Amid red ink and spending demands, Cuomo set to unveil 2020 budget

Jan. 20--ALBANY -- Fiscal watchdogs believe Gov. Andrew M. Cuomo should have acted sooner, and more boldly, in addressing the state's multi-billion dollar deficit that appeared last year.

In his recent State of the State address, Cuomo spent just 3% of his 75 minutes discussing the deficit, and he did so broadly and without any specific stated plans to address the $6.2 billion shortfall -- the worst since the Great Recession.

On Tuesday, Cuomo will have to lay his cards out for how he thinks the state will trim costs or boost revenues to address a problem that is largely the making of expenses associated with the state's Medicaid health insurance program for millions of low income, elderly and disabled New Yorkers.

Here is a look at some of the pressing issues for Cuomo and state lawmakers as budget talks start in earnest this week in Albany. Cuomo will unveil his plan Tuesday afternoon in a state theater near the Capitol for a budget that will go somewhere north of the $177 billion enacted last year.

1. How much money for schools?

As always, this is the cornerstone issue for lawmakers: How much state money can they drive to their local school districts to reduce the direct burden on property taxpayers?

In December, the Board of Regents called for a $2 billion increase in Foundation Aid, the funding pool that schools use to pay for operating costs. At the time, Regent Beverly Ouderkirk said the funding request "meets the needs of school districts who must keep pace with inflation and demographic changes while recognizing the realities of the state's fiscal restraints."

That $2 billion request? It's not happening. Last year, without a deficit, total state aid to schools increased $1 billion over the previous year, but only 60% of that was for Foundation Aid.

Cuomo in his State of the State said he will push again to provide better "equity" to schools that are in low-income areas and with high-needs students. Last year, however, lawmakers pushed back on a Cuomo plan that would have, in essence, directed state aid to individual schools that are most in need, as opposed to Albany providing funds to a school district and letting them decide how best to spend the money.

2. How will lawmakers solve the Medicaid deficit?

The Medicaid deficit popped out of nowhere last year. To partly solve it, the Cuomo administration employed an accounting trick by delaying the state's financial obligations to Medicaid providers from one fiscal year to the next.

The governor has blamed Washington for cutting its share of Medicaid payments to New York and, more recently, attributed much of the deficit to a 2012 program that saw the state pick up the annual Medicaid cost increases once paid by counties.

In a conference call Monday with reporters, Cuomo would not directly answer a question about whether his budget will financially hit counties in order to lower the state's Medicaid deficit. He also downplayed the overall state deficit, saying the big red ink number is a deficit between what the state is projected to collect in revenues versus projected expenses. "People hear deficit and they get concerned, but ... we're going to enact a very bold agenda and we're going to find the funding to do that," he said.

The question that will be answered Tuesday is whether Cuomo will launch a serious plan to attack Medicaid's structural spending issues. A large portion of the deficit is not just lower payments from Washington, but the costs associated with long-term care and reimbursements to health providers for the expenses they incurred raising the minimum wage for tens of thousands of health care workers -- a mandate required by the state.

For some lawmakers, the big fight will be to ensure patients in Medicaid will not see an erosion in health services. The health care industry, among the most powerful political players in Albany, will be engaged in a pitched battle to protect their financial turfs.

Eric Linzer, president of the New York Health Plan Association, which represents 29 managed care insurance plans covering 8 million New Yorkers, says it's time for the providers, like hospitals, to step up. He said most managed care plans, after Medicaid cuts, are operating on razor-thin margins.

Linzer's group has come up with a plan, presented to state officials, to reduce Medicaid costs this year by about $900 million. The state, he said, provides just about that level to hospitals and other providers in what are called "payment pools," which go to cover an assortment of programs, such as workforce recruitment and retention. But, he said, many providers don't use the money for patient care and that it's time for the state to study whether such payment pools, not touched in years, should be reduced or eliminated.

Moreover, $138 million could be saved by cutting payments to a pool intended to help providers cover the costs of people who are too poor to pay for health care. The health insurance group says the level of uninsured New Yorkers has been cut in half to 5% and that a number of the big providers, based mostly in New York City, have positive operating margins and don't need money from that funding pot.

