2012-13 Executive Budget Governor Andrew M. Cuomo

January 17, 2012 Robert L Megna, Director of the Budget

I. Economic Overview II. Financial Plan Summary III. Reforms

I. Economic Overview

4.1

2.5

3.7

4.5 4.4

4.8

4.1

1.1

1.8

2.5

3.5 3.1

2.7

1.9

-0.3

-3.5

3.0

1.7

2.2

2.9

3.6 3.3

2.8 2.7

-4

-3

-2

-1

0

1

2

3

4

5

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Perc

en

t ch

an

ge

GDP CPI

Outlook for Real U.S. GDP Growth and Inflation

Note: Displayed values pertain to GDP growth. Source: Moody’s Analytics; DOB staff estimates.

Estimate/Forecast

0

1

2

3

4

0

1

2

3

4

Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12

BC GI MA

Economic Outlook Weakens GDP Forecast for 2012

Percent change

Source: Global Insight; Macroeconomic Advisors; Blue Chip.

• Economic forecasters have been continuously revising their outlooks for 2012

downward; on average, forecasts for real 2012 U.S. GDP growth have fallen from

over 3% to about 2%.

5

6

7

8

9

10

11

1989 1993 1997 2001 2005 2009

$ T

, S

AA

R

Real Personal Income Minus Transfers Total Employment

Industrial Production Real Manufacturing and Trade Sales

100

110

120

130

140

1989 1993 1997 2001 2005 2009

Mil

lio

ns

60

65

70

75

80

85

90

95

100

105

1989 1993 1997 2001 2005 2009

In

de

x

600

700

800

900

1,000

1,100

1989 1993 1997 2001 2005 2009

$ B

, S

AA

R

Note: Shaded areas represent U.S. recessions.

Source: Moody’s Analytics.

0

200

400

600

800

1000

1200

1400

1600

1800

2000

0

100

200

300

400

500

600

Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12

Th

ou

san

ds

Th

ou

san

ds

Multi-family starts

Single family starts (right axis)

Home buyers

credit expires

2008-2010 Avg.

household formation rate

Source: Moody’s Analytics.

Single Family Housing Market Still Weak

1996-2007 Avg. household formation rate

-60

-40

-20

0

20

40

60

80

0

10

20

30

40

50

60

1999 2001 2003 2005 2007 2009 2011

Pro

fits in

$ B

illion

s

State Fiscal Year Ending

Finance and Insurance Bonuses

Securities Industry Profits

Weak Wall Street Profits Lead to a Decline in Bonuses

Note: Values for profits pertain to the prior calendar year; estimates for 2011 assume that profits for

the fourth quarter will be equal to the third quarter.

Source: NYS Department of Labor; SIFMA; DOB staff estimates.

Bo

nu

ses i

n $

Billio

ns

• Securities Industry profits are expected to decline over 75 percent during 2011. The

Finance sector bonuses are expected to decline 31.8 percent during SFY2011-12.

0

5

10

15

20

25

1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014

Perc

en

t

State Fiscal Year Ending

Employment Share

Wage Share

Finance Sector Has an Outsized Impact on State Revenue

Source: NYS Department of Labor; DOB staff estimates.

Forecast

• The finance sector has 5% of total employment but about 20% of total wages.

70

80

90

100

110

120

0

5

10

15

20

25

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

Net C

reatio

n In

dex (%

) R

ate

s o

f Jo

b C

reati

on

an

d D

estr

ucti

on

(%

) NYS Private Sector Employment Dynamics

Net creation index (right scale)

Job creation index

Job destruction index

Source: NYS Department of Labor; DOB staff estimates.

0

5

10

15

20

25

1982Q1 1986Q1 1990Q1 1994Q1 1998Q1 2002Q1 2006Q1 2010Q1

Perc

en

t

Midtown Manhattan

Downtown Manhattan

Office Vacancy Rates

Source: Moody’s Analytics; CBRE.

