhanced Federal share of Medicaid, Federal American Recovery and Reinvestment Act of 2009 (“ARRA”) Stabilization funding, and the TANF Emergency Contingency Fund) that temporarily reduced
State-share spending in fiscal year 2011. Annual General Fund spending for agency operations in fiscal year 2012 was lower than in fiscal year 2011, consistent with management expectations and continued efforts in managing the workforce and
controlling costs. Annual growth in GSCs was mainly due to employee fringe benefit costs and workers’ compensation payments; the pre-payment of pension costs during the final quarter of fiscal year 2012; and lower reimbursement from non-General
Funds.
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State Operating Funds Fiscal Years
2012 through 2013
State Operating Funds is composed of the General Fund, State special revenue funds and debt service funds. The State Operating Funds
perspective is primarily intended as a measure of State-financed spending. Similar to the General Fund, spending growth in State Operating Funds in recent years has also been limited.
Fiscal Year 2013
State Operating Funds receipts totaled $85.1 billion in fiscal year 2013, an increase of $2.5 billion over the fiscal year 2012 results. Disbursements totaled $88.8 billion in fiscal year 2013, an
increase of $1.7 billion from the fiscal year 2012 results. The State ended fiscal year 2013 with a State Operating Funds cash balance of $4.4 billion. In addition to the $1.6 billion General Fund balance described above, the State’s special
revenue funds had a closing balance of $2.4 billion and the debt service funds had a closing balance of $381 million. The special revenue fund balances were held in numerous funds and accounts that supported a variety of programs including industry
regulation, public health, and public safety. The fund balance in the debt service funds reflected the preservation of moneys needed for debt service payments to bond holders.
Fiscal Year 2012
State Operating Funds receipts totaled $82.6 billion in fiscal year 2012, an increase of $3.8 billion over the fiscal year 2011 results. Disbursements totaled $87.2 billion in fiscal year 2012, an
increase of $2.8 billion from the fiscal year 2011 results. The State ended fiscal year 2012 with a State Operating Funds cash balance of $3.8 billion. In addition to the $1.8 billion General Fund balance described above, the State’s special
revenue funds had a closing balance of $1.6 billion and the debt service funds had a closing balance of $428 million. The remaining special revenue fund balances were held in numerous funds and accounts that supported a variety of programs including
industry regulation, public health, and public safety. The fund balance in the debt service funds reflected the preservation of moneys needed for debt service payments to bond holders.
All Funds Fiscal Years 2012 through 2013
The All Funds Financial Plan records the operations of the four governmental fund types: the General Fund, special revenue funds, capital projects funds, and debt service funds. It is the broadest measure
of State governmental activity, and includes spending from Federal funds and capital projects funds. As of June 19, 2013, the All Funds Financial Plan had not grown in recent years.
Fiscal Year 2013
All Funds receipts for fiscal year 2013 totaled $133.2 billion, an increase of $511 million over fiscal year 2012 results. Annual growth in tax receipts and miscellaneous receipts was partly offset by a
decline in Federal grants. All Funds disbursements for fiscal year 2013 totaled $133.1 billion, a decrease of $407 million over fiscal year 2012 results. The annual decline largely reflected the growth in State Operating Funds previously described,
more than offset by declines in Federal Operating Funds and Capital Project Funds. The annual decrease in Federal Operating Funds spending was due to the phasing-out of approximately $2.7 billion in funding available from the Federal ARRA between
fiscal years 2012 and 2013, partially offset by nearly $1 billion in Federal disaster assistance spending in fiscal year 2013. The capital projects spending decline reflected the recent completion of economic development projects, including the SUNY
College for Nanoscale and Science Engineering, Global Foundries, and the Aqueduct Video Lottery Facility.
The State ended
fiscal year 2013 with an All Funds cash balance of $3.9 billion. The $4.4 billion State Operating Funds balance described above was partly offset by a negative capital project funds closing balance of roughly $485 million. The negative balance in
the capital projects fund resulted from outstanding intra-year loans from STIP used to finance capital projects costs prior to the receipt of bond proceeds.
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Fiscal Year 2012
All Funds receipts for fiscal year 2012 totaled $132.7 billion, a decrease of $577 million over fiscal year 2011 results. Annual growth in
tax receipts and miscellaneous receipts was more than offset by a decline in Federal grants. All Funds disbursements for fiscal year 2012 totaled $133.5 billion, a decrease of $1.3 billion over fiscal year 2011 results. The annual changes largely
reflected the impact of Federal ARRA aid.
The State ended fiscal year 2012 with an All Funds cash balance of $3.4 billion.
The $3.8 billion State Operating Funds balance described above was partly offset by a negative capital project funds closing balance of roughly $449 million. The negative balance in the capital projects fund resulted from outstanding intra-year
loans from STIP used to finance capital projects costs prior to the receipt of bond proceeds.
CAPITAL PROGRAM AND FINANCING
PLAN
DOB prepares a Multi-Year Capital Program and Financing Plan with the Executive Budget and updates it following
enactment of the budget (the “Enacted Capital Plan”). The Enacted Capital Plan outlines the anticipated capital spending over the five-year period, the means by which it is to be financed, the impact on debt measures, and the anticipated
debt issuances required to support the planned capital spending.
Capital Plan
As prescribed by New York Works Task Force, DOB, as of June 19, 2013, had for the first time formulated 10-year capital commitment
and disbursement projections for State agencies. The total commitment and disbursement levels over the 10-year capital planning horizon reflect, among other things, projected capacity under the State’s debt limit, anticipated levels of Federal
aid, and the timing of capital activity based on known needs and historical patterns. The following capital projects information relates to the fiscal year 2014.
Fiscal Year 2014 Capital Projects Spending
Spending on capital projects is
projected to total $9.4 billion in fiscal year 2014, which includes $1.4 billion in “off-budget spending” directly from bond proceeds held by public authorities. Overall, capital spending in fiscal year 2014 is projected to increase by
$543 million (6 percent) from fiscal year 2013.
In fiscal year 2014, transportation spending is projected to total $4.7
billion, which represents 50 percent of total capital spending, with education, including the Expanding Our Children’s Education and Learning (“EXCEL”) program, comprising the next largest share at 22 percent. Economic development
spending represents 6 percent and spending for parks and environment represents 7 percent. The remaining 15 percent is comprised of spending for mental hygiene, health and social welfare, public protection and all other capital programs.
Spending for transportation is projected to increase by $269 million (6 percent) in fiscal year 2014, reflecting the continuation of
accelerated spending on road and bridge projects under the New York Works program and additional Consolidated Highway Improvement Programs (“CHIPs”) funding included in the Enacted Budget.
Parks and environment spending is expected to decrease by $72 million (-10 percent) in fiscal year 2014 reflecting the continued
phasedown of general obligation bond authorizations.
Economic development and government oversight spending is projected to
increase by $173 million (40 percent). This spending reflects several new economic development initiatives designed to spur job growth, including money for the Regional Councils Initiative. Also, in fiscal year 2014, the Enacted Budget dedicates
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resources to western New York to bolster the Buffalo Regional Innovative Cluster, and the Buffalo Bills Stadium improvements. It also provides additional investments in capital projects for
higher education that are to provide statewide economic opportunities, including SUNY 2020 and CUNY 2020.
Spending for health
and social welfare is projected to increase by $52 million (9 percent). This reflects ongoing commitment levels of the $1.6 billion HEAL NY program enacted in fiscal year 2008.
Education spending is projected to decrease by $107 million (-5 percent) in fiscal year 2014. This is primarily due to declining spending
at SUNY related to the removal of the residence hall program and continued spending from previously enacted capital plans, as well as the phasedown of the EXCEL program.
Spending increases of $89 million (37 percent) for public protection primarily reflect the State’s share of funding related to damages caused by Superstorm Sandy, enhanced aviation equipment,
continued investments in the Division of Homeland Security and Emergency Services State Preparedness Training Center, as well as preservation and improvement projects at correctional facilities. Mental hygiene capital spending is expected to
increase by $104 million.
General government capital spending is expected to increase by $41 million (62 percent) primarily
attributable to costs associated with State technology projects, which are to be selected through a governance process based on return on investment (“ROI”) or a cost-benefit analysis.
Spending for agencies in the “All Other” category is projected to decrease by $4 million
(-6
percent) primarily due to reduced spending from the Statewide equipment program.
Financing Fiscal Year 2014 Capital Projects Spending
In fiscal year 2014, the State plans to finance 57 percent of capital projects spending with long-term debt. Federal aid is expected to fund 19 percent of the State’s fiscal year 2014 capital
spending, primarily for transportation. State cash resources are slated to finance the remaining 24 percent of capital spending. Year-to-year, total pay-as-you-go support is projected to decrease by $159 million, with State pay-as-you-go decreasing
by $138 million and Federal pay-as-you-go support decreasing by $21 million. Bond-financed spending is projected to increase by $700 million.
Financing Plan
New York
State is one of the largest issuers of municipal debt, ranking second among the states, behind California, in the amount of debt outstanding. The State ranks fifth in the U.S. in debt per capita, behind Connecticut, Massachusetts, Hawaii, and New
Jersey. As of March 31, 2013, total State-related debt outstanding totaled $56.1 billion, equal to approximately 5.4 percent of New York personal income. The State’s debt levels are typically measured by DOB using two categories:
State-supported debt and State-related debt.
