2010-11 Enacted State Budget Overview

MEMORANDUM
From: J.R. Drexelius

To: My Friends

Date: September 13, 2010

RE: Overview 2010-2011 Enacted State Budget

The Division of the Budget has released its Enacted State Budget Report for SFY 2010-
11. The 2010-11 Enacted All-Funds Spending Budget totals $136 billion. This is an increase of $9.0
billion from SFY 2009-10 Operating Results and an increase of nearly $4.0 billion from the Enacted
2009-10 All Funds State Budget. DOB has revised 2009-10 All Funds Spending to total $126.9 billion
as compared to the $131.9 billion spending plan adopted by the Assembly and Senate Democrats in
April of 2009. Spending in 2008-09, the last year Senate Republicans had any meaningful role in
budget deliberations, totaled $121.5 billion. The proposed spending plan is nearly 11% higher than
spending just two years ago.

Aid to Localities All Funds 2010-11 spending totals $97.7 billion, $6.6 billion over 2009-10
results and $4.5 billion over Aid to Localities spending as contemplated in the Enacted 2009-10 State
Budget. Aid to Localities spending has increased $10.4 billion from SFY 2008-09 Aid to Localities
spending of $87.3 billion.

State agency All Funds spending for SFY 2010-11 totals $25.5 billion, $359 million over 2009-
10 results. DOB now projects that All Funds 2009-10 State agency spending, including personal
services, non-personal services and fringe benefit spending, will actually total $25.2 billion, $461
million less than the $25.6 billion anticipated when the 2009-10 State Budget was enacted in April of
2009. State agency spending includes $13.1 billion for state employees' pay, $6.3 billion for employee
fringe benefits and $6.1 billion non personal service spending on supplies, equipment, leases and
travel. State Agency spending in SFY 2008-09 totaled $24.3 billion.

State spending on employee and retiree health benefits, employer contributions to Social
Security and the state pension system and other fringe benefits totals $6.3 billion, $605 million more
than 2009-10 results and $623 million more than the $5.7 billion anticipated when the 2009-10 State
Budget was enacted. Growth in fringe benefits is principally due to increases in the State's annual
contribution to the State Retirement System and the cost of providing health insurance for active and
retired State employees.

Pension costs are expected to increase by $374 million (32.7 %), totaling $1.5 billion in 2010-
11, even with the amortization in 2010-11 of contributions in excess of 9.5 percent, as adopted by the
Legislature. The State expects to save $262 million by amortizing a portion of its 2010-11 pension
obligation. Repayment of the amortized amounts will be made over a ten-year period at an interest rate
to be determined by the State Comptroller. While the Comptroller has announced that he expects to

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earn, on average, 7.5% on pension fund investments, DOB assumes repayment of the amortized
pension obligations will be no more than 5%. This is clearly a raid on the pension fund.

The State payroll was actually $446 million more in SFY 2009-10 than had been anticipated
in April of 2009. The 2010-11 state payroll is projected to be $89 million more than the enacted 2009-
10 payroll, but $357 million less than the actual 2009-10 payroll. Non Personal Service spending by
the State Agencies was reduced by $945 million last year. This year, NPS spending will increase $114
million from last year's results.

All Funds 2010-11 Capital spending totals $8.5 billion, $1.3 billion more than 2009-10 results.
2009-10 spending on capital projects was $1.7 billion less than anticipated when the 2009-10 State
Budget was enacted. All Funds Capital spending is $1.6 billion more than the $6.8 billion spent in SFY
2008-09.

The enacted 2010-11 State Budget authorizes $56.9 billion in state-supported debt. This $5.1
billion increase represents a nine percent jump in state-supported debt from the $51.8 billion
authorized just two years ago in SFY 2008-09. Debt service for SFY 2010-11 to support this massive
state debt will increase to $5.5 billion, $555 million more than 09-10 results and $986 million more
than SFY 2008-09 results, which then totaled $4.5 billion, a stunning 17.9% increase in State payments
to service its debt.