The Indicators of New York State’s Tax Base

-15

-10

-5

0

5

10

15

20

1999 2001 2003 2005 2007 2009 2011 2013

Perc

ent

change

Personal Income NYSAGI PIT Liability

Forecast

Note: Personal income tax (PIT) liability is computed based on 2002 NY State tax law; 2010

liability and NYSAGI data are preliminary.

Source: NYS Department of Taxation and Finance; Moody's Economy.com; DOB staff estimates.

Forecast Risks

• The global economy is slowing

• Financial markets becoming increasingly volatile

• Labor market yet to provide momentum to the U.S. economy

• Households still deleveraging

• Housing market still weak with risk from foreclosures

• Energy prices on the rise again

• Fiscal policy uncertainty a negative for the economic outlook

II. Financial Plan Summary

State Operating Funds 2012-13 Executive Budget - $88.7 Billion

Taxes 73%

Misc Receipts/

Other 27%

Where it Comes From

Medicaid (All

Agencies)* 25%

School Aid 22%

Other Local

Assistance 24%

Agency Operations

22%

Debt Service

7%

Where it Goes

* Includes local assistance, state operations and fringe benefits.

All Funds 2012-13 Executive Budget - $132.5 Billion

Medicaid (All

Agencies)* 36%

School Aid 18%

Other Local

Assistance 24%

Agency Operations

12%

Capital 5%

Debt Service

5%

Where it Goes

* Includes local assistance, state operations and fringe benefits.

Taxes 49%

Misc Receipts/

Other 20%

Federal Grants

31%

Where it Comes From

2012-13 Executive Budget Overview

• Budget gap for 2012-13 was $3.5 billion – upper end of range in Mid-Year Update

• Tax reform reduced the budget gap by $1.5 billion, leaving $2.0 billion that must be closed by the Executive Budget

• Gap-closing plan of $2 billion consists entirely of proposals to control spending

• Total State Operating Funds (“SOF”) spending growth is held to 1.9%

– Local aid grows at 2.6%

– Agency operations decline by 0.4%

• School Aid and Medicaid grow at 4%, consistent with 2011-12 caps

• Budget leaves a 2013-14 gap of $715 million, equal to about 1.2% of projected General Fund receipts -- by comparison, the 2011-12 gap equaled about 18% of receipts

Budget Gaps: Before Gap-Closing Plan

$90.8

$94.3

$97.5

$100.7

$86.9 $87.3

$90.7

$92.5

$96.5

$85

$90

$95

$100

2012 2013 2014 2015 2016

State Operating Funds Spending

Available Resources

$3.6 Gap

4.5%

3.9%

3.4%

3.3%

$4.2 Gap

$5.0 Gap

$3.5 Gap

Dollars in billions.

Annual Growth Local Assistance Programs (SOF)

Before and After Executive Budget

BEFORE AFTER

LOCAL ASSISTANCE 3.9% 2.6%

SCHOOL AID (School Year Basis) 4% 4%

MEDICAID 4% 4%

SOCIAL SERVICES 7.3% 2.1%

MENTAL HYGIENE 7.7% -0.1%

HIGHER EDUCATION 3.3% 2.2%

Annual Growth (SOF) Executive Agencies

2012-13

Annual Change

STATE OPERATIONS (PS/NPS ONLY) -1.0%

CORRECTIONS -3.3%

ENVIRONMENTAL CONSERVATION -1.0%

HEALTH 1.3%

MENTAL HEALTH -0.2%

OPWDD -0.6%

Budget Gaps: After Gap-Closing Plan

$88.7

$92.6

$95.8

$99.4

$87.0

$91.9

$92.8

$95.7

$85

$90

$95

$100

2012 2013 2014 2015 2016

State Operating Funds Spending

Available Resources

$0.7 Gap

1.9%

4.4%

3.5%

3.8%

$3.7 Gap

$3.0 Gap

Dollars in billions.

