Citizens Budget
Commission
A BASELINE BUDGET
A Report of the
FOR THE STATE OF NEW YORK
FISCAL YEAR 1999
Citizens Budget Commission
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Founded in 1932, the Citizens Budget Commission is a nonpartisan, nonprofit civic organization devoted to influencing constructive change in the finances and services of New York State and New York City government. This report was prepared under the auspices of the Commission’s State Finances Committee, which I chair. The other members of the Committee are Paul Atanasio, Jonathan Ballan, Bernard B. Beal, Deborah A. Buresh, Robert A. Culnane, Denis V. Curtin, Evan A. Davis, Stephen F. DeGroat, Charles E. Dorkey, III, Linda Fan, Kenneth D. Gibbs, Daniel N. Heimowitz, H. Dale Hemmerdinger, Peter A. Hoffman, Paul M. Hopkins, William R. Howell, Lawrence S. Huntington, William Josephson, George Leung, Philip R. Lochner, Jr., C. Kevin O’Donoghue, Robert E. Poll, Laurence G. Preble, Carol Raphael, Todd R. Stimmel, Lewis Bart Stone, Stephen H. Weiss and Lawrence B. Buttenwieser, ex-officio.
Created in 1984, the Committee reviews and makes recommendations about the State of New York’s financial management. Our earlier work and reports have stressed the importance of balanced operating budgets, reducing the State’s accumulated deficit, and reforming the State’s debt issuance and capital planning processes. These years of research and monitoring made apparent that the State’s lack of a baseline budget impeded an informed debate about fiscal priorities. In response we prepared our first baseline budget in 1996 to fill that void. It was well received as a useful tool for informing public discussion of the fiscal year 1998 budget. Hence, we have prepared this year’s baseline budget in the hope that it again will play a constructive role in the upcoming budget debate.
This report was prepared by Andrew S. Rein, Research Associate, under the direction of Charles Brecher, Executive Vice President and Director of Research and Cynthia Green, Vice President for State Studies. The Commission gratefully acknowledges the assistance and cooperation of numerous State officials, especially staff of the New York State Division of the Budget, Office of the State Comptroller, Department of Taxation and Finance, Department of Family Assistance, Department of Health, State Education Department, Department of Correctional Services, Department of Labor and Assembly Ways and Means Committee.
John R. Miller
December 16, 1997
TABLE OF CONTENTS
EXECUTIVE SUMMARY
INTRODUCTION
THE STATE OF NEW YORK LACKS A BASELINE BUDGET
FILLING THE VOID
FORECAST UNCERTAINTIES
THE SIZE OF THE FISCAL YEAR 1999 BUDGET GAP
ECONOMIC OUTLOOK
RECEIPTS DECLINE
PERSONAL INCOME TAX
SALES TAX
OTHER USER TAXES AND FEES
BUSINESS TAXES
OTHER TAXES
MISCELLANEOUS RECEIPTS
TRANSFERS FROM OTHER FUNDS—LGAC
OTHER TRANSFERS FROM OTHER FUNDS
SPENDING GROWTH
GRANTS TO LOCAL GOVERNMENTS
INCOME MAINTENANCE
MEDICAID
EDUCATION AID
STATE OPERATIONS AND GENERAL STATE CHARGES
TRANSFERS TO OTHER FUNDS
CONCLUSION
APPENDIX A: METHODS FOR ESTIMATING RECEIPTS
PERSONAL INCOME TAX
SALES TAX AND TRANSFERS FROM OTHER FUNDS
ALL OTHER RECEIPTS
ESTIMATES OF UNDERLYING GROWTH
APPENDIX B: METHODS FOR ESTIMATING DISBURSEMENTS
DETAILED METHODS
INCOME MAINTENANCE
MEDICAID
SUPPORT OF PUBLIC SCHOOLS
STATE OPERATIONS: PERSONAL SERVICES
STATE OPERATIONS: NON-PERSONAL SERVICES
PAST TRENDS AND INFLATION
GOVERNMENTAL SOURCES
CONSTANT ITEMS
EXECUTIVE SUMMARY
New York State’s annual budget debate often focuses on the size of the budget gap and the adequacy of proposed gap-closing actions. The best tool to identify the size and cause of the gap is a baseline budget—a financial plan that estimates future receipts assuming no tax changes, and future spending assuming that current services continue. However, the State of New York does not publish one. This void makes it difficult to analyze the State’s fiscal problems and the solutions proposed by the governor and Legislature. For the second year, the Citizens Budget Commission (CBC) is presenting a baseline budget to fill this void.
This State of New York fiscal year 1999 baseline budget shows that Governor George E. Pataki and the State Legislature face a gap of $1,122 million. The fiscal year 1999 gap is the result of disbursements that grow 3.9 percent from fiscal year 1998, and receipts that decline 1.7 percent.
Although the state’s economy is expected to expand modestly, receipts will decline $610 million due to the loss of $1,723 million of non-recurring or “one-shot” items used in the fiscal year 1998 budget and the $229 million impact of previously enacted tax cuts. The majority of the non-recurring receipts, $1,457 million, is attributable to the fiscal year 1997 surplus, which was rolled into fiscal year 1998.
Projected growth in disbursements of $1,364 million is due primarily to higher spending for education aid ($755 million), state operations ($293 million), Medicaid ($233 million) and debt service ($96 million).
Numerous and diverse proposals to close the budget gap likely will be presented during the budget negotiations beginning in January 1998. If CBC’s baseline budget is used as a framework for evaluating these proposals, the difficult policy choices will become clearer. It will be possible for all concerned to know whether proposals will be sufficient to close the gap, and how they will affect diverse programs and constituencies.
INTRODUCTION
When debating policy choices for a new fiscal year, the necessary first step is to identify the impacts of continuing current policies. If no changes are made to the revenue structure, how much money will be received? If the same level of service is provided, how much will it cost? Will current receipts be sufficient to pay for current services, or will there be a budget gap? What will be the size of this gap?
These questions are answered by a baseline budget—a financial plan that estimates future receipts assuming no tax changes, and future disbursements assuming that current services continue. A baseline budget identifies the size of any gap between receipts and disbursements, and explains the causes of the gap. A baseline budget identifies the areas of spending that are growing rapidly, the actual and underlying receipts growth, and the impacts of past budget-balancing strategies. By providing this information, a baseline budget focuses debate on fiscal policy changes. Using a baseline budget makes it possible to determine whether new policies are sufficient to balance the budget and reveals the allocation of resources among education, social welfare, and other areas.
The State of New York Lacks a Baseline Budget
Baseline budgets are required for the federal government and for the municipal government in New York City, but the State of New York does not publish a baseline budget. As a result, the information available on the size and causes of State budget gaps is limited, making it difficult to analyze proposed approaches to gap-closing, including those in the governor’s executive budget.
The one forward-looking publication, the Executive Budget Financial Plan Projections, estimates the impact of the executive budget on two subsequent years. Since the executive budget is never enacted in full and the projections are not updated after budget adoption, this document provides limited insight into the long-run effects of enacted policy changes.
In each of the past three years, the State Comptroller issued a report that revised the Executive Budget Financial Plan Projections to reflect actions taken by the Legislature and the Governor in adopting that year’s budget. Although this report provided the first public estimate of future budget gaps based on enacted policy, it did not include all the elements of a baseline budget. It took as its starting point the estimates in the Executive Budget Financial Plan Projections without independently analyzing the causes of change in receipts and disbursements or providing estimates of all categories of receipts and disbursements.
Filling the Void
For a second year, this report seeks to fill that void by presenting a fiscal year 1999 baseline budget for the State of New York. Using a format similar to that used by the New York State Division of the Budget (DOB) and the Office of the State Comptroller, the baseline budget identifies the size of the budget gap that must be closed and the major factors that cause changes in receipts and disbursements. Two appendices detail the assumptions and methods used to prepare the estimates of receipts and disbursements, respectively.
The baseline budget includes estimates of each major general fund receipts and disbursements category, assuming the continuation of current laws, policies, and service levels. The analytic effort focused on large items. Receipts are estimated using two methods. The personal income tax and the sales tax, comprising 74 percent of receipts, are estimated based on projections of economic activity. The remaining smaller categories of receipts are estimated by adjusting projections published by the State.
Disbursements are estimated using four methods. Items comprising two-thirds of the total, including Medicaid, income maintenance, education aid and state operations are based on specific projections of workload, unit costs of services and incremental spending associated with collective bargaining agreements. Other estimates of disbursements are based on figures from governmental sources, the assumption that spending will stay constant, or past trends and inflation.
Forecast Uncertainties
Inevitably there are uncertainties in any forecast. Regarding receipts, economic changes are difficult to predict. Recently, personal income tax receipts have been greater than the economic data available for forecasting would indicate. Although estimates presented in this report are adjusted to reflect this, the continuation of such developments could have a significant impact on the financial plan, because this tax represents over 50 percent of total receipts. Alternatively, an unforeseen economic slowdown, particularly in financial services, would yield lower receipts than forecast.
