Governor Cuomo presents his 2014-2015 Executive Budget
In 1975 New York City was teetering on the edge of bankruptcy, having balanced its budget for years with massive borrowing and shady accounting tricks. Banks were at the point where they would lend no more. Mayor Abe Beame had written the announcement of the city's default. City lawyers were in State Supreme Court filing a petition for bankruptcy and police were prepared to serve the banks.
At the last minute bankruptcy was averted as the federal government provided the city with loans. Those loans combined with the state-created Financial Control Board, which required the city to use generally accepted accounting practices and provide four-year financial plans, are credited with turning things around.
Gone were the days when operating expenses were reclassified as capital investments, when labor costs were paid for with new loans, when raids on existing funds were acceptable ways to pay for new expenses. The city underwent such a turnaround in the following decades that its budget process is now thought to be a shining beacon across the country. The Financial Control Board that used to strike fear into the hearts of mayors is now a sleepy, almost forgotten entity.
The state government, however, is facing a crisis of its own--not a fiscal one, but a crisis of trust, brought on by a series of convictions of sitting legislators that was capped late last year by the convictions of former Assembly Speaker Sheldon Silver and Senate Majority Leader Dean Skelos. For years, the Silver and Skelos served as two of the 'three men in a room' deciding the budget with the Governor. It's a process that has been decried by good government advocates, reform-minded legislators, and the U.S Attorney, Preet Bharara, who brought Silver and Skelos to justice for abusing their positions.
"I think people should start to talk about budget transparency as a matter of ethics," said Sen. Liz Krueger, the Democrats' ranking member on the state Senate finance committee. "People really should care about the lack of transparency in the state budget process for a whole lot of reasons. One of them is that if you don't know what's going on, pay-to-play wins the day. If someone wants something in the budget they get it there with a whole lot of lobbying money that no one knows about. That's the harm, that's the danger and I'll tell you that happens constantly."
A number of major corruption cases, including Silver's, have centered on the opaqueness of the budget process that allows legislators and the governor to put aside secret slush funds. For example, Silver was able to direct discretionary funding to a cancer doctor who in turn sent Silver and his law firm lucrative clients suffering from a rare form of cancer.
Former Sen. Malcolm Smith was convicted in a scheme whereby he would provide a developer a $500,000 lump sum from the budget. A report from good government group Citizens Union found that the 2014 and 2015 fiscal year budgets had over $3 billion in lump funds, while Cuomo's proposed 2016 budget had around $2.6 billion. Citizens Union, Common Cause NY, and NYPIRG have this year called on legislators to support reforms making budget spending more transparent.
"Preet Bharara, the federal prosecutor who convicted both Silver and Skelos, basically said the strongest tool these guys had to game the system was unbridled power and an unbelievable lack of transparency in policing 'three men in a room,'" said Assemblymember Jim Tedisco, a Republican from the Capital Region who has proposed a bill that would force any pot of cash negotiated in the budget to be line-itemed and mandate that it is publicly documented how the cash is eventually spent.
"The other thing Bharara told us is 'if you see something, say something,'" Tedisco said. "I didn't know about these pots of money and I'm sure my Democratic colleagues in the chamber didn't know either. So if you don't know who got the money, you can't stop what's going on. We just don't have that transparency holistically."
Slush funds aren't the only part of the state budget that thwart transparency. Today the bad practices New York City was forced to abandon are commonplace in the state budget process. The state budgets without generally accepted accounting practices, routinely raids other programs, has lump-sum appropriations where spending is at times decided by memorandum of understanding between the governor and legislators, and routinely pushes expenses down the road.
This year Gov. Andrew Cuomo has proposed a slew of major infrastructure projects including the revamp of Penn Station and a third track for the Long Island Rail Road, but his budget proposal does not lay out how to fund them. Meanwhile, his budget continues funneling cash to economic development projects that are managed by entities with little transparency. Cuomo's Buffalo Billion project is currently under investigation by Bharara's office.
Frank Mauro, executive director emeritus of the Fiscal Policy Institute, who also served as the director of research for the city's last major charter revision and as secretary of the Assembly's ways and means committee, said that the differences between the city and state budget processes are striking. "I don't think many people know just how different the city process is from the state's," said Mauro.
The city budget process begins when the Mayor submits his Preliminary Budget to the City Council before January 21 each year (this was just moved from Jan. 16). Then the City Council holds public hearings over a period of several weeks, bringing in agency commissioners and budget directors to examine spending, considers budget priorities from community boards and borough presidents, and takes testimony from groups and citizens.
The Council must issue its findings and recommendations by March 25. The Mayor then has until April 26 to propose an Executive Budget, with explanations of programs as well as a fiscal outlook for the city. The Council then holds another series of public hearings which are followed by negotiations between the mayor's budget office and the Council finance division. These negotiations must result in a balanced budget by the end of June, with the new fiscal year beginning July 1.
The Council is allowed to increase, decrease, add or omit any appropriation for personal services, or omit or change conditions related to any appropriation. The Council then votes on the budget. The mayor can veto any additions or increases the Council adds but may not interfere with any decreases.
The city process also includes a significant role for the Comptroller, who oversees city contracts and audits city agencies. The Comptroller is the city's chief financial watchdog and analyzes the Mayor's budget proposals, performing independent forecasting, raising red flags, and making recommendations.