Gap-Closing Plan for 2012-13 Dollars in Billions

Spending Control

57%

Tax Reform/

Job Growth

43%

TAX REFORM/JOB GROWTH: $1.5

Rate/Bracket Reform: +$1.9

MTA Payroll Tax: -$0.25

Tax Credits: -$0.045

Programs: -$0.1

SPENDING CONTROL: $2.0

Agency Operations: $1.1

Local Assistance: $0.8

Debt Management: $0.1

Agency Spending Controls 1.14

Agency/Independents 0.84

Enterprise/Consolidations 0.10

Health Insurance Rate Renewal 0.13

Fringe Benefits (New Proposals) 0.07

Local Assistance Spending Controls 0.76

Human Services COLA/Trends 0.15

Mental Hygiene 0.17

Social Services/Housing 0.14

Public Health 0.11

All Other Local Programs 0.19

Debt Management 0.14

Investments/New Initiatives (0.07)

Total Spending Controls 1.97

SPENDING CONTROL ($BIL)

SPENDING CONTROL -- $2B

Annual Spending Growth

1.9%

-0.2%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

State Operating Funds All Funds

State Operating Funds Growth = 1.9%

$ %

TOTAL STATE OPERATING FUNDS 87,048 88,734 1,686 1.9%

Local Assistance Grants 57,548 59,061 1,513 2.6%

School Aid (Fiscal Year) 19,677 20,002 325 1.7%

Medicaid (DOH) 15,280 15,859 579 3.8%

Transportation 4,257 4,398 141 3.3%

All Other 18,334 18,802 468 2.6%

State Operations/Fringe Benefits 23,623 23,519 (104) -0.4%

Personal Service 11,876 11,964 88 0.7%

Non-Personal Service/Other 5,211 5,167 (44) -0.8%

Pension Contribution 1,680 1,574 (106) -6.3%

Employee/Retiree Health 3,291 3,240 (51) -1.5%

Other Fringe Benefits 1,565 1,574 9 0.6%

Debt Service 5,872 6,149 277 4.7%

Capital Projects 5 5 0 0.0%

FY 2013

Proposed

Ann. Change

STATE OPERATING FUNDS TOTAL

(millions of dollars)F

Y

2

FY 2012

Current

1. School Aid increase if $805M (4%) on School Year Basis. 2. Medicaid excludes NPS costs (shown in State Operations) and includes administrative takeover savings.

Excluding these factors, Medicaid spending grows by 4% over 2011-12.

State Workforce

135,600 125,800 121,900 121,800

0

25,000

50,000

75,000

100,000

125,000

150,000 All Funds Total FTEs *

* Subject to Direct Executive Control

NY Works Fund

Source

State $1.3 billion $723 million new capital $600 million existing capital accelerated

Federal $1.7 billion Combination new and accelerated Federal aid (e.g. dam & municipal water systems)

Authority $5 billion $4 billion

New Tappan Zee Bridge Existing capital accelerated (e.g. NYSERDA & PA)

Private $3 billion Leveraging new private investment

TOTAL $15 billion

A Fundamental Change in New York’s Spending Habits

$95.0

$102.4

$108.1

$113.0

$118.1

$85.1 $87.0

$88.7

$92.6

$95.8

$99.4

$85

$95

$105

$115

2011 2012 2013 2014 2015 2016

One Year Ago

Today

$10.0

$0.0

$14.9

$3.5

Before After

2011-12 Budget

FY 2012 FY 2013

Declines in Two-Year Budget Gaps 2011-12 and 2012-13

$21.4 B 86%

Reduction

$3.5

$0.0

$3.6

$0.7

Before After

2012-13 Budget

FY 2013 FY 2014

$6.4 B 90%

Reduction

III. Reforms

Enterprise Shared Services 8 to 1 Return on Investment

$110 million in cost reductions in 2012-13

$ in Thousands Five Year Total

Required Investments: (134,757)

Savings:

