State faces  $6 billion  budget gap,  mulls cuts

Cuomo

ALBANY — Against the backdrop of a national economy that has expanded for much of the past decade, New York leaders are scrambling to address a projected $6 billion budget deficit, much of it driven by escalating Medicaid spending.

In the decades since the state government was overseen by the late Gov. Nelson Rockefeller, "what we are experiencing now is unique in that we have fiscal strain at a time when the economy is fine," said E.J. McMahon, director of research for the Empire Center for Public Policy, an Albany think tank.

When lawmakers return to the statehouse in January, they are expected to be dealt a challenging hand.

They will have to work with Gov. Andrew Cuomo in crafting a balanced budget that will have to address the rise in Medicaid costs while attempting to spare popular public services from cuts at the same time they try to avoid raising taxes.

"It's going to get ugly," said Assemblyman John Salka, R-Madison County, whose district includes the city of Oneonta. "The trend seems to be that we have less on our line of credit and we're borrowing more, and it's not getting better."

The current annual state budget is $175 billion — about $100 billion of which is for operating funds.

McMahon pointed out that the two biggest components of operating funds are state aid to public schools and Medicaid, accounting for about half of the total. As such, they will likely face close scrutiny in the upcoming budget debate.

Another area of concern for some budget hawks is the state's effort to stimulate job growth through taxpayer-funded economic development grants. Some projects that have received grants in recent years, they argue, have failed to deliver on the state's publicly stated projections for job creation.

"Some of these one-shot attempts to revive a regional economy by building a massive plant for a company haven't produced the results we would have hoped for," said David Friedfel, director of state studies for the Citizens Budget Commission, a watchdog group.

Friedfel suggested that the funds poured into regional "silver bullet" efforts to prop up local economies could have been better spent by building state financial reserves or trying to identify ways to contain the state's share of Medicaid spending.

Numerous cities across the state in recent years have landed $10 million downtown revitalization grants from the Cuomo administration. Friedfel suggested that program has attempted to balance the awards across the various regions of the state when it would have been more prudent to surgically target areas where the grants would have provided the greatest stimulus.

While Gov. Andrew Cuomo is the state's most powerful Democrat and both houses of the Legislature are controlled by members of his party, those senators and Assembly members are allies of the politically influential teacher's union and the public education lobby. That political reality is expected to set the stage for more skirmishing as the advocates push to increase school spending by another $2 billion in the next budget.

Meanwhile, the Cuomo administration says it is looking for ways to address the strains on the state's finances from Medicaid, a federal health program assisting some 6 million New Yorkers.

The administration successfully reined in "unsustainable" Medicaid spending in 2012, noted Freeman Klopott, a spokesman for the state Division of the Budget.

"With increased utilization and medical inflation nationally creating a structural imbalance, the Division of the Budget and the Department of Health are once again developing a cost-curbing plan that will be described in the Executive Budget to be introduced in January and continue high-quality care," Klopott said.

Cuomo acknowledged this month that the Medicaid's financial predicament has emerged as "a major problem for the state."

Some advocates for the nursing home industry have voiced concerns that adjusting Medicaid reimbursements could threaten the quality of care at nursing homes and force staffing reductions.

After reviewing the Cuomo team's latest update to the state financial plan, William Hammond, director of health policy for the Empire Center, suggested that the jump in Medicaid spending is in part a result of the Cuomo-backed move in 2016 to steadily increase the state's minimum wage. That has left health providers with higher labor costs than what the administration had projected, he concluded in an analysis of Medicaid spending.

Instead of attacking the Medicaid spiral, Hammond said in his analysis, the governor and the Legislature pulled off a maneuver to shift $1.7 billion in Medicaid payments from one fiscal year to the next, thus compounding the problem that still needs to be addressed.

Another program that could get renewed attention from lawmakers is the generous tax incentives the state provides to the film and television industries that have agreed to bring productions to New York.

Friedfel said over the past 15 years the state has provided subsidies to those industries that exceed the cost of the $4 billion spent to construct a replacement for the former Tappan Zee Bridge spanning the Hudson River.

"A number of the films and TV shows would likely by here anyway" if the incentives — now amounting to $420 million annually — were to be withdrawn, Friedfel said.

Advocates for the tax credit say it has spurred a production boom in New York. The program has been popular with several New York City lawmakers whose districts have benefited from job creation and spending flowing from the increased presence of movie studios.

Joe Mahoney covers the New York Statehouse for CNHI's newspapers and websites. Reach him at jmahoney@cnhi.com

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