Proposed 2005 Constitutional Amendment:

Revising the New York State Budget Process A Guide to the Issues

Brian T. Stenson

Deputy Director

Nelson A. Rockefeller Institute of Government

The New York State Legislature has advanced a set of changes to the State’s budget process. These changes include a proposed Amendment to the State Constitution and a more detailed law (statute) that would take effect if voters approve the Amendment on November 8. The proposed Amendment represents the most sweeping change to New York’s budget process in at least 70 years. When they enter the voting booth on November 8, New Yorkers will see a short description of the Amendment, prepared by the Board of Elections. (See the text of the ballot question in the box on the next page.) This Guide to the Issues summarizes the key provisions of the proposed Amendment and contrasts each with current practice. With elected officials and interest groups lining up to support or oppose the Amendment, New Yorkers have a unique and difficult choice. Supporters of the Amendment claim its contingency budget process will address the problem of chronically late State budgets by ensuring that funding will be available for the continuation of State programs, eliminate the need for emergency appropriations, and increase public accountability. Opponents counter that it will actually encourage late budgets and undercut central oversight of state finances, and perhaps lead to runaway spending. The Amendment may appear simple, but the State’s budget process is complex. It is crucial that voters cast an informed vote. The Rockefeller Institute urges New Yorkers to study the Amendment and the issues it raises. Your vote on November 8 will have a far-reaching impact.

FORM OF SUBMISSION OF PROPOSAL NUMBER ONE, AN AMENDMENT

Amendment to Articles IV and VII of the Constitution, in relation to the submission of the budget to the Legislature by the Governor

The proposed amendment to Articles IV and VII of the Constitution would change the process for enactment of the state budget by (a) providing for a contingency budget if the Legislature does not act on the Governor’s appropriation bills before the start of the fiscal year; (b) placing limits on the amount of spending during such contingency period; (c) once such contingency period begins, eliminating the requirement that the Legislature act on the Governor’s proposed appropriation bills, and instead authorizing the Legislature to end the contingency period by adopting a multiple appropriation bill making changes to the contingency budget, subject to line item veto by the Governor; and (d) authorizing the Legislature, subject to veto by the Governor, to modify the spending limits for future contingency budgets, except that such changes cannot take effect until three years after enactment. The proposed amendment also sets forth certain requirements for the operation of a fiscal stabilization reserve fund, from which money could be disbursed in a subsequent year. It would require estimates and information provided by state departments to the Governor for use in preparing the budget to be available to the public. It would provide a date certain by which the Governor must submit a budget and appropriation bills to the Legislature. It would reduce the time the Governor has to make changes to the budget and appropriation bills submitted to the Legislature without the Legislature’s consent from thirty days to twenty-one days. Shall the proposed amendment be approved?

Overview of New York’s Budget Process

efore considering the specifics of the proposed Amendment, voters should understand the general mechanics of the State budget. There are three main components that are enacted into law and affect State revenues and spending:

v     Budget-related bills are enacted each year and amend permanent law to change the purposes of, or manner in which, taxes and revenues are collected and programs operate. These bills must be passed each year, or the provisions in permanent law become operative.

None of these legal provisions reveal the amount of receipts the State will collect in a given fiscal year, a sum that reflects the structure of the State tax system and the level of economic activity in the State. For example, State sales tax collections depend on both the sales tax rate and the amount of taxable goods purchased.

Similarly, in a given fiscal year, actual spending is completed through three sources: new appropriations, any remaining balance of the prior year’s appropriations, and any re-appropriations. Actual spending also reflects program operations such as the level of Medicaid usage, the cost of energy used in State facilities, employee salaries, and so on.

The Governor is charged with estimating the amount of receipts and disbursements the State expects in a fiscal year. These estimates are included in the Financial Plan. The Constitution requires that the Executive Budget be balanced for the upcoming fiscal year, but does not impose such a standard on the enacted budget or on the projections for the subsequent fiscal year(s). The Budget Division issues a Financial Plan on the enacted budget and provides quarterly updates during the year. There is no requirement that the State maintain budget balance during the year. In years when receipts are not adequate to support expenditures, the State typically covers this shortfall by managing the pace of spending or by short-term borrowing.