State-supported debt represents obligations of the State that are paid from
traditional State resources (i.e., tax revenue) and have a budgetary impact. It includes general obligation debt, to which the full faith and credit of the State have been pledged, and lease purchase and contractual obligations of public authorities
and municipalities, where the State’s legal obligation to make payments to those public authorities and municipalities is subject to and paid from annual appropriations made by the Legislature. These include the State Personal Income Tax
Revenue Bond program and the New York LGAC bonds. Since 2002, the State has financed most of its capital program with Personal Income Tax Revenue Bonds, a revenue bond program that has reduced its cost of borrowing and created efficiencies by
permitting the consolidation of bond sales. Prior to 2002, the State had financed its capital spending with lower-rated lease purchase and contractual service obligations of public authorities. The State expects to transition to using only three
credits—general obligation bonds, Personal Income Tax Revenue Bonds, and the new Sales Tax Revenue Bond program, which was authorized in the Enacted Budget.
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State-related debt is a broader measure of State debt which includes all debt that is
reported in the State’s Generally Accepted Accounting Principles (“GAAP”)-basis financial statements, except for unamortized premiums and accumulated accretion on capital appreciation bonds. These financial statements are audited by
external independent auditors and published by Office of the State Comptroller (“OSC”) on an annual basis. The debt reported in the GAAP-basis financial statements includes general obligation debt, other State-supported debt as defined in
the State Finance Law, debt issued by the Tobacco Securitization Finance Corporation, certain debt of the Municipal Bond Bank Agency (“MBBA”) issued to finance prior year school aid claims and capital leases and mortgage loan commitments.
In addition, State-related debt reported by DOB includes State-guaranteed debt, moral obligation financings and certain contingent-contractual obligation financings, where debt service is paid from non-State sources in the first instance, but State
appropriations are available to make payments if necessary. These numbers are not included in the State’s GAAP-basis financial statements.
The State’s debt does not encompass, and does not include, debt that is issued by, or on behalf of, local governments and secured (in whole or in part) by State local assistance aid payments. For
example, certain State aid to public schools paid to school districts or New York City has been pledged by those local entities to help finance debt service for locally-sponsored and locally-determined financings. This debt, however, is not treated
by DOB as either State-supported debt or State-related debt because it (i) is not issued by the State (nor on behalf of the State), and (ii) does not result in a State obligation to pay debt service. Instead, this debt is accounted for in
the respective financial statements of the local governments or other entity responsible for the issuance of such debt and is similarly treated.
The issuance of general obligation debt and debt of LGAC is undertaken by OSC. All other State-supported and State-related debt is issued by the State’s financing authorities (known as
“Authorized Issuers” in connection with the issuance of Personal Income Tax and Sales Tax Revenue Bonds) acting under the direction of DOB. The Authorized Issuers include the Thruway Authority, DASNY, Empire State Development
(“ESD”), the Environmental Facilities Corporation (“EFC”), and the Housing Finance Agency (“HFA”) for Personal Income Tax Revenue Bonds and the Thruway Authority, DASNY, and ESD for Sales Tax Revenue Bonds. Prior to any
issuance of new State-supported debt and State-related debt, approval is required by the State Legislature, DOB, the issuer’s board, and in certain instances, the Public Authorities Control Board (“PACB”) and the State Comptroller.
The State indicated as of June 19, 2013 that it had never defaulted on any of its general obligation indebtedness or its
obligations under lease purchase or contractual obligation financing arrangements.
State-Supported Debt Outstanding
State-supported debt represents obligations of the State that are paid from traditional State resources and have a
budgetary impact. It includes general obligation debt, State Personal Income Tax Revenue Bonds, Sales Tax Revenue Bonds, LGAC bonds and lease purchase and service contract obligations of public authorities and municipalities. Payment of all
obligations, except for general obligation debt, is subject to annual appropriations by the State Legislature, but the State’s credits have different security features, as described in this section. The Debt Reform Act limits the amount of new
State supported debt issued since April 1, 2000. See “Financial Plan Overview—Capital Commitment Plan and Debt Reform Act Limit” for more information.
State Personal Income Tax Revenue Bond Program
Since 2002, the Personal
Income Tax Revenue Bond Program has been the primary financing vehicle used to fund the State’s capital program. Legislation enacted in 2001 provided for the issuance of State Personal Income Tax Revenue Bonds by the State’s Authorized
Issuers. The legislation requires 25 percent of State personal income tax receipts (excluding refunds owed to taxpayers) to be deposited into the RBTF for purposes of making debt service payments on these bonds, with the excess amounts returned to
the General Fund. The first State Personal Income Tax Revenue Bonds were issued on May 9, 2002, and since that time, all of the Authorized Issuers have issued State Personal Income Tax Revenue Bonds.
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Legislation enacted in 2007 increased the amount of personal income tax receipts to be
deposited into the RBTF by removing an exclusion for personal income tax amounts deposited to the STAR Fund. In the event that (a) the State Legislature fails to appropriate amounts required to make all debt service payments on the State
Personal Income Tax Revenue Bonds or (b) having been appropriated and set aside pursuant to a certificate of the Director of the Budget, financing agreement payments have not been made when due on the State Personal Income Tax Revenue Bonds,
the legislation requires that personal income tax receipts continue to be deposited to the RBTF until amounts on deposit in the Fund equal the greater of (i) 25 percent of annual personal income tax receipts or (ii) $6 billion. Debt
service on State Personal Income Tax Revenue Bonds is subject to legislative appropriation, as part of the annual debt service bill.
As of March 31, 2013, approximately $27 billion of State Personal Income Tax Revenue Bonds were outstanding. The projected Personal Income Tax Revenue Bond coverage ratios, noted below, are based
upon estimates of personal income tax receipts deposited into the RBTF and include projected debt issuances. Assuming average issuances of approximately $3.5 billion annually over the next four years, personal income tax coverage is expected to
decline from 3.8 times in fiscal year 2014 to 3.7 times in fiscal year 2017.
Sales Tax Revenue Bond Program
Legislation included in the Fiscal Year 2014 Enacted Budget created a new Sales Tax Revenue Bond program. This new bonding
program is to replicate certain credit features of personal income tax and LGAC revenue bonds and is expected to provide the State with increased efficiencies and a lower cost of borrowing.
The legislation created the Sales Tax Revenue Bond Tax Fund, a sub-fund within the General Debt Service Fund that is to provide for the
payment of these bonds. The new Sales Tax Revenue Bonds are to be secured by dedicated revenues consisting of one cent of the State’s four cent sales and use tax. With a limited exception, upon the satisfaction of all of the obligations and
liabilities of LGAC, this is to increase to 2 cents of sales and use tax receipts. Such sales tax receipts in excess of debt service requirements would be transferred to the State’s General Fund.
The Sales Tax Revenue Bond Fund is expected to have appropriation-incentive and General Fund “reach back” features comparable
to personal income tax and LGAC bonds. A “lock box” feature is to restrict transfers back to the General Fund in the event of non-appropriation or non-payment. In addition, in the event that sales tax revenues are insufficient to pay debt
service, a “reach back” mechanism requires the State Comptroller to transfer moneys from the General Fund to meet debt service requirements.
DOB expects the first Sales Tax Revenue Bond issue to close in the third quarter of fiscal year 2014 and that the Sales Tax Revenue Bonds are to be used interchangeably with Personal Income Tax Revenue
Bonds to finance State capital needs. Assuming average issuances of approximately $1.2 billion annually over the next four years, Sales Tax coverage based only upon the 1 cent pledge is expected to decline from 37.4 times in fiscal year 2014 to 9.7
times in fiscal year 2017.
Also included in the Fiscal Year 2014 Enacted Budget was legislation that authorizes the use of
State Sales Tax Revenue Bonds and Personal Income Tax Revenue Bonds to finance any capital purpose, including projects that were previously financed through the State’s Mental Health Facilities Improvement Revenue Bond program and the DHBTF
program. This change allows the State to transition to the use of three primary credits—Personal Income Tax Revenue Bonds, Sales Tax Revenue Bonds and General Obligation Bonds to finance the State’s capital needs.
General Obligation Financings
With limited exceptions for emergencies, the State Constitution prohibits the State from undertaking a long-term general obligation borrowing (i.e., borrowing for more than one year) unless it is
authorized in a specific
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amount for a single work or purpose by the Legislature. There is no constitutional limitation on the amount of long-term general obligation debt that may be so authorized and subsequently
incurred by the State. However, the Debt Reform Act imposed statutory limitations on new State-supported debt issued on and after April 1, 2000. The State Constitution provides that general obligation bonds, which can be paid without an
appropriation, must be paid in equal annual principal installments or installments that result in substantially level or declining debt service payments, mature within 40 years after issuance, and begin to amortize not more than one year after the
issuance of such bonds. However, general obligation housing bonds must be paid within 50 years after issuance, with principal commencing no more than three years after issuance. The Debt Reform Act limits the maximum term of State-supported bonds,
including general obligation bonds, to 30 years, and the State, as of June 19, 2013, had no bonds outstanding with a remaining final maturity that was more than 30 years.