Similarly, uncertainties surround projected disbursements. The impacts of recent changes in welfare and Medicaid are difficult to estimate. Also, should inflation prove greater or less than is forecast, baseline spending would change. Finally, the State’s latest Mid-Year Update reported additional risks that could affect fiscal year 1999. These are from a recent U.S. District Court decision regarding desegregation of Yonkers schools and President Clinton’s line item veto of a provision relating to New York State’s Medicaid provider taxes.
THE SIZE OF THE FISCAL YEAR 1999 BUDGET GAP In fiscal year 1999, the State of New York faces a general fund budget gap of $1,122 million. (See Table 1.) Baseline disbursements are estimated to grow 3.9 percent, while baseline receipts decline 1.7 percent. As a result, estimated receipts of $34,856 million will be insufficient to cover projected disbursements of $35,978 million.
Although the economy is expected to expand at a moderate pace, receipts will decline $610 million due to the loss of $1,723 million in non-recurring receipts contained in the fiscal year 1998 budget and the $229 million incremental impact of previously enacted tax cuts. The majority of the non-recurring receipts, $1,457 million, are attributable to the fiscal year 1997 surplus, which was rolled into fiscal year 1998. Projected disbursements increase $1,364 million due to significant growth in spending for education aid, Medicaid, state operations, and debt service.
ECONOMIC OUTLOOK The fiscal projections are rooted in the assumptions that national economic growth in 1998 will slow from its fairly brisk pace in 1997, and that New York’s growth will be slower than the rest of the country’s. (See Table 2.) Nationally, the gross domestic product is expected to grow 5.5 percent in 1997 and 4.7 percent in 1998. Personal income growth will slow from 5.8 percent in 1997 to 5.0 percent in 1998. Wage growth also will slow from 6.5 percent in 1997 to 5.2 percent in 1998. Non-agricultural employment in 1998 will grow 2.0 percent, less than the preceding year’s 2.2 percent. Inflation, as measured by the consumer price index (CPI), will increase from 2.4 percent in 1997 to 2.5 percent in 1998.
Continuing the recent pattern, New York State’s growth is expected to be slower than the nation’s. Personal income growth will decline from 5.4 percent in 1997 to 4.1 percent in 1998. Similarly, wage growth will drop from 6.2 percent in 1997 to 4.2 percent in 1998. Non-agricultural employment will grow 1.2 percent in both 1997 and 1998. This slow growth coincides with continued low inflation—2.2 percent in 1997 and 2.3 percent in 1998.
RECEIPTS DECLINE Total general fund receipts are expected to decline 1.7 percent, or $610 million, from $35,466 million in fiscal year 1998 to $34,856 million in fiscal year 1999. This aggregate decline is comprised of changes that range from a 44.8 percent decline in other transfers from other funds to 4.9 percent growth in transfers from the Local Government Assistance Corporation (LGAC), which represents one-quarter of the sales tax receipts net of LGAC debt service.
Prior year policy choices cause this drop in receipts. First, fiscal year 1998 includes $1,723 million in non-recurring receipts which will not be available next year. (See Table 3.) These include $1,457 million attributable to the fiscal year 1997 surplus and $200 million attributable to federal reimbursement for prior year social services spending. Second, the incremental impact of tax cuts enacted since 1994 will reduce receipts $229 million. Adjusting the change in receipts for non-recurring items and tax cuts reveals an underlying growth of 4.0 percent, reflecting the economic expansion outlined in the previous section.
Personal Income Tax
Personal income tax receipts are expected to decline 3.5 percent, or $675 million. This occurs despite the fact that the underlying growth in receipts is 4.8 percent, generated by a 4.1 percent increase in personal income from calendar year 1997 to calendar year 1998. Receipts decline between fiscal years because the fiscal year 1998 receipts include $1,457 million attributable to the fiscal year 1997 surplus. Absent this inter-year roll, fiscal year 1998 receipts would be $17,684. Fiscal year 1999 receipts also are offset by the $73 million incremental costs of tax cuts, primarily the earned income tax credit enacted in fiscal year 1995.
Sales Tax
Sales tax receipts are expected to grow 4.7 percent, or $260 million. Since consumption of New York State taxable items is estimated to increase faster than personal income, which grows 4.1 percent from fiscal year 1997 to fiscal year 1998, the expected underlying growth in the sales tax is 4.8 percent. This growth is offset by the loss of $7 million due to tax cuts enacted in 1997.
Other User Taxes and Fees
Receipts from other user taxes and fees are projected to decrease slightly—0.5 percent. Underlying growth of 0.3 percent primarily is the result of growth in motor vehicle fees offset by a decline in cigarette tax receipts resulting from the long-run downward trend in cigarette consumption. This growth is offset by the $13 million incremental impact of tax cuts.
Business Taxes
Business tax receipts are estimated to increase 1.8 percent, or $87 million. Underlying growth of 3.6 percent is offset by the loss of $86 million due to tax cuts. Most of this is accounted for by the reduction of the utility gross receipts tax and a utility credit for providing reduced-cost power to eligible businesses—both enacted in 1997.
Other Taxes
Receipts from other taxes are projected to decline 3.5 percent, or $35 million. Particularly strong estate tax receipts in fiscal year 1998 are partly attributable to strong stock market performance. This level is not projected to continue.
Miscellaneous Receipts
Miscellaneous receipts are expected to drop 7.0 percent, or $104 million. Small growth in fee and interest income as well as other factors generate underlying growth of 0.2 percent. This is offset by the loss of $66 million non-recurring fiscal year 1998 receipts, which come from a bond refunding and non-general fund accounts.
Transfers from Other Funds—LGAC
One-quarter of the sales tax receipts is deposited into a debt service fund to pay LGAC debt service. This transfer represents the funds remaining after satisfying that debt service requirement. Although the underlying growth of sales tax receipts is 4.8 percent, the 5.1 percent underlying growth in this transfer is due to the $16 million increase in LGAC debt service.
Other Transfers from Other Funds
Other transfers are projected to decline 45 percent, or $208 million. This is due to the loss of $200 million non-recurring fiscal year 1998 receipts from federal reimbursement for social services spending.
SPENDING GROWTH
Total general fund disbursements are expected to grow 3.9 percent. This aggregate obscures the wide variation in spending changes among the State’s services. While spending in a number of areas, including the pension contribution and revenue sharing, is expected to decline or stay constant, substantial spending increases are expected in others, including growth of 7.4 percent in elementary and secondary education aid and 4.7 percent in state operations. (See Table 4.)
Spending changes are estimated based on multiple factors. Workloads may increase, such as when public school enrollment grows. The unit cost of providing a service may grow, such as when the payment rates for a specific Medicaid service are increased. Other spending is less directly related to the provision of a specific service and instead is determined by broader policy decisions. Examples include revenue sharing, which is akin to a general block grant for localities, and debt service, which primarily pays for capital projects built in prior years. Table 4 provides a summary of the major factors that determine each spending item. Explanations of the estimating methods are presented in Appendix B.
Grants to Local Governments
Grants to local governments, which comprise 68.6 percent of total baseline disbursements, are projected to increase 4.3 percent. Spending changes range from a 3.2 percent decline in other education aid to a 12.6 percent increase in education aid for the physically handicapped.
Income maintenance
Income maintenance spending is expected to increase slightly from $2,169 million in fiscal year 1998 to $2,172 million in fiscal year 1999. This spending includes funds for Family Assistance (which replaced Aid to Families with Dependent Children), Safety Net (which replaced Home Relief), Supplemental Security Income (SSI), and other programs including Emergency Assistance and employment programs.
This relatively constant spending is the result of a decline in the outlays for Family Assistance and Safety Net offset by spending increases in the other income maintenance programs and the unusual first-year impact of the new federal Temporary Assistance to Needy Families (TANF) block grant. Spending for Family Assistance and Safety Net is projected to drop 12.9 percent, while spending is expected to increase 5.9 percent for SSI and 3.2 percent for the other programs. With respect to the TANF block grant, the special circumstance is a drop in available federal funding from the unusually large amount made available in the first year of the program. In fiscal year 1999, the gain in aid from the new program will be $107 million less than in fiscal year 1998.
Spending for Family Assistance, Safety Net and SSI is determined by workload (the number of recipients) and benefits per recipient. The Family Assistance and Safety Net spending is the result of a projected 12.9 percent drop in the number of recipients, attributable to economic expansion and administrative actions, including enlargement of workfare and fraud detection. Benefits per recipient are estimated to decrease 0.1 percent, based on past trends.