The Proposed Amendment

he major provisions outlining the budget process for New York State are contained in Articles 7 and 4 of the State Constitution. On November 8, New Yorkers will decide the fate of a proposed Amendment that would make significant changes to both articles. Following is a summary of the provisions of the proposed Constitutional Amendment. Most attention and debate concerning the Amendment have focused on its “contingency budget” mechanism, which would take effect if the State budget is not enacted by the start of the fiscal year. (See Section 5 below.) However, the proposed Amendment also makes changes to other provisions of the Constitution.

In each of the following sections, the current constitutional provision and practice is summarized, followed by a summary of the proposed revisions. The State has also enacted (over the Gov-ernor’s veto) an enabling statute that implements the provisions of the Amendment and makes further changes to the budget process. These changes to the statutes or laws are briefly summarized. Finally, this guide includes some of the reasons most often cited by those who support the Amendment, as well as arguments used by those who oppose it.

 

1. Agency Budget Requests

Amends Article 7, Section 1

Current Provision: The Constitution requires the heads of most State agencies (except the Legislature and Judiciary) to submit their budget requests to the Governor. Budget requests show the resources needed by the agency to fulfill its mission during the year and this submission kicks off the budget process. The Constitution also requires that copies of the agency request must “forthwith be furnished” to the appropriate committees of the Legislature. (Note: The current language does not specify who furnishes these requests to the Legislature or when they are submitted.) In the case of most state agencies, these requests are not generally made available to the public.

Proposed Revision: The Amendment would require that State agencies also provide copies of their budget requests to the appropriate committees of the Legislature at the same time they provide them to the Governor. The agencies would also have to make the estimates and information available to the public.

2. Executive Budget Submission

Amends Article 7, Section 2

Current Provision: Under the Constitution, the deadline for submission of the Executive Budget varies each year, and in most years is linked to the opening day of the legislative session. In years following a gubernatorial election, the submission deadline is February 1. The Budget must contain a complete plan of proposed expenditures for the upcoming fiscal year and the revenues estimated to be available to support them, as well as an explanation of the basis for the estimates and any recommended legislation.

Proposed Revision: The Amendment would require that the Executive Budget be submitted on or before January 15 each year. However, in years following the election of a new Governor, the deadline would be February 1; a re-elected Governor would have to submit the Budget by January 15.

The Amendment also makes a technical change to the Executive Budget’s content. Where the Constitution currently requires estimates of revenues and expenditures, the Amendment changes these terms to receipts and disbursements. In contemporary usage, the terms “receipts and disbursements” generally refer to cash-basis results (akin to a checkbook), while “revenues and expenditures” refer to accrual-based estimates, meaning when they are incurred. For example, an item purchased and received in one fiscal year but not actually paid for until next year would represent an expenditure in the first year but a disbursement in the subsequent period. The Amendment also requires that the budget contain estimates of all funds available to the State.

3. Governor’s Amendments to Executive Budget

Amends Article 7, Section 3

Current Provision: The Constitution requires the Governor to submit not only revenue and spending estimates, but also the appropriation bills and accompanying legislative proposals that provide the legal basis for spending. In addition, the Governor is allowed to submit amendments to the appropriation bills and legislation within 30 days after the original bills were submitted. These are known as “30-day amendments”. (Note: The Governor is also authorized to submit amendments after the 30-day deadline with the concurrence of the Legislature.)

Proposed Revision: The Amendment would reduce the length of the budget amendment period to 21 days.

4. Action on Budget Bills

Amends Article 7, Section 4

Current Provision: The Constitution prohibits the Legislature from altering or amending an appropriation recommended by the Governor, meaning, for instance, that the Legislature may not re-di-rect an appropriation for one program by substituting another program in that appropriation. However, the Legislature may reduce an appropriation, delete it, or add an appropriation, such as an increase to an amount recommended by the Governor or a new amount, in a separate appropriation. Appropriations reduced or left unchanged by the Legislature become law automatically and are not subject to the Governor’s veto. The Governor may veto increases to appropriations or new appropriations. Appropriations approved by the Legislature become law immediately except those added to the Governor’s budget. There is no time limit currently for legislative action on the Governor’s budget.