"In the state budget you have to investigate where the money has gone, where certain programs are accounted for, and even then, good luck," said Sen. Krueger. "Even the [state] comptroller's office does not know until years later what was actually spent."
The state process begins when the Governor devises an Executive Budget based on the needs of agencies and any programs he or she supports and delivers the budget to the Legislature. Both houses of the the Legislature put out their own budgets, mainly to signal their major priorities for the year. The Governor delivers his executive budget along with appropriation, revenue and budget bills by February 1. The Legislature typically holds a series of budget hearings on particular topics, like transportation and local governments.
Under reform legislation passed in 2007, the Legislature is supposed to convene conference committees between both houses to reach agreements on aspects of the budget and set priorities. These committees have been ignored in the past despite the reform legislation.
The Governor and Legislature are also required agree on a revenue forecast on or before March 1. They are generally very good at doing this, failure to do so results in the state Comptroller setting the forecast. The Legislature can only reduce or entirely remove spending proposed by the Governor and it has no control over the Governor's proposals for spending. The Legislature can add spending, but the Governor has the ability to line-item veto. The Legislature must vote on a budget by April 1, which is the start of the state's fiscal year.
It isn't until the budget is voted on that a new financial plan is created showing how all the changes impact spending. So while a budget may start as balanced under the Governor's proposed plan, it rarely ends that way.
The state budget is usually full of non-budget policies because the budget process gives the Governor the upper hand - the Legislature can either negotiate the Governor's priorities, stall, or fail to vote on a budget on time, in which case the Governor can simply issue emergency extenders that put his budget into place.
Budgets are normally negotiated exclusively between the two majority leaders of the Legislature and the Governor, and time and again budget bills are not given the three-day waiting period for review mandated by law. Instead, the Governor issues messages of necessity that allow the budget bills to be voted on immediately. The result is legislators voting on voluminous budget bills late at night, having little or no time to actually read them. "To say there is any level of public review is just insulting," Krueger said.
"I think the biggest difference between the state and city budget processes is that the state budget is a political negotiation and you don't see a financial plan until a month later," said Tammy Gamerman, a senior research associate with the Citizens Budget Commission (CBC). "With the city they tell you how they are going to balance the budget."
Adding further mystery to the state budget, Governor Cuomo has taken to combining his State of the State address and Executive Budget presentation, doing so this year and last. This leads to less public explanation of the budget and more focus on big policy initiatives the governor is backing. In his speech last week, the governor laid out a number of government ethics proposals, including public financing of campaigns. He did not discuss changing the budget process.
The city budget process is not perfect, of course. The City Council continues to push the Mayor to more specifically account for agency spending, providing more units of appropriation instead of lump sums. There is also a good deal of discretionary spending available to the City Council Speaker that watchdogs want more accounting for.
Sen. Krueger, who is one of the most outspoken legislators during late night state budget votes, picking at and tracking spending threads while most legislators are waiting to simply cast a "yes" vote and get back to their districts, said that 'three men in a room' has led to an absolute lack of budget transparency and alienated the public.
Krueger says she has seen a decrease in attendance at budget hearings, even from groups that have a lot at stake in the budget. "At the end of the budget process each year, after I'm done beating my head against the wall over one thing that made it through the budget process or the other, I come to find out there are 16 other things I missed," Krueger told Gotham Gazette. "I don't catch a huge number of things and I do care about this. So imagine what it is like for someone who isn't a legislator, who doesn't have experience with this. I want people to know they should be involved in the process. They should come to hearings just to point out 'Hey, you know New York has state parks that need to be funded and that isn't in here.'"
Most rank-and-file legislators and advocates acknowledge that budget reform is not a hot topic at the moment. The last time there was major attention on the subject was in 2009 when Senate Democrats briefly controlled the chamber. They issued a report that recommended conference committees be given control over larger sums of budget funds, that the state adopt generally accepted accounting principles, a two-year budget cycle, and the creation of a legislative budget office.
Krueger has since introduced bills that would create a state agency in the model of the city's Independent Budget Office - a nonpartisan, publically funded agency that provides information to elected officials and the public about the budget, reviews budget proposals, and provides policy analysis. The bill has gone nowhere in the Senate.
Krueger and other reformers also want to see the state require bills to have truthful financial impact statements. Currently, bills introduced from rank-and-file legislators, committee chairs, legislative leaders, or the Governor are supposed to have impact statements, but some simply lack them while others are presented in a dishonest way. Rather than presenting a program's cost for a year, some bills only represent a month's cost, or less.
Gamerman said she feels that some progress has been made toward budget transparency over the last few years.
"Accountability issues born of the financial crisis of the '70s forced the city to use generally accepted accounting principles," said Gamerman. "There isn't any similar oversight of the state. The state has increased transparency through the Open Budget website. There is more info on agency spending. One of the big differences between the city and state is the city does a much better job tracking performance with the Mayor's Management Report. The state has been talking about doing something similar."
Mauro said that he finds it unlikely there will be a major push for reform unless the Legislature feels the Governor is abusing his current powers because the status quo still works for the leadership. "It's an unlikely scenario where the Governor isn't running roughshod over the Legislature with budget powers that we'll see a push for change," said Mauro.
by David King, Albany editor, Gotham Gazette
Note: Gotham Gazette is an independent publication of Citizens Union Foundation, sister organization of Citizens Union.