"There needs to be some shared responsibilities about reining in or closing the Medicaid gap and it shouldn't just fall on one particular industry," Linzer said.

3. Where would marijuana revenue go?

Cuomo will, for the second straight year, call for the legalization of marijuana, along with a state program that will regulate how and where marijuana plants are grown, how they get processed, who sells the drug and how much Albany will tax the industry.

The governor expects the program will bring the state $300 million in annual tax revenues. But it remains uncertain how he will propose to dedicate those funds. Will they all get dumped into the state's general fund? Or will they get dedicated to a mix of drug treatment and prevention programs, law enforcement efforts and minority, low-income communities that legalization advocates say have been disproportionately affected by marijuana arrests over the decades?

"Everyone is waiting to see what will be introduced from the governor's side," said Melissa Moore, deputy director of the New York office of the Drug Policy Alliance, a pro-legalization group.

4. How much more will the state borrow?

When it comes to debt, New York State has been a steady leader over the years. State Comptroller Thomas DiNapoli says the per capita state debt for New York residents has run three times the median level for other states.

Last year, DiNapoli noted that New York trails only California in the amount of state-issued debt still to be paid back. Moreover, he said, big borrowings are already planned so that New York is set to issue 60% more debt than it will retire in the next five years.

There will be more borrowing for various transportation projects, economic development and college buildings on SUNY campuses.

Cuomo wants the state to approve a new bonding scheme: $3 billion to go to various environmental efforts. He gave the borrowing idea, which would have to be approved by legislators this spring and then by voters statewide in November, a motherhood-and-apple-pie title: "Restore Mother Nature Bond Act."

Cuomo has said the bond proceeds would go to combat climate change problems, perform flood mitigation projects, shore up wetlands and other environmental projects. "We must also now begin restoring the natural balance we disrupted in the first place. The Earth is out of balance and we caused it," Cuomo said this month.

5. How to pay for the odds and ends?

The budget will spell out more details about Cuomo's plan to provide a tax break for about 36,000 small businesses. It also will reveal details about how he wants private companies to guarantee a certain number of sick days for employees.

The budget will also include details about ideas for permitting e-scooters and e-bikes and how he will protect workers in the so-called gig economy.

And it will provide details about his call to permit wine, beer and spirits to be sold at all movie theaters.

Some lawmakers also want Cuomo to put into the budget provisions to permit online sports betting in New York; such betting came last year to the state, but only via in-person wagers at commercial and tribal casinos.

6. Whose financial priorities?

This is an election year for lawmakers. Many of those lawmakers have already said they don't want to see big spending cuts as the solution to Albany's deficit. They are, instead, seeking things like tax hikes on wealthy New Yorkers and for a sharp reduction in what critics call "corporate welfare" funding for economic development programs.

Cuomo has insisted Albany can't tax its way out of the current fiscal crisis. But will he raise so-called nuisance taxes, or seek to close "loopholes" in the tax system? Will he raise fees on consumers or businesses?

And how much will he turn to off-budget agencies? He wants one such agency to fund electric vehicle industry expansion and another, the New York Power Authority, to spend $300 million fixing up parts of the Erie Canal.

David Friedfel, director of state studies at the Citizens Budget Commission, a fiscal watchdog group, urged Cuomo to release a transparent budget plan that does not rely on big tax hikes or shifting costs to local governments -- especially when the economy is still growing. "It's the worst time for the state to be resorting to those types of gimmicks to close a budget gap," he said.

Left-leaning groups have their own financial priorities. The Fiscal Policy Institute, a group funded heavily by unions, is seeking tax breaks for low-income workers and tax increases on super-rich residents. "A just tax system means that the burden is shared equitably," the group said in a recent report.

Watching from the sidelines will be private companies that judge the credit worthiness of New York's bonds based, in part, on the state's financial health. Last month, Wall Street rating agency Moody's Investors Service noted the deficit is a "credit negative."

If things don't change, Moody's noted the deficit could nearly double to $10 billion in 2022. "This represents more than 11 percent of projected state general fund receipts," the company warned.

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