Proposed Revision: The Amendment would prohibit the Legislature from acting on the Gov-ernor’s Budget after the beginning of the fiscal year; the contingency budget (as described in Section 5) would be in place. The sole exception is the appropriation for debt service on bonds, which becomes law immediately upon enactment by the Legislature, except for items it adds to the Gover-nor’s budget.

If the Legislature approves some, but not all of the Governor’s appropriation bills before the fiscal year begins (meaning that a contingency budget will take effect as described below), those bills become law only after passage of a bill to end the contingency period. (Note: The enacted budget may contain provisions of the Executive Budget enacted before the end of the fiscal year, provisions of a new budget enacted after the start of the fiscal year in either the contingency budget or a supplemental budget, and two-year appropriations such as for school aid enacted as part of the prior year’s budget.)

5. Contingency Budget

Amends Article 7, Section 5

Current Provision: In New York, there currently is no requirement that the State enact a budget at the beginning of the State’s fiscal year. In fact, there is no requirement at all that the State even have a budget during the year. When the State has started its fiscal year without a budget, it has enacted “emergency” appropriations to pay certain bills, including employee payrolls and Medicaid payments to health care providers. The Legislature may not enact a spending bill on its own (without a statement by the Governor that the bill is necessary) unless it has acted on the Gov-ernor’s budget.

Proposed Revision: This section of the Amendment sets up a contingency budget process that would govern State finances in the absence of a budget.

If all necessary appropriation bills have not been adopted by the first day of the fiscal year, a contingency budget automatically becomes effective on that date. The Legislature is considered to have taken final action on the Governor’s Executive Budget, even though the contingency budget becomes effective automatically, without any overt act of the Legislature.

The contingency budget is the previous year’s budget that remains in effect for the current year. Appropriations and other spending and revenue provisions from the prior year are continued, with several exceptions. First, provisions affecting revenues and spending that were enacted in previous years but do not become effective until the current fiscal year (e.g., a tax cut or spending increase enacted in 2006 and scheduled to take effect in 2008) could not take effect during the contingency period. Second, total spending could not exceed spending in the previous year except where State law provides otherwise. The Amendment notes that a statute would be enacted to provide definitions as to the scope and contents of, and process for enacting the contingency budget. During the contingency period, the contingency budget itself cannot be modified because this contingency budget statute can be amended only by a law that becomes effective three years after it is passed. In other words, in a given year, the State could not pass a law redefining the overall framework governing the scope and contents of a contingency budget — i.e., what elements are subject to automatic, across-the-board reductions.

The contingency budget remains in force until the Legislature enacts a bill containing multiple appropriations altering the contingency budget. (Note: The term, “multiple appropriations” is of significance because under Section 6 below, the ability of the Legislature to enact bills that contain multiple appropriations is restricted.) Any contingency budget appropriations that are not amended by this bill remain in effect. This new bill, together with the unchanged provisions in the contingency budget, and any Executive Budget appropriation bills enacted before the start of the year constitute the budget for the fiscal year.

Throughout the contingency budget period, the Legislature may not pass any other appropriation bill for any purpose (i.e., no “emergency” spending bills).

6. Limits on Multiple Appropriation Bills

Amends Article 7, Section 6

Current Provision: The Constitution currently authorizes the Legislature to enact only two types of bills containing multiple appropriations each year: the bills submitted by the Governor (with any Legislative modifications) and one additional bill, known as the “supplemental budget”. All other appropriations must be contained in individual bills. All separate bills are subject to veto by the Governor as are new or increased appropriations contained in the Executive Budget bills.