For SSI, growth is projected as the number of recipients increases at its recent historical rate. Between fiscal year 1998 and fiscal year 1999, the number of SSI recipients is projected to increase 4.5 percent, and benefits per recipient to increase 1.3 percent. The other programs, which represent 13.9 percent of income maintenance spending, are projected to grow at their historical rate.
Due to caseload decline and early submission of a reform plan, New York receives a TANF block grant that is greater than what its previous federal reimbursement formula would have yielded. In fiscal year 1998, this amounted to $730 million, of which $200 million was attributable to fiscal year 1997. Since the block grant level is fixed, the increment over what the prior federal reimbursement formula would have yielded increases as welfare spending decreases. Family Assistance declines $93 million in fiscal year 1999, thereby increasing the increment an equivalent amount. However, the $200 million attributable to fiscal year 1997 will not recur; thus fiscal year 1999 spending is increased by the net $107 million.
Medicaid
Spending for Medicaid is projected to increase 3.9 percent or $233 million from $5,925 million to $6,158 million. This is a function of program growth and an extra weekly Medicaid payment cycle in fiscal year 1999, offset by a reduction in the State’s share of program spending resulting from partial federal financing of services previously fully funded by the State and its localities.
Spending for the entire program is projected to grow 5.1 percent. Average spending for each eligible person is projected to increase 7.7 percent and the number of Medicaid eligibles is expected to decline 2.5 percent. For two-thirds of the Medicaid population, eligibility is tied to participation in income maintenance programs. The aforementioned decline in income maintenance recipients causes a 6.9 percent decline in the related Medicaid eligible population. Partly offsetting this decline, the rest of the eligible population is expected to increase 5.7 percent.
Almost 95 percent of the program spending increase is attributable to two groups. Approximately 44 percent of the increase is for services to individuals who are Medicaid-eligible in conjunction with SSI. For this population, the number of eligibles will increase 4.5 percent and spending per eligible will increase 2.7 percent. Another 50 percent of the spending increase is attributable to services for others, mostly aged and disabled individuals, who do not receive SSI payments but whose medical bills qualify them for Medicaid. For this group, the number of eligible persons will increase 5.4 percent and spending per eligible person will increase 0.7 percent.
Spending growth for the entire program is offset by a decrease in the State’s share of the program’s costs. As part of the federal waiver allowing the State to mandate that recipients enroll in managed care programs, as of October 1, 1997 the federal government began to finance a share of the costs of services provided to the State’s Home Relief recipients. Previously, the State and its localities fully funded Medicaid services to this population. This availability of federal financing for only part of fiscal year 1998 significantly affects the change in State spending between fiscal years 1998 and 1999. While program costs are projected to increase 5.1 percent, the State’s share is projected to increase 2.0 percent, or $117 million.
Finally, in fiscal year 1999 there will be an extra weekly Medicaid payment cycle, valued at $116 million. Therefore, State spending between fiscal years 1998 and 1999 will increase $233 million, or 3.9 percent.
Education aid
Local aid for education is expected to grow 6.6 percent, or $755 million. Most of the increase ($732 million) is for elementary and secondary education. Support for public schools is projected to increase 5.4 percent, or $473 million. This is the result of a 1.2 percent (34,000) increase in the number of students enrolled, a 2.5 percent inflationary increase in aid per student, and the disbursement of $140 million for new programs enacted in fiscal year 1998, but not initiated until fiscal year 1999. These new programs include pre-kindergarten education, a class size reduction initiative and changes in the building aid formula. Another $187 million will be disbursed as part of the School TAx Relief program (STAR) enacted in fiscal year 1998. This program increases local aid to school districts to offset their revenue loss due to the STAR tax cut program. Aid for physically handicapped students and other education aid are estimated to grow $72 million, based on 2.5 percent inflation, an historical real growth rate of 9.9 percent for aid to the physically handicapped and an historical constant-dollar decline of 5.5 percent for other education aid.
A relatively small part of the education aid increase, $22 million, is attributable to 1.4 percent growth in aid for higher education. This increase is caused by inflation of 2.5 percent, an historical annual real decline of 1.7 percent for municipal (CUNY) and community (SUNY and CUNY) colleges and historical real spending for scholarships and tuition assistance that is constant.
State Operations and General State Charges
Spending for the operations of State government, categorized as state operations and general state charges in the financial plans, is projected to increase 2.9 percent, or $240 million. This is comprised of 4.6 percent growth in spending for personal and non-personal services, and other fringe benefits, partly offset by a 49.5 percent decline in the contribution to the pension fund.
The State’s operations encompass multiple services, spending for which is determined by many different workload changes and discrete unit costs. Few new State programs have been initiated in recent years. Therefore, a constant service level is assumed for each agency, with one exception. During the past decade, spending for corrections has risen rapidly. In keeping with this pattern, a 3.3 percent expansion in the population under custody of the Department of Correctional Services (DOCS) is included in the spending estimates.
Personal services spending growth is 5.4 percent, or $240 million. Most of this ($129 million) reflects honoring collective bargaining agreements with the State’s employee unions. Another $70 million results from the inclusion in fiscal year 1999 of an extra payroll cycle for some employees. The balance ($41 million) is due to the increase in the prison population.
Spending for non-personal services grows 3.1 percent, or $53 million. Assumed inflationary increases account for $42 million, and the rise in the prison population comprises the balance.
The pension contribution is projected to decrease 49.5 percent, or $131 million. The primary reason for the decline is that the fiscal year 1998 payment is inflated by $126 million, because part of the fiscal year 1996 pension obligation was deferred for two years.
Spending for other fringe benefits is expected to rise 4.1 percent, based on past trends and inflation. Between fiscal years 1987 and 1997 real growth was higher than the 1.6 percent used in the estimate, but growth in health insurance and workers compensation costs have slowed since 1994, and this trend is assumed to continue in fiscal year 1999.
Transfers to Other Funds
Growth in transfers to other funds of $96 million reflects larger transfers for long-term debt service. Debt service in fiscal year 1999 is estimated at $2,164 million, 3.8 percent more than in fiscal year 1998, due to an increase in outstanding debt.
CONCLUSION
For fiscal year 1999, New York’s Governor and Legislature will confront a budget gap of $1,122 million. Numerous and diverse proposals to close the budget gap likely will be presented during the budget negotiations beginning in January 1998. If the baseline budget is used as a framework for evaluating these proposals, the difficult policy choices will become clearer. It will be possible for all concerned to know whether proposals will be sufficient to close the gap, and how they will affect diverse programs and constituencies.
By presenting a baseline budget, the Citizens Budget Commission seeks to fill a void in the State’s budget process. Because public information and accountability are essential to a functioning democracy, the Commission believes its baseline budget will be a valuable tool for all concerned New Yorkers.
APPENDIX A:
METHODS FOR ESTIMATING RECEIPTSReceipts estimates are described in three sections—personal income tax, sales tax and transfers from other funds, and all other receipts. The first two present estimates based on historic relations between tax receipts and economic activity. The remaining receipts are estimated by adjusting projections published in the Executive Budget Financial Plan Projections 1996-1997—1999-2000. An explanation of the calculation of underlying growth discussed in the section of this report titled “Receipts Decline” follows these discussions.
Personal Income Tax
Personal income tax (PIT) receipts are a function of how much is owed (taxpayer liability), and when that liability is paid. Therefore, PIT receipts are projected by estimating liability for recent and future tax years, allocating liability among payment methods, and estimating when these liabilities will be settled. Total liability is estimated based on forecasts of growth in wage and non-wage income. The allocation of liability among payment methods and the timing of receipts from each payment method is projected based on historical patterns. All forecasts include adjustments to reflect scheduled tax cuts.
Liability
Future liability is estimated by first calculating calendar year 1996 liability based on actual collections data. Next constant-law liability in 1997 and 1998 is projected based on actual and projected growth in income. (Unless specified as a fiscal year, all references in this PIT section are to calendar years, which correspond to tax years.) Finally, since multi-phase tax cuts affect the forecast years, their estimated value is subtracted from the constant-law liability projections.
Liability for 1996 is calculated from actual collections. Tax liability is paid though three methods—payroll withholding, estimated payments and payments or refunds associated with final income tax returns. To construct liability from actual collections, receipts and refunds are allocated to the proper calendar year liability period. For example, withholding is generally paid in the same period that the liability is incurred, so withholding received by the State in the 1996 calendar year is attributable to the 1996 tax year. Estimated payments for a given tax year are due on April 15, June 15, September 15 and January 15, so estimated payment receipts from these time periods are allocated to the proper tax year. Finally, taxpayers settle their remaining tax liability when they file their tax returns, due the following April 15, either claiming a refund if their calendar year withholding and quarterly estimated payments exceed their liability, or making a final payment if the opposite is true. These settlement refunds and payments are allocated to the prior calendar year.