State spending for Healthcare will total $57.3 billion on an All Funds basis in SFY 2010-11.
All Funds State Medicaid Spending will total $45.3 billion, an increase of $1.6 billion from 2009-10
results. Medicaid State Spending in 2009-10 was $1.2 billion more than the $42.6 billion anticipated
when the 2009-10 State Budget was enacted.

Spending on other Public Health Programs, including Child Health Plus, EPIC, Early
Intervention, state support of General Public Health programs and various HCRA funded non-
Medicaid programs will total $4.5 billion in SFY 2010-11, a $343 million increase from 2009-10
results. Public Health spending in 2009-10 was $500 million less than the $4.7 billion anticipated in
April of 2009.

Health Insurance premium payments for State employees and retirees in 2010-11 total $3.0
Billion, $340 million more than 2009-10 results. (DOB estimates that New York's current GASB 45
healthcare liability, required to be recognized under GAAP accounting principles, now totals $55.9
billion. DOB also indicates that the State's current annual healthcare payments are $2.1 billion less
than would be required to fully fund current health care obligations of these employees and retirees
according to GAAP principles.)

Spending in support of SUNY and DOH hospitals and nursing homes totals $2.2 billion.
DOB has reclassified $128.7 million in State Support for SUNY hospital operations as Aid to
Localities spending, reducing General Fund transfer payments and increasing Aid to Localities
spending. State spending in support of mental illness, developmental disabilities and alcohol and
substance abuse not eligible for Medicaid reimbursement will total $1.5 billion in SFY 2010-11. The
State is also spending $361 million to provide healthcare to prisoners, $325 million to provide school

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based and community healthcare and $202 million for early intervention healthcare to preschool
children.

According to DOB, with the legislative changes contained in the enacted 2010-11 State Budget,
Total Medicaid Spending will reach $52.6 billion dollars in SFY 2010-11. This includes local
spending by the counties and New York City of $7.3 billion.

The 2006 law capping local Medicaid expenditures and providing for a takeover of all non-
federally funded Family Health Plus costs by the State provides over $2 billion in fiscal relief to the
counties and New York City while increasing state fund spending by a like amount. New York City
taxpayers receive 66% of this taxpayer relief, a total of $1.4 billion in City fiscal year 2010-11. County
tax relief outside New York City will total $700.7 million in County Fiscal Year 2011. This year, the
state Medicaid cap provided County taxpayers with $550.8 million in fiscal relief, while saving New
York City taxpayers $1.1 billion.

Based upon State spending results, it can be estimated that Total Medicaid spending in SFY
2009-10 totaled $50.5 billion. Total Medicaid spending is increasing by $2.1 billion in SFY 2010-11
compared to prior year results. Total Medicaid spending will be increasing $3.5 billion this year from
the amounts DOB originally estimated following enactment of the 2009-10 state budget.

State Medicaid Spending in the 2010-11 State budget totals $45.3 billion. This is an increase
of $1.6 billion from SFY 2009-10 Operating Results and an increase of nearly $2.8 billion from the
Enacted 2009-10 All Funds State Budget. DOB has revised 2009-10 Medicaid Spending to total $43.8
billion as compared to the $42.6 billion spending plan adopted by the Assembly and Senate Democrats
in April of 2009. On an All Funds basis, Medicaid Spending in 2008-09, the last year Senate
Republicans had any meaningful role in budget deliberations, totaled $38.9 billion. Medicaid spending
is over 14% higher than just two years ago.

All Funds Medicaid spending includes $39.2 billion on programs administered by the
Department of Health, $3.9 billion in funding for persons with developmental disabilities, $1.9 billion
in funding for persons with mental illness, $134 million on programs administered by the Office of
Children and Families, $126 million on programs administered by the State Education Department and
$109 million on programs for persons with drug or alcohol related disabilities.

DOB estimates that approximately $12.6 billion in total Medicaid spending is paid to New York
Hospitals (24%), $9.5 billion is spent on health care premiums for Managed Care and Family Health
Plus (18%), $6.8 billion is paid to New York Nursing Homes to care for the State's elderly and
disabled population (13%), $5.3 billion is paid for home care services intended to prevent more costly
institutional care (10%), $4.2 billion is spent on non-institutional care (8%), $2.6 billion is spent on
Pharmaceuticals and other drugs (5%) and $2.1 billion is spent on all other Medicaid programs (4%).

