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The Governor’s Dilemma: Gimmicks or Gumption

Next week Governor Cuomo will unveil his proposed budget for the state fiscal year beginning April 1. In his November modification of the current year’s budget and financial plan there was a preview of the severity of the problem he faces: a significant deficit — originally $6 billion, now reduced to $4 billion in the current fiscal year, which ends in only 12 weeks — that is projected at $6.1 billion for next fiscal year and to grow to more than $9 million in 2023.

The governor has acknowledged the magnitude of the budget challenge and hinted that serious structural changes are needed, but it is far more likely his budget will contain a variety of short-term fixes and avoidance devices to close the gap. 

Much attention has been paid to the fact that state deferred $1.7 billion in Medicaid expenses from fiscal year 2019 to 2020 to address the recent dramatic increases in the program’s costs. The current deficit is being papered over by again rolling about $2 billion of expenses into the next fiscal year, as well as cutting Medicaid reimbursement rates across the board by 1% and achieving other unspecified savings.

But these fixes are by no means sufficient to handle the cumulative deficit over the next four years, estimated at $28 billion, the largest faced by this governor since early in his first term. 

The size of the deficit and the governor’s vague comments in two public appearances last week have created a high level of anticipation and anxiety about the impending budget proposal. The leader of the State Assembly, Carl Heastie, is talking about higher taxes on the wealthy; Senate Majority Leader Andrea Stewart-Cousins has been less enthusiastic about more taxes but has not proposed an alternative.

After his January 6 speech to the Association for a Better New York in New York City, I asked the governor if he expects to raise taxes to deal with the deficit. His answer was an unequivocal “No.” He continued:

“We have equated politicians’ response, ‘well we have a problem, the answer is more money’ – no. There’s not necessarily a correlation between more money and better product…the answer isn’t always more money. It’s government’s answer…it’s a legislative answer because they don’t have executive control, so the simple answer is ‘we have to make education better, I’m spending more money’ — we’re already spending more money per pupil than any state in the United States of America, but you’re in the middle when it comes to performance, so the answer’s not always more money. And some of these situations are structurally problematic. We have a problem with Medicaid that is going up very high. A one-shot cash revenue is not the answer – fix the problem. Money tries to paper over the problem, and I’m not in the papering-over business…we’ve been able to say ‘We have reduced your taxes on the state level,’ and I want to continue to be able to say that. Money is not going to solve our Medicaid problem, the health costs have to be addressed structurally, and a one-shot dose for the system of sugar to give us a short high with revenue is not the answer.”

I couldn’t agree more! The audience cheered. But do we all mean the same thing when we talk about the need to address “structural problems”? Probably not.  

Two days after the ABNY speech the governor delivered his official State of the State Address in Albany. It contained many quintessential Cuomo elements, i.e. assertions that progressive government must be pragmatic and appeals to the can-do spirit of New Yorkers to build big. With respect to the deficit, he again made generic references to correcting “structural” problems that raised more questions than answers.

First, he was critical of the way state school aid is distributed, noting derisively that it is not progressive and that some districts spend more than $30,000 per student while others spend far less because they lack sufficient resources derived from property taxes. He repeated several times as if a mantra: “use state funds to raise those at the bottom.” The audience cheered; again, who could disagree? But how does the governor mean to rationalize school aid to make it truly progressive and save the state money? 

School aid is the second largest expenditure in the state budget, totaling $27 billion a year. It has grown 37% over the last decade. The reason it is so high is that everyone from the teachers unions to parents/voters to the State Education Department to every district’s legislative representatives wants more money for schools every year. A major issue in every budget negotiation is not how much more school aid is needed but rather, how much less than advocates demand is acceptable to the Legislature.  

Giving less — or at least no more — to the property- and income-rich districts and to those that have lost school population, and redirecting the savings to poorer districts that need state aid to have enough to provide the sound basic education promised to all students by the State Constitution would mean total school aid would need to rise by only $300 million, not the billions demanded by advocates, saving $800 million, maybe more, per year. It would be very surprising, if welcome, if this is what the governor proposes.

Second, at the very end of the State of the State Address the governor blamed the recent dramatic increase in Medicaid spending – the largest expense in the state budget, which has grown an average of 6.3% per year over the last four years – on the fact that the amount localities contribute to the program is capped and the state has borne all the increases in costs since the cap was imposed in 2015. He cited the amount this saves Erie County ($177 million), Westchester ($175 million) and New York City ($2 billion), wise-cracked “it is too easy to write a check when you don’t sign it” and stated that we need to pay for healthcare “‘intelligently and prudently.” If the local expense cap is the structural problem with Medicaid he means to fix, he is on the wrong track.

Medicaid spending is driven by state policy and health system practices, not by administrative costs at the county or New York City level. New York State has, and has been proud of, its relatively generous eligibility and benefit levels, which mean that there are a whopping 6 million New Yorkers on Medicaid — one of every three residents — and it is the state’s largest expenditure, costing $80 billion a year (half federally reimbursed), accounting for more than one of every three dollars in the state budget.

It is entirely appropriate to ask for more help from localities in curbing misuse and fraud in the program and the governor wisely announced that he will reconvene the Medicaid Redesign Task Force that was effective in achieving Medicaid savings in his first term (bring back Jason Helgerson!).

But there is no justification for pushing costs down to the localities which have even more limited sources of revenue than the state and already pay more of Medicaid costs than the rest of the localities in the country combined. Indeed, freezing the local share of Medicaid to the amount they paid in 2015 and taking full state responsibility for the operation and cost of the program is one of the most significant accomplishments of the Cuomo administration. The Legislature already rejected an effort to lift the cap on New York City’s share when the governor tried to do so in 2016.

One of the sources of the recent dramatic growth in the costs is the state’s directive to pay all home health aides and other Medicaid direct service providers a minimum wage of $15 an hour – immediately in the metro area and over time in the rest of the state — which added $1.5 billion to the budget in this fiscal year, growing to almost $2.3 billion additional in 2023. This may have been a good policy decision but it was not accompanied by commensurate systemic savings that would keep the growth in program spending manageable. Another is the fact that as the population ages, more and more people need long-term care, at home and in nursing homes. 

I know several people whose parents or relatives have transferred their resources to family members and taken other measures to qualify for Medicaid to pay for their long-term care, which is now responsible for almost half of the state’s total Medicaid costs. I am sure the same is true for some readers of this column. Indeed even presidential candidate Senator Amy Klobachar said in the debate this week that she expects her mom to go on Medicaid eventually.

Can we expect the governor to propose ways to cut down on the use of personal and long-term care or to tighten Medicaid eligibility requirements? This is no more likely than a structurally reformed school aid plan.

Why should a locality and those taxpayers who live there be financially punished because it happens to have a particularly large share of the state’s low-income population and hence its Medicaid enrollees? Is this progressive government? Why is it OK for state tax dollars to go to economic development efforts to shore up upstate economies that need it but not OK for state revenue to fund needy Medicaid recipients wherever they live in the state? That is not structural reform, but only shifting a serious and growing financial responsibility to another level of government.

So, get ready for a deficit reduction plan that includes cost shifts to New York City, to public authorities, and to capital spending, along with accounting gimmicks, optimistic savings estimates, and other tactics that avoid difficult decisions that would make some legislators and constituents unhappy. I hope I’m wrong.


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