Executive Budget report issued by New York State Comptroller Thomas P. DiNapoli

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Despite the state’s economic recovery since the pandemic first hit three years ago, significant headwinds will present challenges to ongoing economic growth and fiscal stability. The state faces prolonged inflation, rising federal interest rates and the end of federal relief aid that was instrumental in balancing the past two budgets, according to a report by State Comptroller Thomas P. DiNapoli on the State Fiscal Year (SFY) 2023-24 Executive Budget.  

The Executive Budget proposes $227 billion in All Funds spending in SFY 2023-24, an increase of $5.4 billion, or 2.5%, from the prior year. The Division of the Budget (DOB) projects outyear gaps of $5.7 billion in SFY 2024-25, $9 billion in SFY 2025-26, and $7.5 billion in SFY 2026-27. The gaps result from reduced estimates of tax collections due to a forecasted economic downturn and increases in recurring spending, principally in school aid and Medicaid.

“With economic risks and the impending loss of federal financial assistance ahead, now is the time for New York to carefully prepare for the short- and long-term,” DiNapoli said. “The budget proposals to increase state reserves and strengthen the state’s rainy-day reserves should be supported. At the same time, there are several concerning proposals that exempt approximately $12.8 billion from competitive bidding and oversight requirements, leaving too much in the dark. The budget also advances debt proposals that reinforce concerns about the affordability of debt levels and the transparency and accountability of current debt practices. I urge lawmakers to reject these proposals.”

DiNapoli’s assessment of the Executive Budget identified several economic, revenue and spending risks and other concerns.

Economic and Revenue Risks

Risks associated with the economic environment include continued inflation, the impact of interest rate hikes and disruptions related to Russia’s invasion of Ukraine. Increased interest rates by the Federal Reserve have resulted in increased borrowing costs for consumers and businesses. With inflation expected to remain elevated and additional rate hikes expected in 2023, consumer and business spending could be further constrained.

With the Executive Budget Financial Plan forecasting a recession, DOB reduced its projections of tax revenues for the upcoming fiscal year by $2.1 billion and a total of $10.3 billion over the life of the Plan. Should a recession be more severe or be longer in duration, revenues could decline more than currently forecasted. The changes in the labor market are also a risk to the state economy. New York’s job recovery from the pandemic has lagged the nation’s, there are fewer workers in the labor force and the labor force participation rate is among the lowest in the nation.

Structural Balance and Use of Federal Funds

State budgets often include provisions that cause recurring spending to grow more quickly than recurring revenue, creating a structural imbalance and budget gaps. Such gaps are often closed with short-term solutions. The Executive Budget includes $14.9 billion in SFY 2023-24 resources that DiNapoli’s office identifies as either temporary (more than one year but not permanent) or non-recurring (one year). About 98% of that funding results from temporary federal assistance related to the pandemic (69%) and tax increases enacted in SFY 2021-22 (28%). 

The American Rescue Plan provided the state with $12.7 billion of funding from the State and Local Fiscal Recovery program that could be used for a broad range of purposes, including replacement of lost tax revenue due to the pandemic. The Financial Plan continues to assume these funds will be used through SFY 2024-25, including $2.25 billion in SFY 2023-24 and $3.64 billion in SFY 2024-25. Little information is available to determine whether the funding has been used equitably, efficiently and with the proper balancing of short-term need with long-term sustainability. Increased transparency on the planned use of the funds is needed.

There are also significant spending risks. In June 2023, the state will begin redetermining eligibility for all enrollees in Medicaid, the Essential Plan and Child Health Plus programs that are projected to reduce coverage by 10.3% to 8.3 million individuals by April 2024. In the Medicaid program, the Financial Plan projects a decline of almost 888,000 individuals in a single year. If enrollment exceeds current projections, significant unbudgeted costs will occur. For example, if only half of the assumed decline is realized, there could be an additional $6.2 billion in total costs, including $2.2 billion in state costs in SFY 2023-24.

Reserve Funds

For years, DiNapoli has warned of the state’s underfunding of its statutory rainy-day reserves. The Executive Budget proposal increases the balance of statutory rainy-day reserves to $6.5 billion at the end of the current fiscal year and includes legislation to further increase the maximum annual deposits to 10% of State Operating Funds (SOF) spending and the maximum fund balance to up to 20% of SOF spending. If enacted, these measures would provide tools to manage economic or other challenges ahead and ensure fiscal stability. DiNapoli urges lawmakers to support these actions.