Based on receipts data from the State Department of Taxation and Finance, calendar year 1996 liability is estimated to be $17,392 million. This is comprised of $15,098 million in withholding collections, $3,331 in estimated payments and a final settlement, including returns and refunds, of -$1,036 million.
Future liability is projected based on forecasted growth in income, the relationship between liability and income (the elasticity of liability to income), and the amount by which previously enacted tax cuts reduce liability. Specifically, liability is calculated as the prior year’s liability, increased by the growth in income and the elasticity of liability to income, and reduced by the impact of the tax cut.
To calculate growth in income, a measure is constructed to approximate adjusted gross income (AGI), the income upon which taxes are based. (See Table A-1.) Wages are a greater proportion of AGI than they are of personal income. The AGI-proxy weights the growth in the wage and non-wage components of personal income to reflect their shares of AGI.
In constructing the AGI-proxy, wage growth in the first quarter of 1997 is based on quarterly estimates provided by the New York State Department of Labor, as reported in the ES-202 unemployment insurance survey. Estimates for subsequent quarters are calculated from forecasts provided by Data Resources, Incorporated (DRI). History and forecasts of non-wage income were provided by DRI, and the DRI estimates for 1997 and 1998 were increased based on actual tax payments associated with non-wage income.
Since tax rates increase as income rises, and other features of the tax structure make it progressive, liability will grow faster than income. Absent changes in the tax law, the elasticity of liability to AGI is approximately 1.2, based on observation of long-term trends. This elasticity and the AGI-proxy growth estimate result in projected increases in constant-law liability as shown in Table A-1.
Estimates of the value of previously enacted tax cuts are based on published information from the Department of Taxation and Finance and the Division of the Budget, and from conversations with staff in these agencies and others. These estimates incorporate the impact on 1997 tax liability of the tax cuts enacted since 1994. The tax cuts newly taking effect in 1997 will reduce 1997 tax liability an estimated $1,695 million. Table A-2 displays the liability calculation.
Allocation of liability among payment methods
Tax liability is paid in three ways—withholding, estimated payments, and final settlements (final payments, extensions, refunds, and the State/City offset ). In addition, the State receives and disburses funds resulting from payments and refunds for years prior to 1996. These are not included in the liability estimates and are projected separately.
Withholding estimates are based on growth in wages, an elasticity of withholding to wages of 1.2, and the effects of tax cuts on the withholding tables. Like liability, withholding is calculated as the prior year’s withholding, increased by the growth in wages and the elasticity of withholding to wages, reduced by the value of the tax cut. Wage growth is calculated on a quarterly basis, using actual and estimated year-over-year growth in wages. For 1997, only the last quarter is estimated, since actual withholding has been received for the year’s first three quarters. Total 1997 withholding is estimated at $14,690 million. Table A-3 summarizes the withholding estimate for 1998.
Estimated payments are projected based on growth in non-wage income, an elasticity of 1.2, and the effects of tax cuts. Estimated payments for 1997 were estimated directly from available receipt data. Table A-3 summarizes the calculation of estimated payments for 1998.
The final settlement of liability is composed of final payments, payments with extensions, refunds and the State/City offset. Since this comprises the balance of the liability, it is estimated as liability minus withholding and estimated payments. The three methods of payment for total liability are summarized in Table A-4.
Not included in the liability estimates are payments of prior years’ liabilities (delinquent payments) and prior years’ refunds. These are projected on a fiscal year basis, and are expected to follow historical patterns. (See Table A-5.)
The tax amnesty of fiscal year 1997 increased that year’s delinquent payments and reduced prior years’ refunds. Fiscal year 1997 delinquent payments totaled $593 million. This is greater than any of the three prior fiscal years’ receipts, which in chronological order were $544 million, $534 million and $517 million. A portion of the fiscal year 1997 increase are collections that otherwise would have been received in fiscal year 1998 and beyond. The estimate of fiscal year 1998 collections is based upon collections for the first seven months of the fiscal year. The estimate of fiscal year 1999 collections assumes that the collections loss due to the amnesty will be less than in fiscal year 1998, moving collections closer to the pre-amnesty level. The fiscal year 1998 estimate of prior years’ refunds is based on actual collections for the first seven months of the fiscal year. The fiscal year 1999 estimate is based on the fiscal year 1998 estimate and the continuation of the annual $10 million increase between fiscal years 1994 and 1996.
Timing of payments and fiscal year 1999 receipts estimateReceipts in a given fiscal year are based on the timing of payments from various liability years. Withholding is paid when wages are received, and thus as liability is incurred. Therefore, fiscal year 1999 receipts include withholding for the last three quarters of 1998 (part of 1998 liability) and the first quarter of 1999 (part of 1999 liability). Estimated payments on 1998 liability are due on April 15, 1998, July 15, 1998, October 15, 1998, and January 15, 1998. Therefore, all estimated payments on 1998 liability are received in fiscal year 1999.
With two exceptions, the final settlement of 1997 liability occurs on or after the date when returns are filed, in April 1998; this means most of the final settlement of 1997 liability occurs in fiscal year 1999. The first exception is “early refunds”—those paid in the first quarter of the calendar year. During the first quarter of calendar year 1998 (in fiscal year 1998), it is estimated based on past practice that $360 million of 1997 refunds will be paid; the final 1997 settlement to be received in fiscal year 1999 is reduced by this amount. However, during the first quarter of calendar year 1999 (in fiscal year 1999), $360 million of early refunds from 1998 liability should be paid, causing fiscal year 1999 receipts to be reduced by this amount. The second exception is the State/City offset. The State/City offset for 1997 of $220 million is paid in fiscal year 1998, so it must be removed from the 1997 final settlement. Likewise, the State/City offset for 1998 of $232 million will be paid in fiscal year 1999 and will reduce receipts in that year.
The last element that can affect receipts is the net effect of refund reserve account transactions, used to “roll over” fiscal year-end surpluses. This estimate assumes that the fiscal year 1998 surplus will not be rolled into fiscal year 1999; thus, no net receipt change is projected in this fund. Table A-6 shows the components of fiscal year 1999 receipts, which total $18,466 million.
Sales Tax and Transfers from Other Funds
Sales tax
Sales tax receipts result from consumption of taxable goods and services. State-level projections of consumption are not available. Consequently, taxable consumption in New York is estimated by applying the relationship of consumption to personal income at the national level to projections of New York State personal income.
The approach starts by specifying a subset of national consumption that approximates taxable consumption in New York State. These items are durable goods, non-durable goods excluding food, other household operations, one-half of transportation services and other services. Next, the elasticity of this “taxable consumption” to personal income is projected nationally. This elasticity is applied to New York.
Fiscal year 1998 collections are estimated and then used as a base for fiscal year 1999. Total sales tax receipts for the first half of fiscal year 1998 equaled $3,675 million. Projecting the second half of fiscal year 1998 receipts starts with national projections that suggest between the second halves of fiscal years 1997 and 1998 this “taxable consumption” will increase 6.1 percent and personal income will increase 5.5 percent. Therefore, the elasticity of consumption to personal income is 1.11. New York State personal income is projected to increase 4.4 percent during this period. Applying the national elasticity estimate to the State personal income growth results in the projection that taxable consumption will grow 4.9 percent in New York State. Applying this rate to the $3,500 million of receipts in the second half of fiscal year 1997 yields receipts for the second half of fiscal year 1998 totaling $3,670 million. From this, $3 million is deducted due to the incremental cost of tax cuts. Thus, total fiscal year 1998 receipts are estimated at $7,342 million. State law requires that 25 percent of sales tax receipts be deposited in a debt service fund for LGAC. Therefore, the general fund portion equals $5,506 million.
National projections suggest that between fiscal years 1998 and 1999 this “taxable consumption” will increase 5.7 percent and personal income will increase 4.8 percent. Therefore, the elasticity of consumption to personal income is 1.18. New York State personal income is projected to increase 4.1 percent between fiscal years 1998 and 1999. Applying the national elasticity estimate to the State personal income growth results in the projection that taxable consumption will grow 4.8 percent in New York State in this period. Applying this rate to estimated fiscal year receipts results in a fiscal year 1999 projection of $7,697 million.
Tax cuts enacted in fiscal year 1998 will reduce receipts $9 million more in fiscal year 1999 than in fiscal year 1998. Thus, total sales tax receipts are estimated to be $7,688 million. Since 25 percent is reserved for LGAC debt service, the estimate for general fund sales tax receipts is $5,766 million.
Transfers from other funds
Transfers from other funds include the sales tax receipts left after satisfying LGAC debt service requirements and a number of smaller transfers. The sales tax portion is projected as indicated above; the other transfers are assumed to equal the projection in the Executive Budget Financial Plan Projections 1996-1997—1999-2000.