Proposed Revision: The Amendment authorizes the Legislature to enact a multiple-appropri-ation bill, which could be used to end the contingency budget period as an alternative to acting on the Governor’s budget bills. The Legislature would retain its authority to enact a “supplemental” budget later in the session. With regard to that multiple appropriation bill, there is no change to the Governor’s veto powers. Appropriations contained in the multiple appropriation bill passed to end the contingency budget period, and that were not increased by the Legislature from the contingency budget appropriations, are not subject to the Governor’s veto. In other words, appropriations carried forward from the contingency budget (which are the same as the prior year appropriations) take effect immediately and cannot be vetoed by the Governor. This is equivalent to the current situation where only legislative increases to the Executive Budget can be vetoed.

7. Governor’s Veto Powers

Amends Article 4, Section 7

Current Provision: The Constitution currently authorizes the Governor to veto bills passed by the Legislature. Multiple appropriation bills are subject to line item veto, meaning that the Governor may veto individual appropriations contained in the broader bill as long as these are new or increased appropriations added by the Legislature. The State Legislature may override the Gover-nor’s veto with a two-thirds vote in each house.

Proposed Revision: The Amendment leaves unchanged the existing provisions regarding vetoes and overrides. Although the Governor is not empowered to propose changes to the contingency plan, he is authorized to veto new or increased appropriations the Legislature makes to the contingency budget. Contingency budget appropriations left unchanged or reduced by the Legislature cannot be vetoed (similar to the case with the Legislature’s changes to the Executive Budget).

8. Fiscal Stabilization Fund

Amends Article 7, Section 17

Current Provision: The Constitution authorizes the Legislature to establish a tax stabilization reserve fund in law, with provisions specifying the fund’s source(s) of revenues and the funding level (including repayment provisions). Section 17 also mandates that any law amending the reserve fund statute cannot take effect until three years after those changes are enacted.

Proposed Revision: The Amendment specifically limits the use of the existing reserve fund to replace revenue shortfalls in the current year. It also authorizes a new Fiscal Stabilization Reserve Fund, which could be budgeted for use in the subsequent fiscal year if revenues fall short of the amount needed to support spending, as certified by the Governor, the Assembly Speaker, and the Temporary President of the Senate. The three-year “advance-notice” requirement for changes is applied to the new fund. The intent of the supporters is to use this new Fund to cover spending in the first month(s) of the new fiscal year when revenues, as the result of the timing of revenue receipts, may not be adequate to finance expenses.

The Implementing Statute

his proposed constitutional Amendment merely sketches out a new framework for the State’s budget process. Details are left to statutes and the Legislature has already passed such a bill. The Governor vetoed it but his veto was overridden. This implementing statute takes effect only if voters approve the Amendment. It contains many provisions, some directly linked to the Amendment and some that are not. Major provisions would do the following:

Reasons to Vote for the Amendment

upporters of the proposed Amendment cite the long record of budget delays in New York as a primary reason to reform the entire budget process. By automatically enacting a “contingency budget” in the absence of an enacted budget, this Amendment would provide for the continuation of essential State programs even as lawmakers debated a permanent new spending plan.

Supporters also point to several features of the Amendment and accompanying statutes that enhance the transparency of the budget process, including requiring that agency budget requests be made public, and including “off-budget” funds in the State Budget.

Some supporters, although not the Legislative authors, contend that the Amendment is needed to restore the “balance of power” between the Legislature and the Governor. They argue that the Governor of New York has extraordinary control of the budgetary process compared to governors in other states. Since the 1920s, New York has had an “executive budget” process, meaning that the Governor generally sets the fiscal agenda for the State, proposes the budget plan, and can veto additions by the Legislature. New York’s budget is also a comprehensive budget, with the Governor responsible for making the revenue and spending estimates and proposing a balanced plan in the Executive Budget. Supporters of the Amendment argue that recent decisions by the State Court of Appeals have interpreted the Constitution as giving governors power to control the budget agenda by adding language that would restructure State programs to budget bills in ways that cannot be changed by the Legislature without the Governor’s agreement. Supporters believe this Amendment would restore Legislative power in the annual budget negotiations. A second amendment, which could not be on the ballot until 2007 at the earliest, would specifically address the Court of Appeals decision.

Supporters of the Amendment include Senate Majority Leader Bruno, Assembly Speaker Silver, Common Cause/NY, the League of Women Voters, the New York State School Boards Association, and the New York Public Interest Research Group.