General obligation debt, as of June 19, 2013, was authorized for transportation, environment and housing purposes. Transportation-related bonds are issued for State and local highway and bridge
improvements, mass transportation, rail, aviation, canal, port and waterway programs and projects. Environmental bonds are issued to fund environmentally sensitive land acquisitions, air and water quality improvements, municipal non-hazardous waste
landfill closures and hazardous waste site cleanup projects.
Most general obligation debt-financed spending in the Enacted
Capital Plan is authorized under nine previously approved bond acts (five for transportation and four for environmental and recreational programs). The majority of projected general obligation bond-financed spending supports authorizations for the
2005 Rebuild and Renew New York Bond Act. DOB projected that spending authorizations from the remaining bond acts would be virtually depleted by the end of the plan. As of March 31, 2013, approximately $3.5 billion of general obligation bonds
were outstanding.
The State Constitution permits the State to undertake short-term general obligation borrowings without
voter approval in anticipation of the receipt of (i) taxes and revenues, by issuing general obligation tax and revenue anticipation notes (“TRANs”), and (ii) proceeds from the sale of duly authorized but unissued general
obligation bonds, by issuing bond anticipation notes (“BANs”). General obligation TRANs must mature within one year from their date of issuance and cannot be refunded or refinanced beyond such period. However, since 1990, the State’s
ability to issue general obligation TRANs that mature in the same State fiscal year in which they were issued has been limited due to the enactment of the fiscal reform program which created LGAC. BANs may only be issued for the purposes and within
the amounts for which bonds may be issued pursuant to general obligation authorizations, and must be paid from the proceeds of the sale of bonds in anticipation of which they were issued or from other sources within two years of the date of issuance
or, in the case of BANs for housing purposes, within five years of the date of issuance. In order to provide flexibility within these maximum term limits, the State had previously used the BANs authorization to conduct a commercial paper program to
fund disbursements eligible for general obligation bond financing.
New York Local Government Assistance Corporation
In 1990, as part of a State fiscal reform program, legislation was enacted creating LGAC, a public benefit corporation
empowered to issue long-term obligations to fund certain payments to local governments that had been traditionally funded through the State’s annual issuance of general obligation TRANs that mature in the same State fiscal year that they are
issued (“seasonal borrowing”). The legislation also dedicated revenues equal to one cent of the State’s four cent sales and use tax to pay debt service on these bonds. As of June 1995, LGAC had issued State-supported bonds and notes
to provide net proceeds of $4.7 billion, completing the program. The issuance of these long-term obligations is to be amortized over a period of no more than 30 years from the dates of their original issuance, with the final debt service payment on
April 1, 2025.
The legislation eliminated seasonal borrowing except in cases where the Governor and the legislative
leaders have certified the need for additional seasonal borrowing, based on emergency or extraordinary factors, or factors unanticipated at the time of adoption of the budget, and provide a schedule for eliminating it over time.
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Any seasonal borrowing is required by law to be eliminated by the fourth fiscal year after the limit was first exceeded (i.e., no seasonal borrowing in the fifth year). The provision limiting the
State’s seasonal borrowing practices was included as a covenant with LGAC’s bondholders in the General Bond Resolution and General Subordinate Lien Bond Resolution authorizing such bonds. No restrictions were placed upon the State’s
ability to issue deficit TRANs (issued in one year and maturing in the following year).
The LGAC changes, as well as other
changes in revenue and spending patterns, have allowed the State to meet its cash flow needs throughout the fiscal year without relying on seasonal borrowings. As of June 19, 2013, however, the State had taken extraordinary measures in recent
years to manage its cash flow, including payment deferrals and permitting the State to borrow from other funds of the State (i.e., non-General Fund) for a limited period.
Legislation enacted in 2003 requires LGAC to certify, in addition to its own cash needs, $170 million annually to provide an incentive for the State to seek an annual appropriation to provide local
assistance payments to New York City or its assignee. In May 2004, LGAC amended its General Bond Resolution and General Subordinate Lien Bond Resolution to make clear that any failure to certify or make payments to the City or its assignee has no
impact on LGAC’s own bondholders; and that if any such act or omission were to occur with respect to any bonds issued by New York City or its assignee, that act or omission would not constitute an event of default with respect to LGAC bonds.
The Fiscal Year 2014 Enacted Budget includes a local assistance appropriation of $170 million from the Local Government Assistance Tax Fund to the City.
State-Supported Lease-Purchase and Other Contractual-Obligation Financings
Prior to the 2002 commencement of the State Personal Income Tax Revenue Bond program, public authorities or municipalities issued other
lease-purchase and contractual-obligation debt. These types of debt, where debt service is payable from moneys received from the State and is subject to annual State appropriation, are not general obligations of the State.
Under this financing structure, bonds were issued to finance various capital programs, including those which finance certain of the
State’s highway and bridge projects, SUNY and CUNY educational facilities, health and mental hygiene facilities, prison construction and rehabilitation, economic development projects, State buildings and housing programs, and equipment
acquisitions.
Debt service payable to certain public authorities from State appropriations for such lease-purchase and
contractual obligation financings may be paid from general resources of the State or from dedicated tax and other sources (i.e., personal income taxes, motor vehicle and motor fuel related-taxes, and patient income). Although these financing
arrangements involve a contractual agreement by the State to make payments to a public authority, municipality or other entity, the State’s obligation to make such payments is expressly made subject to appropriation by the Legislature and the
actual availability of money to the State for making the payments.
Legislation first enacted in fiscal year 2011, and
extended through fiscal year 2014, authorizes the State to set aside moneys in reserve for debt service on general obligation, lease-purchase, and service contract bonds. Pursuant to a certificate filed by the Director of the Budget with the State
Comptroller, the Comptroller is required to transfer from the General Fund such reserved amounts on a quarterly basis in advance of required debt service payment dates.
Other New York State Revenue Bond Programs
Legislation included as
part of the Fiscal Year 2014 Enacted Budget authorizes Personal Income Tax and Sales Tax Revenue Bonds to be issued to finance any capital purpose, including projects that were previously financed through the State’s Mental Health Facilities
Improvement Revenue Bond program and the DHBTF program. This change allows the State to transition to the use of three primary credits—Personal Income Tax Revenue Bonds, Sales Tax Revenue Bonds and general obligation bonds.
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Dedicated Highway and Bridge Trust Fund Bonds
DHBTF bonds are issued for State transportation purposes and are backed by dedicated motor fuel, gas and other transportation related
taxes and fees. As of March 31, 2013, approximately $7.0 billion of DHBTF bonds were outstanding.
Mental Health
Facilities Improvement Bonds
Mental Health Facilities Improvement bonds are issued to support capital projects to
preserve and maintain both State and community-based facilities operated and/or licensed by OMH, OPWDD, and OASAS. As of March 31, 2013, approximately $2.3 billion of Mental Health Facilities Improvement bonds were outstanding.
A major source of patient revenues for these bonds are Federal Medicaid payments for services delivered by OPWDD. Debt service coverage
ratios for future years, as of June 19, 2013, were projected at approximately 7.3 times for existing Mental Health Facilities Improvements Revenue Bonds. As noted previously, the Federal Center for Medicare and Medicaid Services
(“CMS”) have engaged the State regarding claims for services provided to individuals in developmental centers operated by OPWDD. In addition, to the reductions in rates that commenced on April 1, 2013, on February 8, 2013, the
U.S. Department of Health & Human Services Office of the Inspector General, at the direction of the Federal CMS, began a review to determine the allowability of Medicaid costs for services provided in prior years to the Medicaid population
in New York State-Operated Intermediate Care Facilities for the Developmentally Disabled (“ICF/DD”). The initial review period includes claims for services provided during the period April l, 2010 through March 31, 2011. As a result
of this review, CMS may seek to recover Federal funds for any payments that it determines to be in excess of Federal requirements. The State has prospectively resolved CMS concerns regarding its payments to ICF/DDs with a state plan change effective
April 1, 2013, and continues to have discussions with CMS to resolve these concerns related to the April 1, 2010 through March 31, 2011 period. Adverse action by the Federal government relative to the allowability of Medicaid costs or
services in years prior to fiscal year 2014 would result in a significant loss of Federal aid. The prospective resolution of this matter resulted in a reduction in Federal aid of $1.1 billion annually. A comparable amount of Federal aid is at risk
for any prior period that may be pursued by CMS. Matters of this type are sometimes resolved with a prospective solution (as already commenced by New York State), and the State is not aware of any similar attempts by the Federal government to
retroactively recover Federal aid of this magnitude that was paid pursuant to an approved State plan. The State continues to seek CMS approval to proceed with the development of a sustainable system of service funding and delivery for individuals
with developmental disabilities. However, there can be no assurance that Federal action in this matter will not result in materially adverse changes to the State Financial Plan.
SUNY Dormitory Facilities Bonds
Legislation enacted in the Fiscal Year 2014 Budget created a new bonding program to finance the SUNY residence hall program. The new bonding program is to be supported solely by third party revenues
generated by student rents. The revenues are to flow directly to DASNY for the payment of debt service without an appropriation. Unlike the existing program, the new program is not expected to include a SUNY general obligation pledge, thereby
eliminating any recourse to the State. The existing SUNY Dormitory Facilities Lease Revenue Bonds are expected to continue to be counted as State-supported debt until they are refunded and defeased or are paid off at maturity. As of March 31,
2013, approximately $1.5 billion of SUNY Dormitory Facilities Lease Revenue Bonds were outstanding under the existing program.