Based on the previous sales tax estimate, one quarter of total fiscal year 1999 sales tax receipts, or $1,922 million, will be deposited in the LGAC debt service fund. In fiscal year 1999, LGAC debt service will be $352 million. Therefore, the balance transferred to the general fund will be $1,570 million. An additional $256 million of other transfers is projected in the Executive Budget Financial Plan Projections 1996-1997—1999-2000, bringing the total transfers from other funds to $1,826 million.
All Other Receipts
The estimate of all other receipts is based on projections of receipts in the Executive Budget Financial Plan Projections 1996-1997—1999-2000. These figures are updated to account for actions and experience since that document was released in February 1997. (See Table A-7.)
The Executive Budget Financial Plan Projections forecasted receipts of $8,807 million in fiscal year 1999 from other user taxes and fees, business taxes, other taxes and miscellaneous receipts. Subsequently, the State enacted tax cuts which reduce fiscal year 1999 receipts from other user taxes and fees ($9 million), business taxes ($74 million) and other taxes ($56 million). In addition, the time-table for implementing the Governor’s proposed reduction in the estate tax was changed, increasing projected fiscal year 1999 receipts by $117 million, and the proposed increases in the health provider assessment and other fees were rejected, decreasing projected fiscal year 1999 receipts by $66 million and $46 million, respectively.
Finally, current-year experience suggests fiscal year 1999 receipts will increase $126 million. The method for estimating the fiscal year 1999 value of current-year experience is to identify the recurring portion of the change in the receipts estimates between the Executive Budget and the Mid-Year Update, and increase it by the underlying growth of these taxes of 4 percent. A major portion is an increase of $70 million from business taxes, primarily due to continued strength in the financial services sector. Also, strength in the financial markets contributes to the increase in estate tax receipts, included in the $64 million increase in other taxes.
Estimates of Underlying Growth
This section explains the method for determining underlying growth in Table 3. First atypical occurrences were eliminated from fiscal year 1998 and fiscal year 1999 receipts and then the year-to-year change was calculated. In fiscal year 1998, non-recurring receipts of $1,723 million were removed; in fiscal year 1999, the incremental value of the tax cuts, $229 million, was added. The dollar value of underlying growth is calculated as: (FY 1999 receipts + FY 1999 receipt loss due to tax cuts) - (FY 1998 receipts - FY 1998 non-recurring receipts). The underlying growth rate is calculated as this dollar value divided by fiscal year 1998 receipts minus non-recurring receipts.
Fiscal year 1998 non-recurring receipts include $1,457 million of the fiscal year 1997 surplus made available in fiscal year 1998 by transferring $1,240 million through the PIT refund reserve account and an additional $217 million in PIT refunds made in fiscal year 1997. Other non-recurring receipts include $200 million for retroactive reimbursement of social service claims from the federal government and $66 million in miscellaneous receipts from other funds.
Finally, it is important to note that estimates of receipts are based on a static model of taxpayer behavior. The estimates do not capture changes in taxpayer behavior that may result from recent changes in State and federal tax laws. The reductions in the federal tax rate for capital gains and the State rate for estate taxes may alter taxpayer behavior in such a way that increases receipts, thereby reducing the fiscal year 1999 gap.
APPENDIX B:
METHODS FOR ESTIMATING DISBURSEMENTSDisbursements are estimated for 22 separate items using one of four methods. First, five large items, which together comprise two-thirds of total fiscal year 1999 baseline disbursements, are projected based on relatively detailed analyses of workload and unit costs. These items are income maintenance, Medicaid, support of public schools, state operations personal services and state operations non-personal services. Second, nine items totaling 22 percent of disbursements are projected based on previous trends, typically spanning the fiscal year 1987 through fiscal year 1997 period, and projected inflation. Another four items are projected at levels consistent with projections made by governmental sources. Finally, four items are projected to remain constant from fiscal year 1998 levels, because this is current policy.
Detailed Methods
Detailed methods were developed for five items—income maintenance, Medicaid, support of public schools, and the personal service and non-personal service components of state operations. (See Table B-1.) Generally, workload and per-unit spending is estimated based on past trends and current forces affecting those trends. State operations spending is estimated based on the costs of pay raises associated with collective bargaining agreements and adjustments to the prison workload.
Income maintenance
This category includes the new Family Assistance (FA) and Safety Net (SN) programs, Supplemental Security Income (SSI), and other income maintenance programs, such as Emergency Assistance and relatively small employment programs. FA and SN replace Aid to Families with Dependent Children (AFDC) and Home Relief (HR), respectively. Although some changes in eligibility will have impacts on future caseload growth and mix, these are not likely to have a material effect during the baseline period. Accordingly, historical AFDC and HR trends in recipients and benefits are used as proxies to project FA and SN.
Spending for FA, SN and SSI is determined by the number of recipients and by benefits per recipient. Since the historical disbursements data for these indicators are reported on a different basis than the fiscal year 1998 Mid-Year Update, the initial estimate is in the form of an annual percentage change. This percentage change is then applied to fiscal year 1998 income maintenance spending reported in the Mid-Year Update. Finally, an adjustment is made for the net impact of the federal Temporary Assistance to Needy Families block grant.
The annual percentage change is based on a combination of three separate estimates: FA and SN, SSI, and other programs. These separate estimates for fiscal years 1998 and 1999 are totaled and the combined annual percentage change calculated.
Family Assistance and Safety Net
FA and SN spending is determined by the number of recipients and their average benefit payments. Total spending is the product of the number of recipients and average benefits per recipient.
Recipients. The number of recipients is a function of economic conditions as well as policy and administrative actions such as fraud detection and workfare requirements. During the economic expansion of the 1980s, the number of recipients generally declined. As the recession began at the end of the decade, the number of recipients increased. After the end of the recession in early 1993, the growth in AFDC recipients slowed and the number of HR recipients stabilized. (See Figure B-1. ) In the beginning of 1995, the number of recipients began to decline, especially HR recipients. This primarily is attributable to administrative actions such as fraud detection and workfare requirements.
Given the projected continuation of employment growth, the period of recipient decline from December 1996 through August 1997 is an appropriate base for projections. During this period, the monthly rates of change for FA and SN were -1.13 percent and -1.01 percent, respectively. Using these rates, the number of recipients is projected to decline 12.9 percent between fiscal years 1998 and 1999. (See Table B-2.)
Benefits per recipient. As shown in Table B-3, there is no clear trend in average benefits per recipient for the fiscal year 1992-1997 period. This is probably attributable to the change in the mix of AFDC and HR recipients, the decline in AFDC family size, changes in the shelter allowances and other programs, timing of cash disbursements, and data anomalies. The noticeable drop between fiscal years 1996 and 1997 may be related to the drop in HR single adults, who have a larger average benefit. Absent a clear trend, the average annual change of -0.1 percent is used. Applying this rate to the average benefit per recipient in fiscal year 1997 produces estimates of $875 in both fiscal years 1998 and 1999.
Total spending for FA and SN. Total spending is calculated by multiplying the estimated number of recipients by the estimated benefits per recipient. Table B-4 indicates total spending declines 12.9 percent between fiscal years 1998 and 1999.
SSI
As with FA and SN, SSI spending is determined by the number of recipients and average benefits per recipient.
Recipients. Figure B-2 shows that the increase in the number of recipients slowed in recent years. Therefore the 4.5 percent annual rate of change between fiscal years 1994 and 1997 is applied to the actual average number of recipients in fiscal year 1997 (602,043) to estimate that recipients in fiscal years 1998 and 1999 will be 629,285 and 657,759, respectively.
Benefits per recipient. As shown in Table B-5, average benefits per recipient changed unevenly during the fiscal year 1992 to 1997 period. The major anomaly is the significant drop from fiscal year 1992 to fiscal year 1993. Therefore, the 1.3 percent annual rate of change between fiscal years 1994 and 1997 is used. Applying this rate to the benefits per recipient in fiscal year 1997 results in estimated benefits per recipient of $991 in fiscal year 1998 and $1,004 in fiscal year 1999.
Total spending for SSI. Total spending is the product of the estimated number of recipients and the estimated benefits per recipient. Table B-6 shows estimated SSI spending increases 5.9 percent between fiscal years 1998 and 1999.
Other income maintenance programs
The remaining income maintenance spending is for a combination of programs, including Emergency Assistance and some employment programs. Since this spending does not have a single workload indicator, the past spending trend and inflation are used to project future spending.
First, annual spending for fiscal years 1992 through 1997 is converted to constant fiscal year 1997 dollars using the regional CPI. Then, the constant-dollar annual rate of change between fiscal years 1992 and 1997, 0.7 percent, is applied to fiscal year 1997 actual data, resulting in constant-dollar estimates of spending for fiscal years 1998 and 1999. Converting these constant-dollar estimates to current dollars based on the projected inflation rate of 2.5 percent yields a spending increase of 3.1 percent to $255 million in fiscal year 1999, from $247 million in fiscal year 1998.