As a result of federal legislation, the State is temporarily receiving, through June of 2011, a
boost in its federal Medicaid Assistance. According to DOB, Federal Aid will total $31.1 billion in SFY
2010-11. State support for the Medicaid program will total $14.2 billion this year with local support

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estimated at $7.3 billion.

The Enacted Budget reduces State share Medicaid spending for Hospital by $314 million, this
will drive a loss of Federal support and local spending for a total reduction in Medicaid spending on
hospitals estimated at $1.2 billion. Similarly, a $92 million reduction in State share Medicaid spending
on Pharmaceuticals will drive reductions in federal and local spending for a total reduction in Medicaid
spending on pharmaceuticals of $341 million.

The Enacted Budget increases Total Medicaid spending on non-institutional programs by an

estimated $2.2 billion in SFY 2010-11 based upon a State share spending increase of $593 million.
Spending on Managed Care is estimated to increase by $1.1 billion based upon a State share spending
increase of $302 million. State share spending on Family Health Plus is expected to increase by $51
million. State share Medicaid Spending on Home Care will increase by $25 million in SFY 2010-11.
DOB estimates State share Medicaid Spending on Nursing Homes will also increase by $16 million.

Spending restraint affecting Healthcare totals $779 million, $44 million less than proposed by
the Executive. The Legislature rejected $216 million in provider assessment increases and the $450
million HCRA-related Sugar Taxes. Instead, the Legislature increased cigarette taxes by $1.60 per
pack for HCRA revenues totaling $260 million and required enforcement of cigarette taxes on Native
American Lands, valued at $114 million (State enforcement has been temporarily enjoined by both
State and Federal courts at this time). This total does not include savings of $61 million, in Mental
Hygiene savings related to reducing Medicaid rates, restructuring service coordination, improving audit
and recovery efforts and delaying community bed development for certain programs. The Legislature
increased spending restraint imposed on Mental Hygiene agencies by $15 million. DOB indicates that
litigation relating to state practices involving adult home placements for the mentally ill will drive $187
million in new mental health spending over the next four years.

The Legislature accepted the Executive proposal to include an additional $300 million in
Medicaid Fraud and Abuse recoveries, elimination of automatic Medicaid trend increases, saving $99
million, and the elimination of various HCRA programs in order to provide additional General Fund
relief. The enacted budget requires prior approval of the Insurance Department for health insurance
premium increases, saving the state $46 million but adding a political element to the health insurance
business. $61 million is saved by reducing managed care and FHP premiums by 1.7%. $24 million in
savings is derived from modifying the operation of the EI program, eliminating reimbursement to the
counties for certain General Public health programs (home health care, laboratories, EI administration
and Hospice). The Legislature rejected the Executive's proposal imposing parental fees for Early
Intervention services. The Enacted Budget also eliminates the insurance subsidies to small businesses
that provide mental health coverage under Timothy's Law (a $399 million increase in business costs).

The Health Care Reform Act (HCRA) provides $5.1 billion in health-related revenues and
supports a similar amount of health-related spending in the enacted 2010-11 budget. Revenues include
$2.4 billion in surcharges and $329 million in assessments on hospital revenues, $1.3 billion in
cigarette tax receipts and $1 billion from a “covered lives” assessment on health insurance carriers and
HMOs. Assessment is Albany-speak for tax.

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HCRA supports $3.0 billion in Medicaid spending, $871 million in hospital payments for the
care of indigents, $344 million for Child Health Plus, $203 million for the EPIC program, $122
million to support Public Health programs and $357 million in other HCRA programs, including the
SEIU inspired Workforce Recruitment and Retention grant program, a $198 million program. The
enacted budget increases HCRA spending on the Medicaid Program by 31% over SFY 2008-09 results,
an additional $913 million in Medicaid spending at the expense of other health-related HCRA
programing,

The Enacted Budget includes $64 million in HCRA spending reductions, including a reduction
from $14 million to $6 million in HCRA financing dedicated to Roswell Park's Anti-Tobacco Research
and includes $1 million for a new federally mandated Orthodontia HCRA initiative.