State-Related Debt Outstanding
State-related debt is a broader measure
of debt that includes State-supported debt, as discussed above, and contingent-contractual obligations, moral obligations, State-guaranteed debt and other debt. As of March 31, 2013, the State had never been required to make an unanticipated
debt service payment on contingent contractual, moral obligation, or State-guaranteed obligations.
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Contingent-Contractual Obligation Financing
Contingent-contractual debt, included in State-related debt, is debt where the State enters into a statutorily authorized
contingent-contractual obligation via a service contract to pay debt service in the event there are shortfalls in revenues from other non-State resources pledged or otherwise available to pay the debt service. As with State-supported debt, except
for general obligation, all payments are subject to annual appropriation. As of June 19, 2013, the State indicated that it had never been required to make any payments under this financing arrangement, but the bankruptcy and deteriorating
financial conditions of certain hospitals in the secured hospitals program (described below) may require the State to start making payments in fiscal year 2014.
Secured Hospital Program
Under the Secured Hospital Program, the State
entered into service contracts to enable certain financially distressed not-for-profit hospitals to issue debt. The contracts obligate the State to pay debt service, subject to annual appropriations by the Legislature, on bonds issued by the New
York State MCFFA and by DASNY through the Secured Hospital Program. In the event there are shortfalls in revenues from other sources, which include hospital payments made under loan agreements between DASNY and the hospitals, and certain reserve
funds held by the applicable trustees for the bonds, the State is liable for the debt service. As of March 31, 2013, there was approximately $421 million of bonds outstanding for this program. See “Financial Plan Overview—Risks and
Uncertainties Related to the State Financial Plan—Secured Hospital Program” for more information.
Tobacco
Settlement Financing Corporation (“TSFC”)
Legislation enacted in 2003 authorized the State to securitize all
of its tobacco settlement payments through the TSFC, a corporation created under the legislation that is a subsidiary of the MBBA, through an asset-backed securitization transaction. To lower costs, the legislation authorized the State to enter into
contingency contracts obligating the State to pay debt service, subject to annual appropriations, on the TSFC bonds in the event that tobacco receipts and bond reserves are insufficient. To reduce the chance that the State’s contractual
payments will be required in the event that tobacco receipts and bond reserves are not sufficient to pay debt service, the TSFC bonds were structured to meet or exceed all rating agency tobacco bond stress tests. The $4.2 billion of upfront payments
received by the State from the securitization were used to help restore State budget balance in fiscal year 2004 ($3.8 billion) and fiscal year 2005 ($400 million).
The bonds carry a final nominal maturity of 19 years and have an expected final maturity of 13 years, based on optional redemptions (i.e., an expected final maturity in calendar year 2018). The expected
final maturity may deviate due to the optional nature of the redemptions and adjustments to tobacco settlement payments due from participating manufacturers. Various manufacturers, including the original participating manufacturers, have made
reduced payments to states and territories, or deposit payments into a special disputed payments account awaiting determination through arbitration of entitlement to adjustments. As of March 31, 2013, approximately $2.4 billion of TSFC bonds
were outstanding. DOB does not anticipate that the State will be called upon to make any payment, pursuant to the contingency contract, in fiscal year 2014. However, if the State were to lose the current arbitration decision and continued to lose
future arbitration determinations, it is possible that the State will have to make payments through the service contract after the debt service fund is depleted. See “Litigation and Arbitration—Tobacco Master Settlement Agreement” for
more information.
Moral Obligation Financings
Moral obligation financing generally involves the issuance of debt by a public authority to finance a revenue producing project or other
activity. The debt is secured, in the first instance, by project revenues, but includes statutory provisions requiring the State, subject to appropriation by the Legislature, to make up any deficiencies which may occur in the issuer’s debt
service reserve fund. As of June 19, 2013, there had never been a payment default on any moral obligation debt of any public authority. DOB does not expect the State to increase statutory
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authorizations for moral obligation bond programs. From 1976 through 1987, the State was called upon to appropriate and make payments totaling $162.8 million to make up deficiencies in the debt
service reserve funds of the Housing Finance Agency (HFA) pursuant to moral obligation provisions. In the same period, the State also expended additional funds to assist the Project Finance Agency, Urban Development Corporation (UDC) and other
public authorities which had moral obligation debt outstanding. As of June 19, 2013, the State indicated that it had not been called upon to make any payments pursuant to any moral obligations since fiscal year 1987 and no such requirements were
anticipated during fiscal year 2014.
State-Guaranteed Financings
Pursuant to specific constitutional authorization, the State may also directly guarantee certain public authority obligations. Payments of
debt service on State-guaranteed bonds and notes are legally enforceable obligations of the State. The only current authorization provides for the State guarantee of the repayment of certain borrowings for designated projects of the New York State
Job Development Authority (“JDA”). As of June 19, 2013, the State indicated that it had never been called upon to make any direct payments pursuant to any such guarantees.
Due to concerns regarding the economic viability of its programs, JDA’s loan and loan guarantee activities were suspended in 1995.
JDA resumed its lending activities in 1997 under a revised set of lending programs and underwriting guidelines. In April 2004, JDA issued approximately $42 million of State-guaranteed bonds to refinance certain of its outstanding bonds and notes in
order to restructure and improve JDA’s capital finances. As of March 31, 2013, JDA had approximately $15 million of bonds outstanding. DOB does not anticipate that the State will be called upon to make any payments pursuant to the State
guarantee in fiscal year 2014.
Other State Financings
Other State financings relate to the issuance of debt by a public authority, including capital leases, mortgage loan commitments and MBBA
prior year school aid claims. Regarding the MBBA prior year school aid claims, the municipality assigns specified State and local assistance payments it receives to the issuer or the bond trustee to ensure that debt service payments are made. The
State has no legal obligation to make any debt service payments or to continue to appropriate local assistance payments that are subject to the assignment.
Borrowing Plan
Debt issuances of $5.1 billion are planned to finance
new capital project spending in fiscal year 2014, an increase of $1.5 billion (42 percent) from fiscal year 2013. It is anticipated that the State will finance capital projects through Personal Income Tax Revenue Bonds, Sales Tax Revenue Bonds and
general obligation bonds in fiscal year 2014. Personal Income Tax and Sales Tax issuances are to include capital projects previously financed through the DHBTF Bonds credit and Mental Health Facilities Improvement Revenue Bonds credit. The SUNY
residence hall program is to be financed with the new SUNY Dormitory Facilities credit that was authorized in the Enacted Budget.
The bond issuances are to finance capital commitments for transportation infrastructure ($1.9 billion), education ($1.7 billion), health and mental hygiene ($459 million), economic development ($424
million), the environment ($362 million), and State facilities and equipment ($323 million).
As of June 19, 2013, the State
indicated that over the next five years, new debt issuances were projected to total $24.7 billion. New issuances are primarily for transportation infrastructure ($7.9 billion), education facilities ($8.0 billion), economic development ($4.1
billion), the environment ($1.6 billion), mental hygiene and health care facilities ($1.6 billion), and State facilities and equipment ($1.5 billion).
The State expects to finance all of its bond-financed capital needs in fiscal year 2014 through only three highly-rated programs—Personal Income Tax Revenue Bonds, Sales Tax Revenue Bonds, and
general obligation bonds.
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State-Related Debt Service Requirements
Interest Rate Exchange Agreements and Net Variable Rate Obligations
Chapter 81 of the Laws of 2002 authorized issuers of State-supported debt to issue a limited amount of variable rate debt instruments and
to enter into a limited amount of interest rate exchange agreements. As of June 19, 2013, the limit on debt instruments which result in a net variable rate exposure (i.e., both variable rate debt and interest rate exchange agreements) was no more
than 15 percent of total outstanding State-supported debt. Interest rate exchange agreements are also limited to a total notional amount of no more than 15 percent of total outstanding State-supported debt. The outstanding State-supported debt of
$52.5 billion as of March 31, 2013 results in a cap on variable rate exposure and a cap on interest rate exchange agreements of about $8 billion each (15 percent of total outstanding State-supported debt). As discussed below, as of
March 31, 2013, both the amount of outstanding variable rate debt instruments and interest rate exchange agreements were less than the authorized totals of 15 percent of total outstanding State-supported debt.
Interest Rate Exchange Agreements
As of March 31, 2013, the State’s Authorized issuers had a notional amount of $2.0 billion in interest rate exchange agreements. Overall, the State’s swap exposure is expected to decline
from 3.9 percent in fiscal year 2013 to 2.7 percent in fiscal year 2018.
As of June 19, 2013, the State’s swaps
portfolio was comprised of synthetic fixed rate swaps. A synthetic fixed swap includes two separate transactions: (1) a variable rate bond is sold to bondholders, and (2) an interest rate exchange agreement between the State and a
counterparty is executed. The interest rate exchange agreement results in the State paying a fixed interest rate (i.e., synthetic fixed rate) to the counterparty and the counterparty agrees to pay the State a variable rate (65 percent of London
InterBank Offered Rate (“LIBOR”) for all State swaps). The variable rate the State pays to bondholders and the variable rate the State is receiving from the counterparty off-set each other, leaving the State with the synthetic fixed rate
payment. The synthetic fixed rate was less than the fixed rate the State would have paid to issue traditional fixed rate bonds at that time.