The Financial Plan also indicates unrestricted fund balances designated for “economic uncertainties” would grow to $13.5 billion at the end of the fiscal year. DiNapoli urges greater priority should be placed on building statutory rainy-day reserves rather than relying on informal, unrestricted reserves.

Debt Practices

The Executive Budget proposes to continue circumventing the state’s debt cap by utilizing a loophole in the Debt Reform Act for structuring the Gateway Plan debt. The Executive Budget would further reduce transparency and accountability by classifying the Gateway loan in a manner that is inconsistent with past practice and fails the most basic standards of transparency by continuing to not count this debt in projections of any debt outstanding. These actions result in a misleading picture of the size of the state’s debt burden.

The Executive Budget again proposes “backdoor borrowing” authorizations for up to $5 billion in short-term cash flow borrowings during SFY 2023-24 that are redundant to the existing ability to issue more cost-effective Tax and Revenue Anticipation Notes (TRANs). Given the state’s current strong cash balances, it is unclear why this more costly form of borrowing is proposed.

Collectively, these and other actions in recent budgets have rendered the state’s current debt limits functionally meaningless. DiNapoli recently issued a report highlighting how caps and other debt restrictions set in statute have not worked to rein in state debt or stop inappropriate borrowing practices, and recommended several reform measures to address these problems.

Transparency

The SFY 2023-24 Executive Budget continues a problematic pattern from past budgets that include eliminating the Comptroller’s contract pre-review oversight and waiving competitive bidding requirements for certain contracts, including the proposal related to selection of certain Managed Long Term Care plans. In addition, the budget includes an appropriation that would unduly and inappropriately impair the Office of the State Comptroller’s duty to conduct independent audits of the New York State Health Insurance Program. 

This report details provisions of the SFY 2023-24 Executive Budget proposal submitted on February 1. The report does not reflect 30-day amendments released on March 3 or the amended Financial Plan released on March 8

Report

New York State Fiscal Year 2022-23 Executive Budget Review

Debt Report

Terminating an employee in the Classified Service prior the employee's completion of his or her maximum period of probation

The Appellate Division denied a petition of an employee [Plaintiff] seeking to annul the appointing authority's [Employer] decision to terminate the employment of the Plaintiff before she completed her probationary period.

The court opined that as probationary employee, Plaintiff "may be discharged for any or no reason at all in the absence of a showing that ... her dismissal was in bad faith, for a constitutionally impermissible purpose or in violation of law", citing Smith v New York City Department of Corrections, 292 AD2d 198.

The Appellate Division noted Plaintiff alleged "no unlawful motive for her termination and failed to satisfy her burden of demonstrating bad faith". Further, said the court, Petitioner's own affidavits attesting to her satisfactory job performance "did not create a substantial issue of bad faith sufficient to warrant a hearing in light of [the Employer's] submission of a termination memo documenting several performance failures, which provided a rational basis for [Employer's] decision".

As the Court of Appeals opined in York v McGuire, 63 NY2d 760, "After completing his or her minimum period of probation and prior to completing his or her maximum period of probation, a probationary employee can be dismissed without a hearing and without a statement of reasons, as long as there is no proof that the dismissal was done for a constitutionally impermissible purpose, or in violation of statutory or decisional law, or the decision was made in bad faith."

Click HERE to access the Appellate Division's decision posted on the Internet.

Advisory Memorandum 2023-02, Special Military Benefits and Post-Discharge Benefits through December 31, 2023

The Department of Civil Service has published the following Attendance and Leave Memorandum:

Advisory Memorandum 2023-02, Memoranda of Understanding

Extension of Special Military Benefits and Post-Discharge Benefits

Effective through December 31, 2023

Th text of Advisory Memorandum 2023-02 is posted on the Internet at:
https://www.cs.ny.gov/attendance_leave/AdvMemo23-02.cfm

A PDF version of the Advisory Memorandum 2023-02 is posted on the Internet at:
https://www.cs.ny.gov/attendance_leave/AM2023-02.pdf

 

To view previous published Attendance and Leave bulletins issued by the Department of Civil Service, visit: https://www.cs.ny.gov/attendance_leave/index.cf

 

Applying the Doctrine of Estoppel to a public entity

The Doctrine of Estoppel is sometime sought to be applied to a government entity in an effort to require or prevent the governmental entity from performing, or failing to perform, an alleged action or commitment that was relied upon by the complaining party.

