“This year’s state budget follows two years of unprecedented economic disruptions caused by the pandemic,” DiNapoli said. “The state’s fiscal position is currently strong, but there is extraordinary uncertainty worldwide. As new economic risks emerge and federal funding is spent down, sustaining large new recurring spending may be difficult and may not track with anticipated growth in state revenues. This makes it imperative to follow through with plans to bolster state rainy-day reserves.”

DiNapoli’s review is based upon the enacted budget bills, preliminary estimates for SFY 2022-23 from the Executive and the Legislature, as well as actual results from the three prior state fiscal years.

Spending Overview

All Funds spending in SFY 2022-23 is projected to be 5.3% higher than actual results from SFY 2021-22 and nearly 27.5% higher than SFY 2019-20, the last full fiscal year before the onset of the pandemic, an increase of $47.5 billion over the period.

Education and Medicaid are the largest components of the budget and typically the largest drivers of spending growth. School aid is expected to rise from $28.8 billion in school year 2021-22 to $30.9 billion in school year 2022-23, a 7.2% increase. Allowable spending under the Medicaid global cap is expected to total $25.9 billion in SFY 2022-23 and to rise by $262 million to $27.7 billion for SFY 2023-24.

Other notable spending increases in SFY 2022-23 are intended to address impacts of the pandemic, including $2 billion in one-time pandemic-related assistance for multiple initiatives, including an additional $800 million for the Emergency Rental Assistance Program, $800 million for hospitals continuing to face financial distress due to care provided during the pandemic, an additional $250 million for utility bill arrears, and $125 million for homeowner and landlord assistance.

Revenue Overview

All Funds revenues for SFY 2022-23 are projected to total $210.6 billion, 18.7% higher than SFY 2019-20. Revenues in SFY 2021-22 were bolstered by substantial federal aid and tax collections that rebounded sharply, as the financial markets remained strong, financial sector bonuses grew, and the recovery of jobs continued.

In addition, increased tax rates on businesses and high-income taxpayers beginning in 2021 generated an estimated $750 million in corporate franchise taxes and an estimated $2.7 billion in personal income taxes in SFY 2021-22. The rate increases will sunset in 2023 and 2027, respectively.

All Funds revenues are projected to decrease by $33.8 billion, or 13.8%, in SFY 2022-23 due to numerous factors including slowing economic growth, declining federal aid, and newly adopted provisions that will reduce tax collections, including one-time property tax rebates, the partial suspension of state gas taxes and the acceleration of middle-class personal income tax rate reductions.

Debt Implications

The enacted budget adds $21.7 billion in “backdoor borrowing” debt authorizations above last year’s level, which will be undertaken by public authorities on behalf of the state. These may further reduce available state debt capacity under the Debt Reform Act limitations. The budget excludes $2.35 billion in new debt expected to be incurred for the Gateway Program from the state’s debt cap, on top of $19 billion in debt issuances that have been excluded from the cap over the past two years.

Reserve Funds

At the close of SFY 2021-22, the state added $843 million to its statutory rainy-day reserve funds, bringing the total balance to $3.3 billion, an amount equal to 3.7% of General Fund spending.

The enacted budget includes authorization to increase the maximum balance of the rainy-day reserve fund from 5 to 15% of General Fund spending. It also increased the maximum allowable annual deposits from 0.75% to 3% of General Fund spending.

Transparency, Accountability and Oversight

Several appropriations and reappropriations included in the enacted budget eliminate the State Comptroller’s contract pre-review oversight authority and waive competitive bidding for state contracts. Examples where the oversight and competitive bidding are eliminated total at least $11 billion including a $6 billion appropriation to cover services and expenses related to the COVID-19 outbreak and $2 billion to fund “unanticipated emergencies.”

The enacted budget includes new federal and emergency appropriations totaling at least $18 billion that are unnecessarily opaque with respect to how the state would use these funds. These broad-scoped appropriations may leave the allocation of such funds almost entirely to Executive discretion. The budget also expands the state’s use of lump-sum and other broad-scoped appropriations for yet-to-be-determined projects and purposes, adding more than $1.7 billion for various undefined capital projects.

The enacted budget also includes authorization for the state Division of Budget (DOB) to sweep up to $700 million from unspecified dedicated funds to the General Fund. More than $2.1 billion has been swept from these funds using similar authority since SFY 2007-08.

DiNapoli’s office will provide an in-depth analysis of operating spending, capital commitments and debt affordability after DOB releases the state’s financial plan.

Full Report
State Fiscal Year 2022-23 Enacted Budget Review

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