As of June 19, 2013, the State indicated that it had no plans to increase its swap exposure, and that it might take further actions to reduce swap exposures commensurate with variable rate
restructuring efforts.
Net Variable Rate Obligations
The State’s net variable rate exposure (including a policy reserve) is projected to average 1.6 percent of outstanding debt from
fiscal years 2013 through 2017. The debt that is charged against the variable rate cap represents the State’s unhedged variable rate bonds. The variable rate bonds that are issued in connection with a swap are not included in the variable rate
cap, as discussed previously in the “Interest Rate Exchange Agreements” section.
As of June 19, 2013, the
State indicated that its current policy was to count 35 percent of the notional amount of outstanding 65 percent of LIBOR fixed rate swaps in its variable rate exposure. This policy reserve accounts for the potential that tax policy or market
conditions could result in significant differences between payments owed on the bonds and the amount received by the State under its 65 percent of LIBOR swaps, and that the factors affecting such payments can be consistent with variable rate
exposure.
As of June 19, 2013, the State indicated that it had no plans to issue additional variable rate debt, and that
it might further reduce existing variable rate exposure.
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State Bond Caps and Debt Outstanding
Bond caps are legal authorizations to issue bonds to finance the State’s capital projects. The caps can authorize bond financing of
capital appropriations. As the bond cap for a particular programmatic purpose is reached, subsequent legislative changes are required to raise the statutory cap to the level necessary to meet the bondable capital needs, as permitted by a single or
multi-year appropriation. The aggregate bond caps have increased by $3.6 billion in fiscal year 2014.
Debt
authorizations for capital programs are either approved or enacted at one time, expected to be fully issued over time, or enacted annually by the Legislature and are usually consistent with bondable capital projects appropriations. Authorization
does not, however, indicate intent to sell bonds for the entire amount of those authorizations, because capital appropriations often include projects that do not materialize or are financed from other sources. The amount of bonds authorized may be
increased or decreased from time to time by the Legislature. In the case of general obligation debt, increases in the authorization must be approved by the voters.
AUTHORITIES AND LOCALITIES
Public Authorities
For the purposes of this section, “authorities” refer to public benefit corporations or public authorities, created pursuant to
State law, which are reported in the State’s CAFR. Authorities are not subject to the constitutional restrictions on the incurrence of debt that apply to the State itself and may issue bonds and notes within the amounts and restrictions set
forth in legislative authorization. The State’s access to the public credit markets through bond issuances constituting State-supported or State-related debt issuances by certain of its authorities could be impaired and the market price of the
outstanding debt issued on its behalf may be materially and adversely affected if these authorities were to default on their respective State-supported or State-related debt issuances.
The State has numerous public authorities with various responsibilities, including those which finance, construct and/or operate
revenue-producing public facilities. These entities generally pay their own operating expenses and debt service costs from revenues generated by the projects they finance or operate, such as tolls charged for the use of highways, bridges or tunnels;
charges for public power, electric and gas utility services; tuition and fees; rentals charged for housing units; and charges for occupancy at medical care facilities. In addition, State legislation also authorizes several financing structures,
which may be utilized for the financings.
There are statutory arrangements that, under certain circumstances, authorize State
local assistance payments otherwise payable to localities to be made instead to the issuing public authorities in order to secure the payment of debt service on their revenue bonds and notes. However, the State has no constitutional or statutory
obligation to provide assistance to localities beyond amounts that have been appropriated therefore in any given year. Some public authorities also receive moneys from State appropriations to pay for the operating costs of certain programs.
The City of New York
The fiscal demands on the State may be affected by the fiscal condition of New York City, which relies in part on State aid to balance its budget and meet its cash requirements. It is also possible that
the State’s finances may be affected by the ability of New York City, and its related issuers, to market securities successfully in the public credit markets.
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Other Localities
Certain localities other than New York City have experienced financial problems and have requested and received additional State assistance during the last several State fiscal years. While a relatively
infrequent practice, deficit financing by local governments has become more common in recent years. Between 2004 and January 2014, the State Legislature passed 24 special acts authorizing, or amending authorizations for, bond issuances to finance
local government operating deficits, most recently for Rockland County and the City of Long Beach. When local governments are authorized to issue bonds to finance operating deficits, the local government generally is subject to certain additional
fiscal oversight during the time the bonds are outstanding, including an annual budget review by OSC. In addition to deficit financing authorizations, the State has periodically enacted legislation to create oversight boards in order to address
deteriorating fiscal conditions within a locality.
The Buffalo Fiscal Stability Authority had exercised Control Period powers
with respect to the City of Buffalo since the City’s 2004 fiscal year, but transitioned to Advisory Period powers commencing on July 1, 2012.
In January 2011, the Nassau County Interim Finance Authority (“NIFA”) declared that it was entering a Control Period, citing the “substantial likelihood and imminence” that Nassau
County would incur a major operating funds deficit of 1 percent or more during the County’s 2011 fiscal year. Nassau County challenged NIFA’s determination and authority to impose a Control Period in State Supreme Court but did not
prevail. As of November 25, 2013, NIFA was exercising Control Period powers over Nassau County.
Various actions
taken by NIFA or Nassau County have been the subject of Federal and State court decisions. For example, NIFA’s imposition of a wage freeze is currently stayed pending the conclusion of certain State court actions, and the New York State Court
of Appeals has recently held that Nassau County could not transfer the responsibility for certain tax refunds to local governments and school districts.
Erie County has a Fiscal Stability Authority, the City of New York has a Financial Control Board, and the City of Troy has a Supervisory Board, all of which, as of February 27, 2014, perform certain
review and advisory functions. The City of Newburgh operates under fiscal monitoring by the State Comptroller pursuant to special State legislation. The potential impact on the State of any future requests by localities for additional oversight or
financial assistance is not included in the projections of the State’s receipts and disbursements for the State’s fiscal year 2014 or thereafter.
The City of Yonkers no longer operates under an oversight board but must adhere to a Special Local Finance and Budget Act. The Yonkers City School District is dependent upon the City of Yonkers as it
lacks separate taxing authority for school operations. In January 2014, the Yonkers Board of Education identified an improper accrual of State aid that resulted in an unanticipated shortfall in available funds for operation of the Yonkers City
School District. The extent of the shortfall, and potential actions to address the shortfall, remain under consideration by the City of Yonkers, the Yonkers Board of Education, and the State.
Legislation enacted in 2013 created the Financial Restructuring Board for Local Governments (the “Restructuring Board”). The
Restructuring Board consists of ten members, including the Director of the State Budget, who is the Chair, the Attorney General, the State Comptroller, the Secretary of State and six members appointed by the Governor. The Restructuring Board, upon
the request of a “fiscally eligible municipality,” is authorized to perform a number of functions including reviewing the municipality’s operations and finances, making recommendations on reforming and restructuring the
municipality’s operations, proposing that the municipality agree to fiscal accountability measures, and making available certain grants and loans. As of February 27, 2014, the Restructuring Board had agreed to accept the requests for
review of eight fiscally eligible municipalities. The Restructuring Board is also authorized, upon the joint request of the fiscally eligible municipality and a public employee organization, to resolve labor impasses between municipal employers and
employee organizations for police, fire and certain other employees in lieu of binding arbitration before a public arbitration panel.
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In June of 2013, OSC unveiled its Fiscal Stress Monitoring System—an early warning
system that is intended to identify stress conditions in local communities, utilizing a number of fiscal and environmental indicators. Fiscal indicators consider measures of budgetary solvency while environmental indicators consider measures such as
population, poverty, and tax base trends. Individual entities are then scored according to their performance on these indicators. An entity’s score on the fiscal components will determine whether or not it is classified in one of three levels
of stress: significant, moderate or susceptible. Entities that do not meet established scoring thresholds are classified as “No Designation.”
The first set of scores was issued in 2013 for 1,043 calendar year local governments based on data filed for the 2012 fiscal year. Of these, 12 local governments were found to be in significant fiscal
stress, including five counties, two cities, four towns and one village. Using data from 2013, 12 school districts and four additional villages were designated to be in significant fiscal stress. The vast majority of non-calendar year local
governments (92.1 percent) and school districts (87.1 percent) are categorized as “No Designation.”
Like the State,
local governments must respond to changing political, economic and financial influences over which they have little or no control, but which can adversely affect their financial condition. For example, the State or Federal government may reduce (or,
in some cases, eliminate) funding of local programs, thus requiring local governments to pay these expenditures using their own resources. Similarly, past cash flow problems for the State have resulted in delays in State aid payments to localities.
In some cases, these delays have necessitated short-term borrowing at the local level.
Other factors that have had, or could
have, an impact on the fiscal condition of local governments and school districts include: the loss of temporary Federal stimulus funding; recent State aid trends; constitutional and statutory limitations on the imposition by local governments and
school districts of property, sales and other taxes; and for some communities, the significant upfront costs for rebuilding and clean-up in the wake of a natural disaster. Localities may also face unanticipated problems resulting from certain
pending litigation, judicial decisions and long-range economic trends. Other large-scale potential problems, such as declining urban populations, declines in the real property tax base, increasing pension, health care and other fixed costs, or the
loss of skilled manufacturing jobs may also adversely affect localities and necessitate requests for State assistance.