Along with the increase in the cigarette tax and Native American tax enforcement actions, the
Enacted Budget authorizes other changes which drive additional HCRA revenues and savings. A $432
million reduction in indigent care payments permits an increase in Federal Medicaid UPL payments to
hospitals which provide HCRA savings of $305 million. $60 million in new HCRA revenues or
savings include additional surcharge revenues from the additional Medicaid UPL payments, limits on
increases in Child Health Plus rates and premiums and changes in the EPIC appeal process. Finally,
the deferral of a $127 million Physician Excess Medical Malpractice payment provides a one-time
benefit to HCRA in SFY 2010-11. Taken together, these actions reduce General Fund Medicaid
spending by an additional $929 million in SFY 2010-11.

2010-11 All-Funds spending on Education totals $33 billion. This is an increase of $5.2
billion from SFY 2009-10 Operating Results and an increase of nearly $1.7 billion from the Enacted
2009-10 All Funds State Budget. DOB has revised 2009-10 All Funds Education spending to total
$27.8 billion as compared to the $31.3 billion spending plan adopted by the Assembly and Senate
Democrats in April of 2009.

All Funds Education spending results in 2009-10 are $2.06 billion below the 2009-10 Enacted
Budget estimates as a result of the deferral of the March 2010 School Aid payment. This payment was
made during the first quarter of SFY 2010-11. This allowed DOB to carry forward the 2009-10 budget
deficit into SFY 2010-11. This budgetary roll increases All Funds spending by $2.06 billion in 2010-11
and decreases All Funds spending in 2009-10 by a like amount. (DOB makes an adjustment to All
Funds spending in 2009-10 and 2010-11 to artificially reduce 2010-11 All Funds Spending to a stated
total of $133.8 billion.) Education spending in 2008-09, the last year Senate Republicans had any
meaningful role in budget deliberations, totaled $30.5 Billion. Education spending is 7.7% higher than
spending just two years ago.

School Aid spending of $26.3 billion for SFY 2010-11 includes $2.06 billion in 2009-10
School Aid. STAR, which provides additional State Aid to Schools in order to reduce local school
property and income taxes, is cut by $114 million to $3.3 billion. STAR Aid in 2008-09 was $4.4
billion. The $1.1 billion reduction in School Property Tax relief primarily reflects the elimination of
the STAR middle Class Tax rebate by the Democrats in 2009-10. Other Education Spending,
primarily Special Education spending for children with disabilities will increase by $652 million to
$3.5 billion in SFY 2010-11. DOB revised Special Education spending results for SFY 2009-10

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downward by $585 million from the $2.3 billion appropriated in April of 2009.

Of the $3.7 billion in spending restraint on Local Assistance, over half or $1.9 billion comes
from Education and includes a $1.6 billion direct cut to education, consisting of a $1.5 billion one-
time, wealth-equalized adjustment to formula-based school aid, and changes in the operations of the
State's lottery games and VLT facilities in order to increase lottery funding of the schools by $180
million. (The Legislature's attempt to restore $410 million in school aid was vetoed by the Governor.)
In addition, the Enacted budget implements $121 million in STAR reductions by reducing the benefit
to those earning more than $500,000 in NYC. Finally, the Enacted Budget saves $142 million in
savings related other Education/Special Education/Arts spending by using Available Federal ARRA
funding to reduce GF support for preschool special education costs and managing payments for
summer school special education costs.

Higher Education Spending totals $9.7 Billion in the Enacted 2010-11 State Budget. Higher
Education Spending is essentially the same as 2009-10 results. However, a $280 million increase in
spending on Capital and an additional $80 million in Federal Funds masks a $355 million reduction in
State operating support for Higher Education.

Higher Education savings of $343 million include Aid to Local Government savings of $224
million including a reduction in SUNY/CUNY Community College base aid of $106 million, a $48
million reduction in CUNY Senior College Aid (10%) and $70 million in HESC savings primarily
reflecting a reduction in TAP aid. (The Governor vetoed $107 million in Legislative restorations
including $56 million in Community college base aid funding and $51 million in TAP restorations).
SUNY Operating Aid is cut by $121.4 Million (10%).