Fiscal year 1999 estimate of income maintenance disbursements
As shown in Table B-7, combining the three categories of income maintenance spending produces an annual rate of change of -4.8 percent for fiscal year 1999. The preliminary estimate of disbursements for fiscal year 1999 of $2,065 million is calculated by applying the -4.8 percentage change to fiscal year 1998 spending, $2,169 million. Absent the block grant adjustment discussed below, spending would decline $104 million to $2,065 billion.
Finally, an adjustment is made for the net impact of the federal TANF block grant. Due to caseload decline and early submission of a reform plan, New York receives a TANF block grant that is greater than what the previous federal reimbursement formula would have yielded. In fiscal year 1998, this gain amounted to $730 million, of which $200 million was attributable to fiscal year 1997. Since the block grant level is fixed, the increment over what the prior federal reimbursement formula would have yielded increases as welfare spending decreases. Based on the data used to generate the FA and SN baseline rate of change, FA accounts for 89 percent of the $104 million decline in spending, or $93 million. Thus, the increment increases an equivalent amount. However, the $200 million attributable to fiscal year 1997 will not recur, so fiscal year 1999 State spending is increased by the net $107 million. Total spending for fiscal year 1999 will be $107 million greater than the preliminary estimate of $2,065 million or $2,172 million.
Medicaid
Medicaid spending is determined by the number of people eligible for Medicaid and the average spending per eligible person. Therefore, spending is estimated as the product of the number of eligible persons and average spending per eligible person.
The baseline estimate is for all State Medicaid spending. Since Medicaid spending reported in the Mid-Year Update does not include Medicaid spending for mental hygiene services, the Mid-Year Update is adjusted to add mental hygiene Medicaid spending to the reported Medicaid spending. (Refer to Table 1.)
The historical data used to derive the estimate are compiled on a different basis than the adjusted fiscal year 1998 Mid-Year Update. Therefore, the baseline estimate is derived from an estimated annual percentage change for State Medicaid spending. This percentage change is applied to the adjusted Medicaid spending in the fiscal year 1998 Mid-Year Update.
To calculate the annual percentage change in State spending, total program spending (including federal and local funds) is estimated for fiscal years 1998 and 1999. These estimates result from projections of the number of Medicaid eligibles and of spending per eligible. Then, the State share of the program spending is calculated; the State share depends on the type of service and whether the eligible personal qualifies for federal funds. These State share estimates provide the basis for calculating the rate of change. Finally, an adjustment is made to account for one more weekly Medicaid payment cycle in fiscal year 1999 than in fiscal year 1998
Medicaid eligibles
The number of eligibles is projected in two categories—those who qualify for Medicaid in conjunction with FA, SN or SSI (“medical and subsistence” eligibles) and those who qualify only for medical assistance (“MA only” eligibles).
The number of medical and subsistence eligibles closely matches the number of income maintenance recipients. Using the previously calculated number of income maintenance recipients yields a projected 6.8 percent decline in medical and subsistence eligibles from 1,898,045 in fiscal year 1998 to 1,769,177 in fiscal year 1999.
Through its Medicaid program, New York has provided services to individuals who are not eligible under the federal program. For Medicaid eligibles who are part of the federally financially participating program (FFP), New York State and its localities pay 50 percent of the program costs; for those who are federally non-participating (FNP), all costs are borne by the State and localities. The only medical and subsistence eligibles who have been FNP are SN adults, who comprise about 82 percent of the SN medical and subsistence eligibles. Under the recently approved managed care waiver, as of October 1, 1997 the federal government began to finance 50 percent of the costs of services provided to these recipients.
Figure B-3 shows that the number of MA only eligibles has increased since January 1991, but the rate has slowed for FFPs, who comprise 91 percent of MA only eligibles. Between January 1995 and February 1997, the monthly rates of change for FFPs and FNPs were 0.44 percent and 0.74 percent, respectively. Using these rates of change, the number of eligibles is estimated to increase 5.7 percent from 994,837 in fiscal year 1998 to 1,051,927 in fiscal year 1999.
Table B-8 combines the estimates of MA only eligibles and medical and subsistence eligibles. Total eligibles are projected to decrease 2.5 percent from fiscal year 1998 to fiscal year 1999.
Spending per eligible
Spending per eligible is projected based on the past trend. In order to control for inflation, the nominal data are converted to constant 1996 dollars using the medical care component of the regional CPI.
Spending per eligible is calculated for six categories of eligibles and for two types of service. The six categories of eligibles are four groups of medical and subsistence eligibles (FA, SSI, SN-Children, and SN-Adults), and two groups of MA only eligibles (FFP and FNP). For each category of eligible, spending is divided between two service types (long-term care and acute care).
In choosing a period upon which to base the trend, cost control actions and the availability of data are considered. During the 1997 legislative session, the prior year’s cost control program was extended for two years. This program is similar to what was in place during 1995. Since the latest data available are from December 1996, the change from 1995 to 1996 is used to estimate the rate of future growth.
Table B-9 shows constant-dollar spending for fiscal year 1998 estimated by applying 125 percent of these rates of change to calendar 1996 spending, and fiscal year 1999 estimated by applying the rate of change to the estimate of fiscal year 1998. These constant-dollar estimates are then converted to current dollars using projections of the medical care CPI. Based on the recent relationship between the medical care CPI in the region and in the nation, and using the federal Health Care Financing Administration’s projection that the national medical care CPI will increase 3.3 percent from 1996 to 1997 and 4.1 percent from 1997 to 1998, the regional medical care CPI is estimated to increase 4.4 percent between State fiscal years 1997 and 1998 and 5.1 percent between State fiscal years 1998 and 1999.
Estimate of rate of change in State spending
Multiplying the projected spending per eligible by the projected number of eligibles results in total spending of $21,290 million in fiscal year 1998 and $22,370 million in fiscal year 1999. Thus, the spending for the Medicaid program increases 5.1 percent. To estimate the State share of this spending, its portion of spending for each eligibility and service category is calculated. For fiscal year 1998 an adjustment is made in the State’s share for SN adults since federal financing is available for services starting October 1, 1997. Since the payment lag is approximately two months, a blended State share is used assuming no federal financing for two-thirds of the year. Applying the State’s share to program spending results in estimated total State Medicaid spending of $6,896 million in fiscal year 1998 and $7,032 million in fiscal year 1999. Therefore, the baseline rate of increase is 2.0 percent. If there had been no shift in the State’s share of services for SN adults, the rate of change would have been 5.1 percent.
Fiscal year 1999 estimate of disbursements
Applying the 2.0 percent change rate to fiscal year 1998 disbursements of $5,925 million results in a preliminary estimate of fiscal year 1999 spending of $6,042 million. Since there will be 53 payment cycles in fiscal year 1999 instead of the 52 in fiscal year 1998, the preliminary estimate is increased accordingly, resulting in a baseline estimate of $6,158 million.
Support of public schools
Support of public schools is determined by enrollment and average aid per student. Total spending is the product of enrollment and average aid per student.
To estimate the fiscal year 1999 baseline, it is first necessary to add lottery receipts to fiscal year 1998 general fund spending; education aid funded by the lottery is not part of the general fund, but it is an integral part of State aid to public schools. Then, total aid per student in fiscal year 1998 is calculated and adjusted for inflation to estimate total aid per student in fiscal year 1999. This aid per student is multiplied by the projected number of students to estimate total fiscal year 1999 disbursements. Since new programs were enacted in fiscal year 1998 to start in fiscal year 1999, their costs are added. Finally, the estimated fiscal year 1999 lottery aid is subtracted to calculate general fund aid.
Aid per student and enrollment
For fiscal year 1998, general fund school aid is $8,803 million and lottery aid is $1,595 million. Thus, total aid is $10,398 million. Fall 1997 school enrollment is estimated to be 2,846,031. Dividing the adjusted spending by the enrollment results in aid per student of $3,653. Aid per student is assumed to increase at the projected 2.5 percent inflation rate. Therefore, projected aid per student in fiscal year 1999 is $3,743.
Fiscal year 1999 estimate of disbursements
Assuming approximately the same increase as the prior year, enrollment is projected to grow 34,000 to 2,880,031 in Fall 1998. Multiplying Fall 1998 enrollment by the estimated aid per student results in fiscal year 1999 spending of $10,780 million. Since new programs (e.g., pre-kindergarten, a class size reduction initiative, changes in the building aid formula) will cost $140 million, fiscal year 1999 disbursements will total $10,920 million. From this is subtracted lottery aid which is estimated to be $1,645 million, based on a 3.1 percent increase from the prior year. Thus, the fiscal year 1999 general fund disbursements will equal $9,275 million.