Ultimately, localities as well as local public authorities may suffer serious financial difficulties that could jeopardize local access
to the public credit markets, which may adversely affect the marketability of notes and bonds issued by localities within the State.
LITIGATION AND ARBITRATION
General
The legal proceedings listed below involve State finances and programs and miscellaneous civil rights, real property, contract and other
tort claims in which the State is a defendant and the potential monetary claims against the State are deemed to be material, generally in excess of $100 million or involving significant challenges to or impacts on the State’s financial policies
or practices. As explained below, these proceedings could adversely affect the State’s finances in fiscal year 2014 or thereafter.
For the purpose of this “Litigation and Arbitration” section, the State defines “material and adverse developments” as rulings or decisions on or directly affecting the merits of a
proceeding that have a significant adverse impact upon the State’s ultimate legal position, and reversals of rulings or decisions on or directly affecting the merits of a proceeding in a significant manner, whether in favor of or adverse to the
State’s ultimate legal position, at all of which are above the $100 million materiality threshold described above. The State has indicated that it intends to discontinue disclosure with respect to any individual case after a final determination
on the merits or upon a determination by the State that the case does not meet the materiality threshold described above.
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The State is party to other claims and litigation, with respect to which its legal
counsel has advised that it is not probable that the State will suffer adverse court decisions, or which the State has determined do not, considered on a case by case basis, meet the materiality threshold described in the first paragraph of this
section. Although the amounts of potential losses, if any, resulting from these litigation matters are not presently determinable, it is the State’s position that any potential liability in these litigation matters is not expected to have a
material and adverse effect on the State’s financial position in fiscal year 2014 or thereafter.
Adverse developments in
the proceedings described below, other proceedings for which there are unanticipated, unfavorable and material judgments, or the initiation of new proceedings could affect the ability of the State to maintain a balanced Fiscal Year 2014 Financial
Plan. The State believes that the Fiscal Year 2014 Enacted Budget includes sufficient reserves to offset the costs associated with the payment of judgments that may be required during fiscal year 2014. These reserves include (but are not limited to)
amounts appropriated for Court of Claims payments and projected fund balances in the General Fund. In addition, any amounts ultimately required to be paid by the State may be subject to settlement or may be paid over a multi-year period. There can
be no assurance, however, that adverse decisions in legal proceedings against the State would not exceed the amount of all potential Fiscal Year 2014 Enacted Budget resources available for the payment of judgments, and could therefore adversely
affect the ability of the State to maintain a balanced Fiscal Year 2014 Enacted Budget.
Real Property Claims
There are several cases in which Native American tribes have asserted possessory interests in real property or sought monetary damages as
a result of claims that certain transfers of property from the tribes or their predecessors-in-interest in the 18th and 19th centuries were illegal.
In
Oneida Indian Nation of New York v. State of New York
, 74-CV-187 (NDNY), the plaintiff, alleged successors-in-interest to the historic Oneida Indian Nation, sought a declaration that they hold a
current possessory interest in approximately 250,000 acres of lands that the tribe sold to the State in a series of transactions that took place between 1795 and 1846, money damages, and the ejectment of the State and Madison and Oneida Counties
from all publicly-held lands in the claim area. In 1998, the United States intervened in support of plaintiff.
During the
pendency of this case, significant decisions were rendered by the United States Supreme Court and the Second Circuit Court of Appeals which changed the legal landscape pertaining to ancient land claims:
City of Sherrill v. Oneida Indian Nation of
New York
, 544 U.S. 197 (2005), and
Cayuga Indian Nation of New York v. Pataki
, 413 F.3d 266 (2d Cir. 2005),
cert. denied
, 547 U.S. 1128 (2006). Taken together, these cases have made clear that the equitable doctrines of laches,
acquiescence, and impossibility can bar ancient land claims.
Relying on these decisions, in
Oneida Indian Nation et
al. v. County of Oneida et al.
, 617 F.3d 114 (2d Cir. 2010), the Second Circuit Court of Appeals dismissed the
Oneida
land claim. On October 17, 2011, the United States Supreme Court denied plaintiffs’ petitions for certiorari
to review the decision of the Second Circuit. See 132 S. Ct. 452 (2011).
On May 16, 2013, the State, Madison and
Oneida Counties, and the Oneida Indian Nation signed a settlement agreement covering many issues. As pertinent here, the agreement would place a cap on the amount of land the tribe could reacquire and have taken into trust for its benefit by the
United States. As of February 27, 2014, the agreement had been approved by the State Legislature, and had been submitted for approval by the Federal court.
In
Canadian St. Regis Band of Mohawk Indians, et al. v. State of New York, et al.
(NDNY), plaintiffs seek ejectment and monetary damages for their claim that approximately 15,000 acres in Franklin
and St. Lawrence Counties were illegally transferred from their predecessors-in-interest. As of November 25, 2013, the defendants’ motion for judgment on the pleadings, relying on the decisions in
Sherrill
,
Cayuga
, and
Oneida
was granted in
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great part through decisions on July 8, 2013 and July 23, 2013, holding that all claims are dismissed except for claims over the area known as the Hogansburg Triangle and a right of way
claim against Niagara Mohawk, which was expected to proceed through discovery and additional motion practice.
On May 21,
2013, the State, Franklin and St. Lawrence Counties, and the tribe signed an agreement resolving a gaming exclusivity dispute, which agreement provides that the parties are to work towards a mutually agreeable resolution of the tribe’s land
claim. As of February 27, 2014, the land claim had been stayed through at least April 7, 2014 to allow for settlement negotiations.
In
The Onondaga Nation v. The State of New York, et al.
(NDNY), plaintiff sought a judgment declaring that certain lands allegedly constituting the aboriginal territory of the Onondaga Nation
within the State are the property of the Onondaga Nation and the Haudenosaunee, or “Six Nations Iroquois Confederacy,” and that conveyances of portions of that land during the period 1788 to 1822 are null and void. The “aboriginal
territory” described in the complaint consists of an area or strip of land running generally north and south from the St. Lawrence River in the north, along the east side of Lake Ontario, and south as far as the Pennsylvania border, varying in
width from about 10 miles to more than 40 miles, including the area constituting the City of Syracuse. On September 22, 2010, the District Court granted defendants’ motion to dismiss the action for laches, based on the
Oneida
,
Sherrill
and
Cayuga
decisions. That decision was affirmed by the Second Circuit Court of Appeals on October 19, 2012. The Plaintiff’s motion for rehearing or rehearing
en banc
was denied by the Second Circuit on
December 21, 2012, and on October 15, 2013, the petition for writ of certiorari was denied by the United States Supreme Court.
In
Shinnecock Indian Nation v. State of New York, et al.
(EDNY), plaintiff seeks ejectment, monetary damages, and declaratory and injunctive relief for its claim that approximately 3,600 acres in
the Town of Southampton were illegally transferred from its predecessors-in-interest. On December 5, 2006, the District Court granted defendants’ motion to dismiss, based on the
Sherrill
and
Cayuga
decisions. Plaintiff moved
for reconsideration before the District Court and also appealed to the Second Circuit Court of Appeals. As of February 27, 2014, the motion for reconsideration had been withdrawn, but a motion to amend the complaint remained pending in the
District Court and stayed through at least March 1, 2014. As of February 27, 2014, the
Shinnecock
appeal to the Second Circuit also remains stayed.
West Valley Litigation
In
State of New York, et al. v. The United
States of America, et al.
, 06-CV-810 (WDNY), the parties have sought to resolve the relative responsibilities of the State and Federal governments for the cost of remediating the Western New York Nuclear Service Center (the “Center” or
“Site”), located in West Valley, Cattaraugus County, New York. The Center was established by the State in the 1960s in response to a Federal call to commercialize the reprocessing of spent nuclear fuel from power reactors. The private
company that had leased the Site ceased operations in 1972, leaving behind two disposal areas and lagoons, highly contaminated buildings, and 600,000 gallons of liquid high level radioactive waste (“HLRW”) generated by reprocessing
activities.
Congress enacted the West Valley Demonstration Project Act (the “Act”) in 1980, directing the Federal
government to solidify the HLRW and transport it to a Federal repository, decontaminate and decommission the facilities and dispose of the low-level waste produced from the Demonstration Project. The Act directed the State to pay 10 percent of the
Demonstration Project costs. However, for many years the two governments disputed what additional cleanup is needed; which cleanup activities are covered by the Act (and thus subject to the 90/10 split); who bears the long-term responsibility for
maintaining, repairing or replacing and monitoring tanks or other facilities that are decommissioned in place at the Site; and who pays for the offsite disposal fee for the solidified HLRW. The combined Federal and State cost expenditures through
November 25, 2013 amounted to approximately $2.6 billion. As of November 25, 2013, the State’s expenditures at the Center were approaching $320 million.