In Taranto v City of Glen Cove, 212 AD3d 826, the Appellate Division addressed the application of the Doctrine of Estoppel in a challenge to an action taken by the City with respect health insurance benefits then enjoyed by certain of the City's employees.

The Appellate Division opined:

"A municipal resolution is, in general, a unilateral action that is temporary in nature and, thus, it does not create any vested contractual rights", citing Matter of Aeneas McDonald Police Benevolent Assn. v City of Geneva, 92 NY2d 326. The court concluded that a local government is "free to terminate retirement health insurance and other benefits they may have previously elected to provide [by resolution] to employees and other officials.

The court also noted that "[as] a general rule, estoppel may not be invoked against a governmental body with regard to the exercise of its governmental functions or its correction of an administrative error [citations omitted] and "[an] exception to the general rule applies only in the 'rarest of cases' [typically] involving the wrongful or negligent conduct of a governmental subdivision, or its misleading nonfeasance, which induces a party relying thereon to change his or her position to his or her detriment resulting in manifest injustice."

In this instance the Appellate Division concluded that Taranto failed to establish that his complaint fell within the narrow exception warranting estoppel to be applied against the City.

* The court cited:  Matter of Weaver v Town of N. Castle, 153 AD3d 531; Iasillo v Pilla, 120 AD3d 1192; Matter of Kapell v Incorporated Vil. of Greenport, 63 AD3d 940; and Matter of Handy v County of Schoharie, 244 AD2d 842.

Click HERE to access the Appellate Division's decision posted on the Internet.

Eligibility of a school district employee for unemployment insurance benefits for the period between two successive academic years

With respect to eligibility of employees of a school district for unemployment insurance benefits between "two successive academic years, the Appellate Division, citing Labor Law §590(1), said "[a] professional employed by an educational institution is precluded from receiving unemployment insurance benefits for the period between two successive academic years when he or she has received a reasonable assurance of continued employment." Further, said the court, "A reasonable assurance has been interpreted as a representation by the employer that substantially the same economic terms and conditions will continue to apply to the extent that the claimant will receive at least 90% of the earnings received during the first academic period."

A school bus driver [Claimant] had worked for the employer [School District] for over 30 years. Starting March 16, 2020, as a result of the COVID-19 pandemic, Claimant was not required to work but continued to receive her regular salary for the remainder of the 2019-2020 school year, ending on June 19, 2020. On June 3, 2020, Claimant received a letter from the School District informing her that it wished to retain her in the same position during the 2020-2021 school year, which she signed and returned to the School District. 

Despite this letter, prior to the end of the 2019-2020 school year, Claimant filed claims for unemployment insurance benefits. From June 21, 2020 until August 23, 2020, Claimant received unemployment insurance benefits, as well as federal pandemic unemployment compensation and lost wage assistance pursuant to the Coronavirus Aid, Relief and Economic Security Act of 2020 [the CARES Act]. 

The Unemployment Insurance Appeal Board [Board], among other things, sustained the initial determination finding that Claimant was not totally unemployed during the week ending June 21, 2020 and that she was ineligible for Pandemic Unemployment Assistance [PUA] benefits.* Claimant appealed the Board's determination.

The Appellate Division noted that, considering the letter assuring Claimant of the continued applicability of the collective bargaining agreement as well as the testimony concerning Claimant's seniority and the continued need for busing, there was substantial evidence supporting the Board's finding that the School District provided Claimant with a reasonable assurance of continued employment.

Addressing Claimant's eligibility for PUA benefits for the period between academic terms outside of her contract, the Appellate Division opined "substantial evidence supports the Board's finding that Claimant was ineligible for such benefits."

* Citing Matter of Barnett [Broome County Community Coll.—Commissioner of Labor], 182 AD3d 763, the Appellate Division observed that factual issues are for the Unemployment Insurance Appeal Board to determine and, as such, its decision will be upheld if supported by substantial evidence.

Click HERE to access the Appellate Division's decision posted on the Internet.