State Budget Update

On December 2, the State Assembly and Senate passed a Deficit Reduction Plan (DRP) worth $2.7 billion - yet this does not fully address the current year deficit which is estimated to be closer to $3.9 billion at this time. Noting that this does not cover the immediate cashflow issue, the Governor stated that he will direct the Division of the Budget (DOB) to reduce State aid payments administratively in order to balance the budget and prevent New York from running out of cash. He also said that he will continue to meet with DOB and Comptroller DiNapoli to assess the current cash-flow and revenue situation and that he will announce the specific local assistance reductions to be implemented unilaterally once that assessment is complete. Paterson insists he has the power to withhold cash, yet others believe he is constitutionally required to make payments as long as the state has cash on hand, so this may not be the end of this issue.

DOB has released a detailed, estimated summary of cuts from the legislature's enacted DRP available at the following link:
http://www.budget.state.ny.us/pubs/press/2009/FINAL_DRP_LOCALASSISTANCE_REDUCTIONS.pdf

Reductions in local assistance programs are on the remaining unspent disbursements for fiscal year 2009-10 as of November 1, 2009. Additionally, NYC's Aid to Municipalities is reduced by $26.2 million, down from $327.8 million. The Governor has released the following fact sheet as well:

Fact Sheet: $2.7 Billion Enacted Deficit Reduction Legislation

According to Division of the Budget analysis, the enacted deficit reduction legislation is projected to achieve $2.7 billion in current-year savings. Major components of that plan include the following.

Local Assistance Savings (2009-10 Savings: $550 million)
A total of $550 million in local assistance savings are achieved through a combination of a 12.5 percent across-the-board reduction to remaining 2009-10 fiscal year spending in certain programs ($390 million) and other targeted actions ($160 million). A full listing of reductions is available at http://www.budget.state.ny.us/pubs/press/2009/FINAL_DRP_LOCALASSISTANCE_REDUCTIONS.pdf

The 12.5 percent across-the-board cuts to certain local assistance programs ($390 million) will have the following fiscal impacts by policy area:

• $18.1 million reduction to social services programs;
• $36.9 million reduction to education and arts programs outside of School Aid;
• $41.2 million reduction to health care and aging programs outside of Medicaid;
• $112.5 million reduction to mental hygiene programs;
• $17.4 million reduction to higher education programs;
• $156.8 million reduction to transit programs; and
• total of $7 million in other reductions.

The $160 million in targeted local assistance savings include the following actions:

Reducing Aid and Incentives to Municipalities (AIM) funding for non-calendar year cities through a sliding scale (between 1 and 8 percent) based on the city's overall reliance on that aid. Municipalities with a higher reliance on AIM will receive smaller percentage reductions ($31.6 million State savings).
Reducing anti-tobacco funding ($10 million State savings).
Eliminating the 2010 trend (inflation) factor for hospital, nursing home, home care, and personal care providers during the first quarter of the calendar year ($11.5 million State savings).
Authorizing nurses to increase the supply of prescription medicine for home care patients from 8 days to 15 days, thus lowering the frequency of necessary visits ($2.7 million State savings).
Administratively reducing Medicaid and EPIC pharmacy reimbursement rates to account for the terms of the First Data Bank litigation settlement ($18.5 million State savings).
Reflecting a reestimate of expected health care costs ($9.5 million State savings).
Delaying scheduled HEAL NY spending in the current year ($45 million State savings).
Lowering the State General Fund subsidies for the cost associated with mental health parity coverage by 30 percent ($10 million State savings).
Reducing funding for managed care quality incentives ($5.4 million); cervical vaccines ($1.7 million); emergency contraception ($200,000); teacher centers ($4.0 million); mortgage foreclosure assistance ($3.1 million); a disease management demonstration program ($2.8 million); pay-for-performance incentives to health care providers ($3.6 million); and new shared services efficiency grants ($500,000).

Tax Penalty Forgiveness Program (2009-10 Savings: $250 million)
The Department of Taxation and Finance will partially forgive accrued penalty and interest on long-outstanding State tax liabilities in order to encourage individuals to resolve unpaid claims. For assessments between 3 years and 6 years overdue, penalties would be reduced by 50 percent. For assessments overdue more than 6 years, penalties would be reduced by 80 percent. This initiative would provide much-needed revenue to the State, while helping taxpayers repair their credit histories and avoid costly legal action. It is expected that the limited forgiveness period would take place in the last quarter of 2009-10. Local governments would receive a fiscal benefit of approximately $84 million from their share of these previously uncollected taxes.

Regional Greenhouse Gas Initiative (RGGI)/EPF/DASNY Transfers (2009-10 Savings: $126 million)
The DRP includes provisions to transfer $90 million in RGGI proceeds, $10 million from the Environmental Protection Fund (EPF), and $26 million from the Dormitory Authority to the General Fund.

Accelerate Use of Education Stimulus Funding (2009-10 Savings: $391 million)
The Deficit Reduction Plan would accelerate the use of $391 million in American Recovery and Reinvestment Act (ARRA) funding for School Aid from the 2010-11 school year to the 2009-10 school year.

Agency Reductions (2009-10 Savings: $484 million)
Governor Paterson previously ordered an 11 percent reduction in each State agency's non-personnel services budget.

Battery Park City Authority (2009-10 Savings: $200 million)
The DRP authorizes the Battery Park City Authority (BPCA) to contribute $200 million to the General Fund.

VLT Franchise Payment (2009-10 Savings: $200 million)
The DRP assumes that the winning Aqueduct Video Lottery Terminal bidder will make a franchise payment of at least $200 million in the 2009-10 fiscal year.