State operations: personal services
Changes in personal services spending are the result of increases in workload and new spending required by collective bargaining agreements. Since few new State programs have been initiated in recent years, a constant service level (workload) is assumed, with one exception. For the past decade, spending for corrections has risen significantly. This trend is expected to continue in modified form, so expansion in the prison population under custody of the Department of Correctional Services (DOCS) is included in the baseline spending estimates.
Disbursements are projected in three steps. First, the disbursements associated with the current service level are projected by adding the costs associated with collective bargaining agreements to the fiscal year 1998 disbursements. Then, the additional costs associated with the expanded prison population are estimated based on workload increase and spending per prisoner. Finally an adjustment is made to account for some employees receiving 27 paychecks in fiscal year 1999, in contrast with the standard 26 paid in fiscal year 1998.
To estimate spending associated with current services, the fiscal year 1998 disbursements of $4,471 million is a starting point. The one-time $700 contractual payment to most employees at a total cost of $60 million is subtracted from this. The annualization of mid-fiscal year 1998 salary increases with a total value of $49 million is added.
The resulting $4,460 million is the base to which spending related to collective bargaining agreements in fiscal year 1999 is added. This includes a 1.5 percent increase ($67 million) associated with salary steps, increments, and promotions. Added to this are costs of base salary increases. Most employees receive a 3.5 percent increase halfway through the year, valued at $49 million. The agreements with employees of DOCS and SUNY differ from the prevailing pattern. DOCS employees receive a 3 percent salary increase halfway through the year, valued at $18 million. SUNY employees receive a 3.5 percent salary increase three-quarters through the year, valued at $5 million. In total, the cost of fiscal year 1999 collective bargaining agreements is $139 million.
Spending associated with the additional prison population is calculated by estimating the spending per prisoner in fiscal year 1999 and multiplying it by the number of new prisoners. Spending per prisoner is estimated in two steps. First, collective bargaining costs are added to DOCS’ fiscal year 1998 personal service disbursements to determine the fiscal year 1999 personal service disbursements, assuming no increase in prisoners. The result is fiscal year 1999 personal service disbursements of $1,233 million. Second, these disbursements are divided by the number of prisoners (69,529) on September 30, 1997, the fiscal year midpoint. This yields fiscal year 1999 average spending per prisoner of $17,734.
The Division of Criminal Justice Services estimates that the prison population will increase 2,684 between April 1, 1998 and April 1, 1999. Estimating average daily fiscal year population using the average of the population at the beginning and end of the fiscal year results in a fiscal year-to-fiscal year increase of 2,325. Multiplying the spending per prisoner by the population increase indicates that the total personal service cost increase resulting from growth in the prison population is $41 million.
The preliminary fiscal year 1999 estimate of total personal services spending is $4,640 million—the sum of the revised fiscal year 1998 base ($4,460 million) plus the total cost of collective bargaining agreements ($139 million) plus the cost of the new prison population ($41 million).
Employees paid on the institutional cycle will receive 27 paychecks in fiscal year 1999, in contrast with the standard 26 paid in fiscal year 1998. Based on the September 30, 1997 pay-period, the institutional payroll comprises 39 percent of the total. Dividing the preliminary fiscal year 1999 estimate by 26 yields an average payroll of $178 million. The institutional portion, estimated as 39 percent, is $70 million. Therefore, the fiscal year 1999 baseline estimate is $4,640 million plus $70 million, or $4,710 million.
State operations: non-personal services
Changes in non-personal service costs are the result of changes in workload and inflation. As with personal services, workload is assumed constant, with the exception of the prison population. For the current level of services, spending is assumed to grow at the projected rate of inflation, 2.5 percent. Total disbursements for fiscal year 1999 equal $1,793 million plus $10 million associated with the prison population increase (see below), or $1,804 million.
The costs associated with prison population growth are estimated using the same method as for personal services. The fiscal year 1998 disbursements are inflated by 2.5 percent to estimate fiscal year 1999 disbursements, assuming no increase in prisoners. Dividing that sum by the fiscal year 1998 mid-year population produces a fiscal year 1999 non-personal service disbursement per inmate estimate of $4,514. Multiplying this by the estimated 2,325 new prisoners results in additional non-personal service disbursements of $10 million.
Past Trends and Inflation
Past trends and inflation are used to estimate spending for 22 percent of total baseline disbursements. Past trends may overstate or understate baseline change. If a service has been enhanced over time, then the trend overstates baseline change by including this enhancement. Conversely, if the service has been cut (or if items have been moved “off-budget”) the trend understates baseline change.
This method involves four steps. First, past spending is converted to constant dollars, using the CPI, to control for inflation. Second, the constant-dollar annual rate of change is calculated. Except for “Other Fringe Benefits,” the time period used is fiscal year 1987 through fiscal year 1997. The third step is increasing fiscal year 1998 disbursements by the constant- dollar rate of change. Finally, this figure is increased by projected inflation, 2.5 percent, to generate a current-dollar fiscal year 1999 estimate. Table B-10 provides a summary of these estimates.
The growth in disbursements for “Other Fringe Benefits” has slowed in recent years, primarily due to the decline in health benefit costs. Therefore, the estimate is based on the 1.6 percent annual rate of increase during the fiscal year 1995 through 1997 period, instead of the 2.1 percent rate between fiscal years 1987 and 1997.
Governmental Sources
Governmental sources are used for fiscal year 1999 estimates of four items, comprising 7 percent of baseline spending. These are School TAx Relief education aid, transfers for long-term debt service, the pension contribution, and the repayment to the tax stabilization reserve fund. (See Table B-11.)
In 1997 the State enacted the STAR program, which provides additional State education aid to school districts to replace funds lost from the new local tax cuts. The fiscal year 1999 disbursements will be $187 million.
The transfer for long-term debt service finances the debt issued to fund most of the State’s capital projects. This estimate starts with the Division of the Budget’s projection for fiscal year 1999, contained in the fiscal year 1998 Executive Budget Financial Projections. Since these projections are predicated on adoption of the fiscal year 1998 executive budget, they are updated for the adopted budget. The value of actions in the adopted budget equal the $180 million change between the Executive Budget Financial Projections and the Mid-Year Update. Of this, $159 million is the result of the refunding of a pension obligation, which moved the disbursement from pensions to debt service in the financial plan. Therefore, adding $180 million to the $1,984 million fiscal year 1999 debt service from the Financial Projections yields a fiscal year 1999 estimate of $2,164 million.
The Office of the State Comptroller estimates that the pension contribution will be $134 million. The $15 million payment to the Tax Stabilization Reserve Fund is scheduled in order to repay prior withdrawals from the fund.
Constant Items
Four items, which comprise 4 percent of total disbursements, are expected to remain constant from fiscal year 1998 to fiscal year 1999. These are revenue sharing, transfers for capital projects, other transfers to other funds and short-term debt service.
Disbursements for revenue sharing and transfers for capital projects are determined by policy decisions. Policy is assumed to stay constant in fiscal year 1999. Other transfers to other funds are multiple small transfers that are dependent on many factors. Absent a clear trend, the fiscal year 1999 disbursements are estimated to equal the fiscal year 1998 disbursements.
Short-term debt service covers the cost of bond anticipation notes, used to bridge the gap between capital disbursements and the receipt of bond proceeds. These disbursements do not vary significantly; they are assumed to be constant at $11 million.
1 New York State Division of the Budget, Executive Budget Financial Plan Projections 1996-1997 — 1999-2000, February 1997. Endnotes
2 The most recent report is State of New York, Office of the State Comptroller, Office of Fiscal Research and Policy Analysis, The 1997-98 Budget: Fiscal Review and Analysis, September 1997. It estimates the fiscal year 1999 budget gap is $1,466 million by adjusting the $1,675 million gap identified in the Executive Budget Financial Plan Projections for the subsequent actions valued at $209 million.
3 New York State Division of the Budget, Financial Plan Mid-Year Update 1997-1998, October 1997.
4 These funds support fiscal year 1998 spending and help generate that year’s estimated $851 million cash surplus.
5 These are FFP, MA only eligibles; see Appendix B.
6 This estimate is the cost of providing the current services based on enrollment and spending per student. It is not necessarily the same amount as that required by current State aid formulas. See Appendix B for details of the estimate.
7 Between fiscal years 1985 and 1997, the average daily prison population increased 109 percent, from 33,297 to 69,453. During this period general fund spending for the Department of Correctional Services increased 7.3 percent annually.
8 This figure equals $139 million to be paid in fiscal year 1999, plus $49 million for the annualization of mid-fiscal year 1998 salary increases, less $59 million in non-compounded payments made in fiscal year 1998.
9 New York State Division of the Budget, Executive Budget Financial Plan Projections 1996-1997 —1999-2000, February 1997.
10 There can be spillover from one time period to the next, so that some withholding received by the State in January, for example, is attributable to wages earned in December—the prior tax year. These effects can be important, but there are no publicly available data that would allow this amount to be estimated.