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In order to resolve these disputes, the State and the New York State ERDA (which owns
the Center on behalf of New York State) filed suit in December 2006, seeking a declaration: (1) that the Federal government (which sent wastes from various Federal facilities to the Center) is liable under the Comprehensive Environmental
Response, Compensation and Liability Act (“CERCLA”, or “Federal Superfund law”) for the State’s cleanup costs and for damages to the State’s natural resources, and a judgment reimbursing the State for these costs and
damages, (2) of the scope of the Federal government’s responsibilities under the Act to decontaminate and decommission the Site and for further Site monitoring and maintenance, and (3) that the U.S. is responsible under the Nuclear
Waste Policy Act for paying the fees for disposal of solidified HLRW at the Site. After commencement of the action, the parties engaged in court-ordered mediation, as a result of which a Consent Decree was approved and entered on August 17,
2010, resolving several key claims in the litigation.
The Consent Decree identifies a specific cost share for each government
for specified facilities and known areas of contamination, and sets forth a process for determining cost shares for contamination that may be identified in the future. The Consent Decree does not select or advocate the selection of any particular
cleanup program for the Site-cleanup decisions are being made via the ongoing Environmental Impact Statement (“EIS”) process.
The Consent Decree also does not resolve two claims raised in the State’s lawsuit—the State’s natural resource damages claim and its Nuclear Waste Policy Act claim. The first claim, which
the Federal government has agreed to toll, will be pursued by the New York State Department of Environmental Conservation (“DEC”) (as trustee of the State’s natural resources) and the Attorney General’s office. Regarding the
latter claim, the State asserts that the Federal government bears sole responsibility for the cost of disposing of the 275 canisters of vitrified HLRW waste remaining at the Site at a Federal repository once one becomes available. This claim was
neither settled nor dismissed and, as of February 27, 2014, remained in litigation. As of February 27, 2014, pursuant to an agreed briefing schedule, the parties submitted to the Court their opening and responsive briefs for competing
motions to dismiss the Nuclear Waste Policy Act claim. On November 20, 2013, the Court issued an order granting the State’s motion to dismiss this claim for lack of ripeness, and denying the United States’ motion to dismiss to the
extent it sought a ruling on alternative grounds.
Metropolitan Transportation Authority
There are several cases in which the plaintiffs challenge the constitutionality of Chapter 25 of the Laws of 2009, which imposed certain
taxes and fees, including a regional payroll tax, in that portion of the State lying within the Metropolitan Commuter Transportation District. The revenues derived from this statute are intended to assist the Metropolitan Transportation Authority,
which a State commission concluded was facing substantial financial pressure. The plaintiffs seek judgments declaring that the enactment of Chapter 25 violated State constitutional provisions relating to the need for a home rule message,
supermajority requirements for enactment of special or local laws, single purpose appropriation bill, and liability for the debts of public authorities. Some of the plaintiffs also seek a judgment declaring that the enactment of Chapter 25 violated
provisions of Public Authority Law § 1266 requiring that the Metropolitan Transportation Authority be self-sustaining. These cases include
Hampton Transportation Ventures, Inc. et al. v. Silver et al.
(transferred to
Sup. Ct., Albany
Co.
as of November 25, 2013),
William Floyd Union Free School District v. State
(transferred to
Sup. Ct., New York Co
. as of November 25, 2013),
Town of Brookhaven v. Silver, et al.
(transferred to
Sup. Ct., Albany
Co
. as of November 25, 2013),
Town of Southampton and Town of Southold v. Silver
(transferred to
Sup. Ct. Albany Co
. as of November 25, 2013),
Town of Huntington v. Silver
(transferred to
Sup. Ct. Albany Co.
as of
November 25, 2013),
Mangano v. Silver
(
Sup. Ct. Nassau Co
. as of November 25, 2013),
Town of Smithtown v. Silver
(part of the
Mangano
case in
Sup. Ct. Nassau Co
. as of November 25, 2013), and
Vanderhoef v.
Silver
(in
Sup. Ct.
Albany Co.
as of November 25, 2013). Suffolk County, Westchester County, the Orange County Chamber of Commerce, and a number of additional towns and a village also joined the
Mangano
case as plaintiffs.
The defendants sought to change the venue of all of these cases to Albany County or New York County and venue was
changed in most of the cases. In
Vanderhoef
,
Huntington
,
Floyd
,
Brookhaven
,
Southampton
/
Southold
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and
Hampton
, the defendants moved for judgment in their favor. The plaintiffs in
Hampton
then voluntarily stipulated to discontinue their case, as did the plaintiff in
Floyd
after legislative amendment of the applicable statute that exempted school districts from the “mobility tax” imposed by this statute on employers in the Metropolitan Commuter Transportation District. The Supreme Court, Albany County issued
decisions granting summary judgment to defendants in
Brookhaven
,
Huntington
,
Southampton
/
Southold
and
Vanderhoef
. The plaintiffs in
Brookhaven
,
Huntington
and
Vanderhoef
appealed from those
decisions in their cases but failed to perfect their appeals within nine months after the date of their notices of appeal, which, pursuant to the Rules of the Third Department, means their appeals are deemed abandoned. The plaintiffs in
Vanderhoef
moved for leave to perfect their appeal notwithstanding their delay and the Appellate Division granted their request; their appeal was argued on November 12, 2013, when the plaintiffs conceded their claims that the statute was
invalid, had been disposed of by the Second Department decision in the
Mangano
case described below and only argued their common law claims against the MTA. On December 19, 2013, the Appellate Division, Third Department, affirmed the
judgment granting summary judgment against the plaintiffs. As of February 27, 2014, the plaintiffs had moved for leave to appeal to the Court of Appeals and that motion
was awaiting decision.
In
Mangano
, the Supreme Court, Nassau County denied defendants’ motion for change of venue. All parties moved for summary
judgment in Supreme Court, Nassau County. By decision dated August 22, 2012, the Supreme Court (a) granted summary judgment to the defendants to the extent of dismissing the claims against certain of the individual State defendants on the
ground of legislative immunity, but (b) granted summary judgment to Plaintiffs to the extent that it held the MTA payroll tax unconstitutionally impinged on the home rule powers guaranteed under Article IX of the New York State Constitution.
Judgment in accordance with that decision was entered October 1, 2012. All defendants appealed and in a Decision and Order dated June 26, 2013, the Appellate Division, Second Department
, reversed the decision of Supreme Court,
Nassau County, held that the Tax Law article in question was constitutional, and granted the defendants’ motion for summary judgment. All Plaintiffs appealed to the New York Court of Appeals. On October 10, 2013, the Court of Appeals
dismissed the Plaintiffs’ appeal on the ground that the case presented no substantial constitutional question. Notwithstanding that ruling, the Plaintiffs moved for leave to appeal to the Court of Appeals which motion was denied on
January 14, 2014. On or about October 26, 2012, the Towns of Southampton and Southold, whose previous litigation challenging the tax had been decided against them, commenced an action in the New York Court of Claims entitled
The Town of
Southampton and the Town of Southold v. The State of New York, et al.
, in which they sought, based on the Supreme Court decision in
Mangano
, refund of all moneys they have paid under the payroll tax, as well as a declaration and
injunction barring further collection of the tax from them. After the final decision by the Court of Appeals denying leave to appeal in
Mangano
, the petitioners in the Court of Claims case agreed to dismiss their case voluntarily and, as of
February 27, 2014, a formal stipulation to that effect was being signed by all counsel.
School Aid
In
Maisto v. State of New York
(formerly identified as
Hussein v. State of New York
), plaintiffs seek a judgment
declaring that the State’s system of financing public education violates section 1 of article 11 of the State Constitution, on the ground that it fails to provide a sound basic education (“SBE”). In a decision and order dated
July 21, 2009, Supreme Court, Albany County, denied the State’s motion to dismiss the action. On January 13, 2011, the Appellate Division, Third Department, affirmed the denial of the motion to dismiss. On May 6, 2011, the Third
Department granted defendants leave to appeal to the Court of Appeals. On June 26, 2012, the Court of Appeals affirmed the denial of the State’s motion to dismiss.
Depositions have been completed. The discovery deadline was May 3, 2013. The note of issue was filed on May 13, 2013. As of February 27, 2014, a pretrial conference was scheduled for
September 2, 2014, and the trial was scheduled for September 29, 2014.
In
Aristy-Farer, et al. v. The State of
New York, et al.
(
Sup. Ct., N.Y. Co
.), commenced February 6, 2013, plaintiffs seek a judgment declaring that the provisions of L. 2012, Chapter 53 and L. 2012, Chapter 57, Part A § 1, linking payment of State school aid
increases for 2012-2013 school year to submission by local school districts
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of approvable teacher evaluation plans violates, among other provisions of the State Constitution, Article XI, § 1, because implementation of the statutes would prevent students from
receiving a sound basic education. Plaintiffs moved for a preliminary injunction enjoining the defendants from taking any actions to carry out the statutes to the extent that they would reduce payment of State aid disbursements referred to as
General Support for Public Schools (“GSPS”) to the City of New York pending a final determination. The State opposed this motion. By order dated February 19, 2013, the Court granted the motion for preliminary injunction. The State
appealed. On May 21, 2013, the Appellate Division, First Department, denied plaintiffs motion for a stay pending appeal. As a result, plaintiffs have agreed to vacate their preliminary injunction and the State, as of November 25, 2013,
indicated that it would withdraw its appeal. As of November 25, 2013, the action remained pending in Supreme Court, New York County.
