Citizens Budget Commission

CITIZENS BUDGET COMMISSION

1 Penn Plaza * Suite 640 * New York, NY 10119

Contacts: Carol Kellermann (New York City) Elizabeth Lynam (Albany)

212-279-2605, 322 347-743-7784

NEW YORK STATE COULD SAVE $4.7 BILLION DOLLARS ANNUALLY

BY REFORMING EXPENSIVE PROGRAMS

Available Options Would Go Far To Close The State’s Looming Budget Gaps

New York, NY – July 31, 2008 – In response to Governor David Paterson’s call to action on New York State spending, the Citizens Budget Commission (CBC) released today a list of options that would generate more than four billion dollars in annual savings for New York State. The options are:

1. Restructure Medicaid to target benefits to the neediest New Yorkers (for annual savings of $1.8 billion).

New York spends far beyond national norms for its Medicaid program in total and per beneficiary. New York accounts for over 14 percent of Medicaid spending nationally while covering 8.6 percent of all beneficiaries. New York’s spending per beneficiary, $7,910, is nearly 69 percent above the national average. Options for savings include the following:

Reduce non-competitive institutional rates ($758 million). Rates paid to hospitals and nursing homes in New York State are higher than national norms even after adjusting for differences in the cost of living and the health of patients.

Close eligibility loopholes for the non-poor ($454 million). More generous long-term care eligibility contributes significantly to unusually high Medicaid costs.

Reduce excessive utilization of some services and improved management of care for high-cost populations ($609 million). The hours of personal care services provided by Medicaid in New York are beyond reasonable levels, relative to national standards.

2. Reduce State operations costs by renegotiating fringe benefits for employees and retirees ($930 million).

Many government workers are now paid more than their private-sector counterparts – the generous health insurance and retirement packages developed to attract them to work in the public sector are no longer justified. As a result, the following changes are proposed:

Health insurance restructuring ($714 million). If the State were to bring its practices more in line just with other public-sector employers, it would require an additional 4 percent contribution toward family plan premiums for post-1983 hires. This would save the State an estimated $75 million annually. For retirees, New York could require a 50 percent contribution toward premiums and eliminate repayment for Medicare Part B premiums to save $639 million.

Pension restructuring ($216 million). New York State employees and retirees also have unusually generous pension benefits compared to other public and private-sector workers. State-required pension contributions more than quadrupled from $274 million in 2002 to $1.1 billion in 2006. While changing the pension benefits of current employees would require an amendment to the New York State Constitution, pension benefits for new employees can be changed legislatively. The creation of a new “tier” for future employees would address this problem and eventually save $216 million.

3. Eliminate ineffective economic development programs ($826 million).

End the Empire Zones Program ($582 million). A 2004 audit by the State Comptroller’s Office found that 23 percent of businesses receiving empire zone tax credits reduced employment, while only 30 percent of recipients met or exceeded their employment targets.

Scale back the Centers of Excellence (CoE) program ($244 million). The State has made funding commitments for the CoE program through 2006 of $586 million. Of that, $342 million is slated to go to the somewhat successful center at UAlbany, while the remainder will be spread around the other less successful centers. The State could scale back the size of the program to fund only UAlbany and shut down the others for a savings of $244 million.

4. Eliminate school aid to the wealthiest districts ($389 million). Per pupil property wealth in the richest 10 percent of school districts is 30 times the property wealth in the lowest 10 percent. Most of these wealthy districts can raise adequate revenues without taxing themselves at above average rates. In addition, hold harmless provisions and high tax aid direct more state aid to districts that would otherwise qualify for less aid. School aid for the wealthiest districts and provisions that work against equity should be eliminated.

5. Increase the employee work week to 40 hours ($227 million). The typical schedule for non-managerial civilian employees in New York State government is 37.5 hours per week. Increasing their weekly hours to 40 would allow for productivity gains through reduction of the workforce.

6. Develop a comprehensive capital plan to help provide spending discipline ($96 million by the third year). No one agency is responsible for centralized capital planning or strategic capital asset management in the State. The State should develop a more coordinated capital planning process to reconcile competing needs. A 10 percent reduction in annual capital outlays would translate to $96 million in debt service savings by the third year.

7. “Rightsize” operations at the Department of Correctional Services ($410 million).

Close unneeded facilities ($310 million). Since 1999, the inmate population in New York has fallen 11 percent, yet the number of staff at the Department of Correctional Services has remained flat. Closing facilities and utilizing the remaining facilities at full capacity would result in significant cost savings.

Implement additional successful alternatives to incarceration ($100 million). The development and expanded use of alternatives to incarceration would allow additional correctional facilities to be closed by reducing the number of incarcerated individuals.

“Powerful special interests will be aligned against these savings options,” said CBC President Carol Kellermann. “But the State’s ballooning budget gaps require more than a business-as-usual response. Now is the time to confront the challenge and put the taxpayers first.”

For a summary table with details of these savings estimates click here.

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 governments.