Reasons to Vote Against the Amendment

pponents express concern that the main objective of the Amendment — ending the pattern of late budgets — will not be accomplished because the contingency budget process will virtually ensure that budgets are not enacted on time. Opponents note that this year the State actually did enact a budget at the start of the fiscal year, demonstrating that these changes to the budget process are not needed.

They also argue that the presence of multiple budget bills (i.e., the contingency budget, portions of the Executive Budget enacted prior to the fiscal year end, the bill ending the contingency budget, and the supplemental budget), without the unifying structure and presentation of the Executive Budget, will lead to a less comprehensive portrayal of State revenues and spending.

Opponents claim that this Amendment is an attempt by the Legislature to roll back the Executive Budget process and vest the Legislature with control over the State budget. They claim this was the situation prior to 1927 when the current system was implemented giving the Governor responsibility for managing the State’s finances and maintaining budget balance.

Regarding the implementing statute, opponents claim that beginning the fiscal year on May 1 will lead to cash flow problems because spending in May historically exceeds revenues and that the proposed new Reserve Fund designed to address these possible cash shortages is insufficient. Opponents also claim that year-end budget deficits will be more likely because April is historically a volatile month for tax collections and April tax collections would have to be projected more than twelve months in advance.

Finally, opponents claim that by weakening the role of the Governor — who is responsible for balancing the budget — State spending will grow out of control. They point out that the Amendment does not address other needed reforms such as providing for an independent certification of revenues or requiring the Legislature to adopt a balanced budget, release a detailed report on the enacted budget, or hold budget conference committees. Opponents also note that under the current process, if the Governor recommends reducing or eliminating funding for a program, Legislative funding restorations are subject to veto; under the Amendment’s contingency budget, funding for programs is continued at last year’s level with no possibility of veto. Amendment supporters counter that the new budget office in the Legislature will help control spending and that the provisions opening up more of the process to scrutiny will enhance public awareness of budgetary decisions.

Opponents of the Amendment include Governor Pataki, Attorney General Spitzer, the Citizens Budget Commission, the Business Council of New York State, the Bar Association of the City of New York, the Citizens Union, and most major newspapers.

It’s Up To You

iven the complexities involved in the State’s budget process and the scope of the changes contained in the proposed Amendment, it is difficult for even those inside state government to grasp all the issues and implications associated with this change. Beyond all the technical details and the rhetoric, the Amendment boils down to two major issues:

First, will it address the problem of late State budgets? Supporters claim that the automatic adoption of a contingency budget will ensure that critical State spending continues during a budget impasse. While this Amendment will clearly provide for a continuation of some level of State spending under the contingency budget, the question is: will providing funding continuity encourage the State to enter the contingency period routinely and hammer out the details of the “real” budget during negotiations that continue for weeks or even months into the next fiscal year? Opponents claim that the provisions make a budget delay inevitable because the Legislature will have no incentive to act on the Executive Budget but every incentive to wait until the beginning of the fiscal year and work off the contingency budget. They also note that the automatic adoption of the contingency budget would allow the legislators to receive their pay; however, Amendment supporters note that the current provisions withholding legislators’ pay have not led to timely budgets.

Second, what does this Amendment do to the institutional roles of the major players in Albany? Those who believe in a budget process where the Governor plays a strong and leading role — known as a strong “executive budget” system — generally oppose the Amendment. For the most part, they believe that the proposed changes go too far in diminishing the role of the executive as the one official ultimately charged with managing the State’s finances and ensuring that the budget is balanced. Supporters argue that certain of the Amendment’s provisions, such as establishing a legislative budget office and requiring automatic reductions to ensure that the contingency budget is balanced, will improve the State’s budget process, while ensuring that State and local operations are not disrupted due to the failure to agree on an annual budget plan. In addition, some supporters argue that recent decisions by the State’s highest court have greatly reduced the role of the Legislature and give the Governor too much power to control budgetary negotiations.

We urge voters to study these issues, think hard about what they mean, and vote on November 8.