State's Surplus Played Big Role in Budget Talks

Adding to the tension in Albany as the budget deadline loomed was one thing that didn't sound like a problem: the state's growing surplus.

Among the factors weighing on the Spitzer administration, which was debating whether to settle short of its goals on the budget deal or take its chances by negotiating into April past the deadline, was a growing anticipation of a surprise revenue windfall.

The growing surplus numbers and an increasing suspicion that the positive news would lead to even more revenue arriving via income tax payments created a sense of urgency for those interested in constraining the already high level of spending.

A missed deadline would have likely pushed back a budget deal by weeks, past the point at which those suspicions would be confirmed by new cash reports providing a final tally on receipts, spending, and the surplus for the 2006–07 fiscal year.

If the surplus shot up, as many in Albany thought it would, Governor Spitzer would have faced increasing pressure to yield to legislative demands that would have increased spending beyond the rate of 6% that was proposed in the executive budget.

Such positive news could have had the potential to unravel negotiations, as lawmakers would have likely used the updated information to question the credibility of the administration's claim that the budget was stretched to the brink.

An uptick in the surplus and the state's cash balance could help to buttress the administration's argument that it was better off accepting a compromise budget deal that fell short of some campaign and first-month promises made by the governor.

In late February, the Spitzer administration was predicting a budget surplus of $1.5 billion for the 2006–07 fiscal year. Higher than expected capital gains receipts and Wall Street bonuses could push that figure up significantly.

"The consensus is that it's going to be a lot bigger than $1.5 billion," a Republican state senator who represents a district in Western New York, Dale Volker, said. "Bottom line, we are developing the second biggest surplus in the state's history."

New York had a $4.1 billion surplus in the 2000–01 fiscal year but saw its reserves drained after the September 11, 2001, attacks.
The details will become clear when the Spitzer administration releases its financial and enacted budget report on Monday and when the comptroller's office comes out with a cash report for March, wrapping up the 2006-07 fiscal year.

A spokesman for Mr. Spitzer said the administration did not have specific figures and refused to speculate on the size of the surplus.
A higher-than-expected cash balance and surplus would help to allay fears about out-year budget gaps. Spitzer officials have been predicting a deficit next year of more than $3 billion.

If the extra surplus is due to increased revenue, the extra money would not only roll over to this year but would have the effect of increasing base revenue. In other words, if there were $400 million in higher revenue, the state would assume that it has $800 million in extra cash this year.

In the lead-up to the budget agreement, a refrain heard from the Spitzer administration was that Senate Republicans were proposing an unrealistic amount of spending. Senate Republicans were pushing for a more expensive property tax cut program and a restoration in hundreds of millions of dollars in hospital and nursing home cuts. Spitzer officials said the Republican package would have added more than $3 billion to the total budget.

Mr. Spitzer called the Senate's budget package "ruinous" and likened the spending to a "game of three-card monte, because every time you look underneath to find the money, it's not there." The Republican majority leader, Joseph Bruno, accused the governor of underestimating the available revenue.

In Albany, it's not uncommon for governors to stand behind conservative revenue and surplus estimates during budget talks. By low-balling, the governor can more easily fend off legislative pressure to tack on new spending.

By protecting the surplus at the end of the budget process, the governor also increases control over how the money is spent. The governor can dictate how the money is spent in the following year's executive budget, taking advantage of his powerful budget language powers.
Mr. Volker said lawmakers have begun to lose trust in the financial figures coming from the state's budget office.

"We've been watching these numbers for so long, we're getting tired of it," he said.