In
New York State United Teachers, et al. v. The State of New York, et al
. (
Sup. Ct., Albany Co.
), commenced February 20, 2013, plaintiffs seek a judgment declaring that the provisions
of Education Law § 2023-a, which imposes a 60 percent super-majority requirement on school districts which seek to raise their tax levies above the previous year’s levy by the lesser of 2 percent or the rate of inflation violates, among
other provisions of the State Constitution, Article XI, § 1, because implementation of the statute would interfere with local control of education financing and impair the right of plaintiffs to substantially control school district finances.
Plaintiffs also seek injunctive relief barring application of the statutory tax cap to local education funding. As of November 25, 2013, defendants’ motion to dismiss the amended complaint was returnable December 12, 2013.
In
New Yorkers for Students Educational Rights v. New York
, the organizational plaintiff and several individual plaintiffs
commenced a new lawsuit on February 11, 2014, in Supreme Court, New York County, claiming that the State was not meeting its constitutional obligation to fund schools in New York City and throughout the State to provide students with an
opportunity for a sound basic education. Plaintiffs specifically alleged that the State was not meeting its funding obligations for New York City schools under the Court of Appeals decision in
Campaign for Fiscal Equity (“CFE”) v. New
York
, 8 N.Y.3d 14 (2006), and—repeating the allegations of
Aristy-Farer
—challenged legislation conditioning increased funding for New York City schools on the timely adoption of a teacher evaluation plan. With regard to other
school districts throughout the State, plaintiffs alleged that the State was not providing adequate Statewide funding, had not fully implemented certain 2007 reforms to the State aid system, had imposed gap elimination adjustments decreasing State
aid to school districts, and had imposed caps on State aid increases, and on local property tax increases unless approved by a supermajority. Finally, they alleged that the State had failed to provide assistance, services, accountability mechanisms,
and a rational cost formula to ensure that students throughout the State had an opportunity for a sound basic education.
Plaintiffs sought a judgment declaring that the State had failed to comply with CFE, that the State had failed to comply with the command
of State Constitution Article XI to provide funding for public schools across the State, and that the gap elimination adjustment and caps on State aid and local property tax increases are unconstitutional. As of February 27, 2014, the
plaintiffs sought an injunction requiring the State to eliminate the gap elimination adjustments and caps on State aid and local property tax increases, to reimburse New York City for the funding that was withheld for failure to timely adopt a
teacher evaluation plan, to provide greater assistance, services and accountability, to appoint an independent commission to determine the cost of providing students the opportunity for a sound basic education, and to revise State aid formulas.
Medicaid Nursing Home Rate Methodology
In
Kateri Residence v. Novello
(
Sup. Ct., New York Co
.) and several other cases, the plaintiffs challenge several nursing home rate methodologies, including the “reserve bed patient day
adjustment,” which regulates payments to nursing homes when long term care patients are receiving off-site care. Supreme Court, New York County, granted partial summary judgment to plaintiffs in
Kateri
, holding that the reserve bed
patient day adjustment rate methodology was improper. The Appellate Division, First Department affirmed Supreme Court’s
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partial summary judgment decision on interlocutory appeal and remanded the case to Supreme Court for further proceedings. The Court of Appeals denied leave to appeal on the grounds that the
decision was not final. The Supreme Court directed the defendant to re-compute Medicaid rates for the plaintiff’s facilities, and that re-computation was completed in October 2013. The parties are expected to be presently conducting discovery.
As of February 27, 2014, Plaintiffs had brought a motion, returnable March 5, 2014, to compel payment of the impacted Medicaid rates computed thus far by Department of Health staff, resulting from application of the reserve bed day
methodology.
Insurance Department Assessments
In
New York Insurance Association, Inc. v. State
(
Sup. Ct., Albany Co
.), several insurance companies and an association of insurance companies seek a declaration that certain assessments
issued against the plaintiff insurance companies by the Insurance Department pursuant to Insurance Law § 332 violate the Insurance Law and the State and Federal Constitutions. The plaintiff insurance companies argue, among other things, that
these assessments constitute an unlawful tax because they include amounts for items that are not the legitimate direct and indirect costs of the Insurance Department. Depositions have been completed. The note of issue was filed on June 3, 2013.
As of November 25, 2013, the parties had moved for summary judgment and the motions were returnable March 18, 2014.
Tobacco
Master Settlement Agreement
In 1998, the attorneys general of 46 states, including New York, and several territories
(collectively the “Settling States”) and the then four largest United States tobacco manufacturers (the “Original Participating Manufacturers” or “OPMs”), entered into a Master Settlement Agreement (the “MSA”)
to resolve cigarette smoking-related litigation between the Settling States and the OPMs. Approximately 30 additional tobacco companies have entered into the settlement (the “Subsequent Participating Manufacturers” or “SPMs”;
together they are the “Participating Manufacturers” or “PMs”). The MSA released the PMs from past and present smoking-related claims by the Settling States, and provided for a continuing release of future smoking-related claims,
in exchange for certain payments to be made to the Settling States, and the imposition of certain tobacco advertising and marketing restrictions among other things.
Arbitration
The Participating Manufacturers have also brought a nationwide
arbitration proceeding against the Settling States (excluding Montana). The MSA provides that each year, in perpetuity, the PMs pay the Settling States a base payment, subject to certain adjustments, to compensate for financial harm suffered by the
Settling States due to smoking-related illness. In order to keep the base payment under the MSA, each Settling State must pass and diligently enforce a statute that requires tobacco manufacturers who are not party to the MSA (“Non-Participating
Manufacturers” or “NPMs”) to deposit in escrow an amount roughly equal to the amount that PMs pay per pack sold. New York’s allocable share of the total base payment is approximately 12.8 percent of the total, or approximately
$800 million annually.
In the arbitration proceeding commenced in 2010, the PMs asserted that the Settling States
involved failed to diligently enforce their escrow statutes in 2003. The PMs sought a downward adjustment of the payment due in that year (an “NPM Adjustment”) which would serve as a credit against future payments. Any such claim for NPM
Adjustment for years prior to 2003 was settled in 2003. The PMs have raised the same claim for years 2004-2006, but, as of February 27, 2014, none of those years was yet in arbitration.
A hearing on issues common to all states took place in Chicago April 16-24, 2012. State-specific hearings commenced in May 2012,
with the hearings involving Missouri and Illinois. New York’s diligent enforcement hearings took place from June 25-29, 2012. The last state-specific “diligent” enforcement hearing took place from May 21-24, 2013. The
arbitration panel (“Panel”) issued its awards on September 11, 2013. New York was
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found to have diligently enforced its qualifying statute in 2003 and, thus, was not subject to an NPM Adjustment for 2003. Nine states, including New York, were found to be “diligent”;
six states were found to have been “not diligent”.
In December 2012, during the pendency of the arbitration, the
PMs and 19 states (collectively the “Signatory Parties”) agreed to a term sheet purportedly settling the NPM Adjustment disputes for 2003- 2012 (3 additional states joined later). New York and 31 (later became 28) other states and
territories rejected the term sheet. The Signatory Parties then sought the approval of the Panel in order to obtain an early release of MSA annual payments currently being held in a disputed payments account. The non-joining states objected to
approval of the term sheet because its terms negatively impact the non-joining states. Under the MSA reallocation provision, every state is either “diligent” or “not diligent” and only “diligent” states are exempt from
the NPM Adjustment. For every state found diligent, its allocable share of the NPM Adjustment is shifted to any remaining non-diligent states. The non-joining states sought to have the signatory states treated as non-diligent for purposes of
allocation of the N PM Adjustment. The Panel held a status conference on January 22, 2013, and a hearing on March 7, 2013, to discuss the term sheet. On March 13, 2013, the Panel issued a Partial Stipulated Settlement Award
(“Partial Award”) based on the provisions of the term sheet. In so doing, the Panel deemed the 20 states (collectively, the “Signatory States”) “diligent” for purposes of allocation of the NPM Adjustment. The Panel also
established a mechanism for reallocating any NPM Adjustment among non-diligent states that alters the terms of the MSA itself. Thus, had New York been found to have been “not diligent” in its enforcement of its escrow statute in 2003, New
York would have exposure not only for its share of the NPM adjustment but also for its proportionate share of the NPM Adjustment attributable to the Signatory States. As of February 27, 2014, New York, as well as several other states, had moved
in its state court to vacate or modify the Partial Award notwithstanding the Panel’s finding. As of February 27, 2014, New York’s motion had been adjourned several times. The six states that were found “not diligent” were
all actively pursuing motions in their state courts to vacate or modify the Partial Award as well as to vacate the Panel’s findings regarding that state’s diligence.
* * * * *
ADDITIONAL CONSIDERATIONS
New York municipal obligations may also include obligations of the governments of Puerto Rico and other U.S. territories and their
political subdivisions to the extent that these obligations are exempt from New York state personal income taxes. Accordingly, investments in such securities may be adversely affected by local political and economic conditions and developments
within Puerto Rico and certain other U.S. territories affecting the issuers of such obligations.
D-77
March 31, 2014
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WESTERN ASSET MASSACHUSETTS MUNICIPALS FUND
Class A (SLMMX), Class
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