Procurement 755,000

Real Estate 69,000

Business Services 115,000

Information Technology 160,000

Savings Subtotal

1,099,000

NET ANNUAL SAVINGS 964,243

Mergers and Consolidations

• Division of Lottery and Racing and Wagering Board

• Civil Service and the Governor’s Office of Employee Relations

• Department of Tax and Finance will assume the debt collection functions of HESC

• Department of Transportation will consolidate regional offices

• Management of Belleayre Ski Center will move from DEC to the Olympic Regional Development Authority

• Eliminate more than 25 boards and commissions that are no longer active

• Use flexible State Operations appropriation language to enable further consolidations

Single Contract Reform

Currently:

• 20 agencies use over 50 independent systems or databases to manage the grant contracting process

• 71 percent of new and renewal grant contracts with not-for-profits were approved after the start or renewal date

Executive Budget Recommendations:

• Develop standard Master Contract for Grants

• Develop single application to apply for grants

• Implement a Statewide Grants Management Portal to standardize grant application, contract, payment and reporting activities

• Implement rigorous vendor performance management process that holds vendors accountable against the Service Level Objectives

The existing grant application and contract process is overly complex, the payment system is cumbersome and causes delays and there is no

relation to outcome-based performance standards

Controlling Executive Compensation and Administrative Costs in Service Providers

• At least 85 percent of every public dollar will be spent on direct services, not administration

• Reimbursement for any executive’s compensation will be capped at $199,000

• Excess compensation will be a basis for rejection of a provider

One-third of the State budget goes to non-profit and for-profit agencies to provide services on behalf of the State

Local Medicaid Relief Saves Counties and NYC $1.2 billion over 5 years

($ in millions) 2012-13 2013-14 2014-15 2015-16

Local Cap

Growth 3% 2% 1% 0%

Local Benefit/

State Cost $0 $61.1 $187.0 $369.6

Executive Budget Recommendations:

• The State will take over growth in the local share or Medicaid expenses

• Phased takeover of the local government Medicaid administration expense

Pension Reform Save Public Employers $83 billion over 30 years

Plus $30 billion in savings over 30 years for NYC

• Increase salary contributions from 3 percent to 4, 5, or 6 percent based on salary

• Implement a risk/reward system which would tie contributions to economic conditions

• Raise the retirement age from 62 to 65

• Decrease the pension multiplier and exclude overtime for the formula to calculate final average salary

• Create a voluntary new defined contribution option

Pre-School Special Education Reforms State costs have doubled over the past ten-years

School districts make most programmatic decisions but do not share in costs

Pre-School Special Education reforms will save counties $20 million in the 2013 local fiscal year Executive Budget recommendations:

• Assign any county growth (excluding NYC) above the 2011-12 school year equally to the State, county and school district

• Current split is 59.5 percent State, 40.5 percent county

• Eliminate potential conflicts of interest in the current evaluation system

Pre-School Special Ed Growth

Early Intervention Reforms Significant fiscal and administrative relief

without impacting services

Early Intervention Reforms will save local governments $99 million over five years

Executive Budget recommendations:

• Expand insurance coverage to include EI service providers

• Centralize fiscal oversight through a fiscal intermediary

• Reduce local costs and improve timeliness of State reimbursement Insurance

3%

Medicaid (Federal)

27%

Medicaid (State)

22%

Local Share 22% Non-

Medicaid State Share 26%

Total Cost of Current System is $643 million

$805 Million School Aid Increase

$250 million for

Performance Grants

Additional aid for results in academic

gains and management

efficiency $265 million For

Reimbursable Costs

Reimburse expenses like

school construction and transportation

$290 million for

General Support

Targeted to high need school

districts

56%

69% 76%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Enrollment 2012-13 TotalSchool Aid

2012-13 AllocatedYear-to-Year

Increase

Allocated School Aid Increase is Targeted to High Need School Districts

2012-13 Executive Budget Governor Andrew M. Cuomo

January 17, 2012 Robert L Megna, Director of the Budget