11 Non-wage personal income differs from the non-wage component of AGI in several respects. AGI includes capital gains, but personal income does not. Personal income includes workers compensation, social security and public assistance transfer payments, but AGI does not. In 1997, the non-wage component is projected by DRI to be 42 percent of personal income, and 20 percent of the AGI-proxy.
12 For analyzing and forecasting tax liability and withholding collections, these data, which are not seasonally adjusted, are superior to wage data reported by the U.S. Bureau of Economic Analysis, which are seasonally adjusted and also reflect other adjustments.
13 DRI projects 4.4 and 4.1 percent non-wage income growth in 1997 and 1998, respectively. Strong recent estimated payments suggest that these projections are low. Thus, 6.5 percent and 5.0 percent are used in calculating the AGI-proxy.
14 Alternative estimates of elasticity would have a modest impact on projected fiscal year 1999 receipts. An elasticity of 1.3 would increase the receipts estimate $125 million, or 0.7 percent. An elasticity of 1.1 would decrease the receipts estimate $126 million, or 0.7 percent.
15 The State/City offset is a payment by the State to the City to reconcile the collection of the City’s income tax by the State. The amount of this payment is included in the receipts data used to calculate liability, so it is included in the settlement of liability.
16 Sensitivity analysis shows that increasing the elasticity to 1.3 would increase the receipts estimate $81 million, or 0.4 percent. Decreasing the elasticity to 1.1 would reduce the receipts estimate $81 million, or 0.4 percent.
17 Withholding for the first quarter of 1999 is estimated using the same method as 1998 withholding; the prior year’s withholding is increased by the estimated increase in wages, 3.9 percent, multiplied by an elasticity of 1.2.
18 In six of the past 10 years, $360 million in refunds have been paid during the first quarter of the year.
19 The State/City offset is calculated based on actual fiscal year 1997 data, increased at the same rate as total liability.
20 The fund will be used to continue adherence to the acceleration of payments required by the Local Government Assistance Corporation program, the earned income tax credit and the child care credit. But this involves no net receipts change.
21 The relationship of personal income to consumption varies with the stage of the business cycle. Although New York’s economic growth is somewhat slower than the nation’s, the assumption that consumption in New York will mirror the nation is reasonable because the forecast period is in approximately the same part of the national and state business cycles.
22 The projections for national consumption and national and state personal income are from DRI.
23 New York State Department of Taxation and Finance, Office of Tax Policy Analysis, Summary of 1997-98 Tax Provisions, September 1997.
24 DRI.
25 Ibid.
26 New York State Division of the Budget, op. cit., February 1997.
27 New York State Division of the Budget, 1997-1998 Executive Budget Appendix II, January 1997.
28 This estimate assumes that, as in the past, the interest income earned in the Local Government Assistance Tax Fund will be offset by contractual costs incurred in the fund.
29 New York State Department of Taxation and Finance, Office of Tax Policy Analysis, op. cit., September 1997; State of New York, Office of the State Comptroller, op. cit., September 1997.
30 New York State Department of Taxation and Finance, Office of Tax Policy Analysis, op. cit., September 1997; State of New York, Office of the State Comptroller, op. cit., September 1997, and State of New York, Office of the State Comptroller, Fiscal Review of the 1997-98 Executive Budget, February 1997.
31 This underlying growth figure is an estimate. Changing it by 1 percent would change the receipts estimate by $2 million.
32 Value of tax cuts is from New York State Department of Taxation and Finance, Office of Tax Policy Analysis, op. cit., September 1997; State of New York, Office of the State Comptroller, Office of Fiscal Research and Policy Analysis, op. cit., September 1997.
33 State of New York, Department of Taxation and Finance, “Income Tax - Monthly Financial Report,” January 1997 through March 1997 editions; State of New York, Office of the State Comptroller, “Comptroller’s Monthly Report on State Funds Cash Basis of Accounting, Month Ended March 31, 1997.”
34 State of New York, Office of the State Comptroller, op. cit., September 1997; New York State Division of the Budget, op. cit., October 1997.
35 FA and SN are projected as a combined caseload due to data limitations.
36 All recipient data are from New York State Department of Social Services, Annual Report and Statistical Supplement, 1984 through 1993 editions; Social Statistics, January 1991 through February 1997 editions; New York City Human Resources Administration, HRA Facts, March through September 1997; and additional data provided by the New York State Department of Family Assistance, formerly the Department of Social Services.
37 Recipient data for April through August 1997 were estimated from New York City recipient data contained in New York City Human Resources Administration, op. cit., April through September 1997. Since the New York City recipients consistently represent a large majority of the total recipients statewide, their number is used to estimate statewide recipients for April through August 1997. Specifically, based on March 1997 data, recipients in New York City are estimated to be 68.5 percent and 76.5 percent of statewide FA and SN recipients, respectively.
38 Spending figures are from the State of New York, Office of the State Comptroller, “Fund Cash Receipts and Disbursements Analysis, by Fund Type, Report Number Fin 220, Period Ending March 31,” 1992 through 1997 editions.
39 Recipient data from New York State Department of Social Services, op. cit.
40 Spending data from State of New York, Office of the State Comptroller, “Fund Cash Receipts and Disbursements Analysis, by Fund Type, Report Number Fin 220, Period Ending, March 31,” 1992 through 1997 editions.
41 Spending data from Ibid.; CPI from US Department of Labor, Bureau of Labor Statistics, “Consumer Price Index for All Urban Consumers (CPI-U) for the New York-Northeastern New Jersey Area.”
42 The monthly average number of eligible persons is used in the projection of eligibles and in the projection of spending per eligible.
43 The Division of the Budget reports that $239.5 million of fiscal year 1998 spending by the Office of Mental Retardation and Developmental Disabilities and $186.1 million of fiscal year 1998 spending by the Office of Mental Health is supported by Medicaid. Moving these disbursements to the Medicaid line in the financial plan increases Medicaid spending from the $5,499 million reported in the Mid-Year Update to $5,925 million.
44 New York State Department of Social Services, op. cit. On a monthly basis, the ratio of Medicaid eligibles to cash recipients is 1.04 for FA, 0.95 for SN, and 1.05 for SSI.
45 Ibid.
46 Ibid.
47 U.S. Department of Labor, Bureau of Labor Statistics, op. cit.
48 Long-term care includes home health services, personal care, and nursing facilities.
49 Data provided by the Health Care Financing Administration.
50 The State’s shares of total program costs are: 41 percent for long-term care/FFP; 81 percent for long-term care/FNP; 25 percent for acute care/FFP; and, 50 percent for acute care/FNP. Data provided by staff at New York State Department of Health.
51 Actual data are not yet available. The New York State Education Department reports that enrollment increased 34,155 between Fall 1995 and Fall 1996. Since growth is expected to continue at approximately the same rate, enrollment is assumed to increase 34,000 between Fall 1996 and Fall 1997.
52 State of New York Office of the State Comptroller, Office of Fiscal Research and Policy Analysis, op. cit., September 1997.
53 This is equal to the annual rate of change between fiscal years 1996 and 1998, after adjusting for inter-year transfers.
54 Collective bargaining agreements and descriptions of compensation agreements provided by the Governor’s Office of Employee Relations and the Office of Court Administration, Office of Management Support.
55 Assumes there were 165,000 general fund employees, 80,000 of which are in DOCS (30,000), SUNY (36,000) and OCA (14,000) and did not receive the one-time payment. Therefore, 85,000 employees received $700 payments.
56 This is calculated by removing from the fiscal year 1998 disbursement spending associated with one-time payments and employees not receiving mid-year increases. Then, one-half of the 3.5 percent contractual increase is calculated.
57 One-half of 3.5 percent of the fiscal year 1998 personal services disbursement (minus the estimated DOCS and SUNY disbursement) equals $49 million.
58 Estimated DOCS personal service spending in fiscal year 1998 is $1,197 million and the 1.5 percent associated with salary steps, increments, and promotions is valued a $18 million; one-half of 3 percent of $1,215 million is $18 million.
59 Estimated SUNY annualized personal service spending in fiscal year 1998 is $531 million and the 1.5 percent associated with salary steps, increments, and promotions is valued a $8 million; one-quarter of 3.5 percent of $539 million is $5 million. 60 Data provided by DOCS.
61 Division of Criminal Justice Services, Capacity Options Plan, January 14, 1997; population projections include the impacts of 1995 and 1996 sentencing reforms.
62 Office of the State Comptroller, Office of Fiscal Research and Policy Analysis, op. cit., September 1997.
63 State of New York, Office of the State Comptroller, “Report to the Director of the Budget, The Chairman of the Assembly Ways and Means Committee and the Chairman of the Senate Finance Committee, as Required by Section 16 of the Retirement and Social Security Law,” October 15, 1997.