2010-11 All-Funds Spending for Transportation totals $8.9 billion. This is an increase of $1.0
billion from SFY 2009-10 Operating Results and an increase of nearly $1.6 billion from the Enacted
2009-10 All Funds State Budget. DOB has revised 2009-10 All Funds Transportation spending to total
$7.8 billion as compared to the $7.3 billion spending plan adopted by the Assembly and Senate
Democrats in April of 2009. Spending in 2008-09, the last year Senate Republicans had any meaningful
role in budget deliberations, totaled $7.0 billion. Transportation spending is $2.0 billion higher than
2008-09 results, a 21.9% increase over just two years.

All Fund Spending on Human Services in 2010-11 will total $10 billion. This includes funding
for Family Assistance, Safety Net, SSI, HEAP and Child Care provided by the Office of Temporary and
Disability Assistance, which totals $5.1 billion in the Enacted 2010-11 Budget, $159 million less than
results for SFY 2009-10. Funding for the Office of Child and Family Services, including Child
Welfare, Child Care and Juvenile Justice totals $3.4 billion, $243 million more than 2009-10 results.

Human Services is reduced by $214 million, in part by reducing State reimbursement to

counties from 63.7% to 62% for Child Welfare services ($40 million); reducing spending in non-core-
mission programs, including Summer Youth Employment, Bridge, Supplemental Homeless
Intervention; a 17% reduction in Community Optional Preventative services (COPS) funding; a 10%
reduction to Child Advocacy Centers and Alternatives to Detention and Residential Placement funding;
reductions to other child welfare and human service programs previously funded with the TANF block

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grant ($85 million); and closing a number of youth facilities ($3 million).

All Funds spending on Public Protection in the Enacted State Budget totals $4.8 billion, $54
million less than 2009-10 results. DOCS prison spending of $2.8 billion is $151 million less than
2009-10 results. All Funds spending by the State Police will total $737 million in SFY 2010-11, $39
million less than 2009-10.

Local Government Aid is reduced by $325 million. NYC AIM aid of $302 million is
eliminated, as is AIM funding of over $668,000 for Erie County. Other municipalities will see a two to
five percent reduction in AIM funding, depending upon their reliance on this aid. Local Government
Aid will total $791 million in SFY 2010-11. Local Aid totaled $1.08 billion in SFY 2009-10, $55
million less than the $1.14 billion appropriated in April 0f 2009.

The 2010-11 Enacted Budget assumes $2.9 billion in new revenues.

• $399 million are non-re-occurring sweeps, rolls and recoveries (one shots);
• $372 million come from changes in the tax code permitting additional tax audits and recoveries
(including $114 million from Native American cigarette tax collection);
• $100 million more in Abandoned Property receipts, double the amount previously assumed; and
• $934 million in new taxes and fees, including:
• $330 million from the temporary elimination of the sales tax exemption on clothing,
• $320 million from an increase in the cigarette tax and other tobacco taxes;
• $100 million from the deferral of $2.8 billion in business tax credits until 2013,
• $100 million from temporarily limiting the allowable deductions of taxpayers earning
more than $10 million and
• $73 million in other tax actions, primarily by treating S-Corporation Gains and
Installment income as taxable to non-residents ($29 million).
• $41 million derived from raising fees on court filings and motions and other revenue
actions.
• $1.1 billion in temporary Federal aid, including $804 million in enhanced FMAP assistance and
$261 million in TANF resources

DOB estimates that the tax and fee increases adopted by Assembly and Senate Democratic
Majorities will increase revenues for the state by $5.9 billion over the next four years. The Legislature
rejected the Executive proposals permitting work-zone cameras for speed enforcement ($25 million);
imposing a new excise tax on soft drinks and other beverages ($465 million), increasing health care
provider assessments ($216 million) and imposing a new franchise fee to permit wine sales in grocery
stores.

If you have any further questions, I can be reached at 716-316-7552.

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