Medicaid Fraud Targets (2009-10 Savings: $150 million)
More aggressive Medicaid fraud recovery targets will be set for the Office of Medicaid Inspector General (OMIG).

Debt Management (2009-10 Savings: $100 million)
The State will realize savings compared to its debt service estimates from refundings, the use of Build America Bonds ("BABs"), and relatively low interest rates on its variable rate bonds.

18-A Assessment Reestimate/Dormant Funds (2009-10 Savings: $50 million)
Reflects an upward reestimate of the amount of revenue ($45 million) that will be collected from the increased 18-A utility assessment enacted in the 2009-10 budget. Additionally, $5 million in funds held in dormant accounts are expected to be made available to the General Fund.

Workers Compensation Surplus Recapture (2009-10 Savings: $49 million)
Certain insurers have indicated their intention to remit excess funds under legislation enacted as part the 2009-10 budget.

Other Actions (2009-10 Savings: $150 million)
A number of potential actions will be implemented to achieve savings in the current year. Potential actions include the in-sourcing of information technology activities pursuant to legislation to modernize civil service rules; further controls on specific agency activities; the use of funds currently earmarked for debt management purposes; and other initiatives.

Attention all Service Providers:
Urgent Budget Alert

The state budget, theoretically in balance when adopted for the current fiscal year which began on April 1, 2009, has already been declared to be short by at least $3.2 billion this year, with an additional gap of $6.8 billion for next fiscal year. Furthermore, the New York State Department of Budget now estimates that the cumulative long-term gap is as high as $38 billion, which takes into account the sunset of federal Recovery Act funds after FY2010-11. The New York State Legislature has expressed general agreement with these estimates and will convene in Albany beginning on November 10, 2009 for special sessions to put into action a $5 billion Deficit Reduction Plan (DRP) to close current- and out-year gaps.

Governor Paterson recently said: "Revenues have continued to plummet below already conservative projections and immediate action is needed to restore the fiscal integrity of our State budget. Delaying the tough choices we must inevitably make will do nothing besides make those choices more difficult."

The implications of New York State's worsening fiscal situation and pending actions in Albany have dire implications for community-based organizations' current and ongoing operation of human service programming through contract with state – and city – agencies. Already included in the Governor's proposed DRP are across-the-board cuts to state agencies (and likewise to state human service and local aid funding streams) of 11 percent , with an additional $2.5 billion in cuts to state agencies yet to be allocated. Because these cuts will be implemented with the fiscal year already more than half over, their impact will be compounded. It is important to note, also, that because the State's DRP will cut both direct state funding and local aid, New York City programs could see an impact in both state contracts and city contracts which include state dollars.

As an example, consider a typical New York City school-based afterschool program which is financed through a diverse mix of city, state, federal and private grants and contracts. Such a program could see reductions across numerous funding streams as a direct result of the pending state action. This could include reductions in:

• Advantage After School (NYS OCFS)
• School Violence Prevention (NYSED)
• State Legislative Discretionary Grants (aka "Member Items")
• Out-of-School Time (NYC DYCD – while OST is a city funding initiative, it includes state funds that flow from the state through Aid to Localities, including State Youth Development Delinquency Prevention funds)
• Reduced local aid to the city coffers, and likewise, to city agencies including DYCD and DOE could have further impacts in such ways as limiting or eliminating public school space now made available for OST programs at no charge to the CBO provider.

This is without even accounting for further local actions that may be taken by the Mayor and City Council to close mid-year gaps in the city's own budget. Current projections estimate the city's budget deficit at $5 billion for FY2011.

Cuts to current contracts resulting from the State's impending action could hit as early as December 2009/January 2010, with immediate impact to existing services.

At this time, we urge service providing organizations to consider taking the following actions:

Advocacy:

• Contact your state and city elected representatives to appraise them of the service areas that you would want them to prioritize as budget processes move forward. Ask them to spare critical programs and services (give specific recommendations as much as possible). Consider urging that cuts be targeted rather than across-the-board, especially when cuts are deep.
• If possible, provide your elected representatives with a sense of how a 10, 20 or 30 percent reduction in your core funding streams would impact on the services you currently provide – and what these impacts would mean on the families you serve (families that he/she represents).
• Ask your legislators to keep you abreast of budget decisions that would impact on the families and communities you serve as well as specific funding streams.

Contingency Planning:

• If you have not done so already, begin planning for various contingencies, including scenarios that include losses in current-year resources.
• Do not hesitate to contact your funders, both public and private, to ascertain what options are available in how you may use existing resources in order to preserve core services. For example, you may be able to apply resources more flexibly than initially intended, such as converting funds from project-specific to general operating.
• Seek out assistance in this process. There are a number of organizations in the City that are poised to provide technical assistance with the hard decisions you may face. Contact your funders, city agencies and any umbrella networks your organization may belong to ascertain what help may be available to you. For example, CRE is helping nonprofits which are under pressure to preserve services during the recession by:
  • determining what is core programming,
  • developing contingency budgets,
  • taking tangible steps to preserve talent in a resource-constrained environment,
  • forming collaborations through which to share/exchange space, staffing, programming or materials with other nonprofits, and
  • thinking creatively about the situation to identify new possibilities.

CRE can work with you, one on one, to support your decision-making or be a thought partner with you on strategy. Contact CRE at intake@crenyc.org; or 212-894-3395. CRE's website is www.crenyc.org. CRE has also set up an Executive Director advice line at 917-344-6678.