Civil Service Enforcement/

Research Department and

Legislative Department

TO:           Executive Board Members, Regional Coordinators, Statewide Labor/Management

                  Chairs, and Council Leaders

FROM:     Thomas Cetrino, Brain Curran, Martin O’Connor, Susan Mitnick, Stephen Connolly,

                  Michael Marinello, and Amy Sisson

DATE:      May 9, 2003

RE:           SFY 2003-04 Budget Passed by the Legislature – Final Revised Summary of Major Provisions

Last week we forwarded you a preliminary analysis detailing the major changes contained in the budget enacted by the Legislature. This memo replaces that memo and documents all of the major changes made in the enacted state operations budget from the Executive Budget as amended by the Governor in his 30-day amendments. It also corrects minor errors in the May 2, 2003 memo. We have also attached to this memo a guide to help you better understand this analysis as well as the analysis contained in detailed agency spreadsheets which are mailed separately to the Executive Board members and Statewide Labor/Management Chairs that represent those agencies. This memo and all agency spreadsheets will also be available on PEF’s website next week by going to the Budgets link and looking under 2003 Budget Information or by going to the Budget Fightback link. When the Report of the Fiscal Committees on the Executive Budget, also known as the “Green Book”, is jointly issued by the Senate Finance Committee and the Assembly Ways and Means Committee, we will forward additional information concerning legislative intent in regard to the changes the Legislature made to the Executive Budget.

The Assembly and Senate passed budget legislation last week that would enact a budget for SFY 2003-04. The total spending authorized by this budget is between $92.7 (Legislature’s estimate) and $93.127 billion, or between $1.9 and $2.327 billion more than the Governor’s proposed Executive Budget.

Last week, the Division of Budget (DOB) released an analysis of the budget bills passed by the Legislature that claims that the budget enacted by the Legislature does not provide adequate revenue to support their additional spending and may result in 225 layoffs. Our analysis indicates that except for 52 potential layoffs in DMV, the DOB analysis does not substantiate their claim. The DOB analysis is available at http://www.budget.state.ny.us/pubs/ supporting/ prelimAnalysis0304.pdf. The Senate Majority Finance Committee released its own explanation of the enacted SFY 2003-04 budget which disputes many of the claims made by DOB. The Senate Majority analysis is available at Staff Report on the SFY 2003-04 Adopted Budget.

The Governor has indicated that he intends to veto many of the additions made by the Legislature to his budget. He has until May 14, 2003 to make his line item vetoes, which could amount to between 1200 and 1400 vetoes, all of which must be separately voted on by each house of the Legislature. If the Governor vetoes an addition made by the Legislature, the provision does not become law until the each house of the Legislature overrides the Governor’s veto. As of now, both Speaker Silver and Senate Majority Leader Bruno have stated that they have the votes necessary to override the Governor’s vetoes if he makes them. The margin is particularly close in the Assembly where 100 votes are needed to override the Governor’s veto. There are 104 Democratic Assemblymembers; all but one of the Republican Assemblymembers (Pat Casale) voted against most of the budget bills and all but Assemblyman Casale are expected to support most if not all of the Governor’s vetoes. Senator Bruno has indicated he would still like to compromise with the Governor and avoid a veto battle, and talks are continuing, but it is unclear what the results of these talks will be. President Benson has already launched a union-wide effort to support the Legislature’s enacted budget and encourage all legislators to override any vetoes by the Governor.

• Rejecting the Executive Budget proposal to create a single appointing authority at OMH and to not require full twelve months notice of psychiatric centers closings.

• Rejecting the Executive Budget proposal to allow the SUNY Board of Trustees to privatize the SUNY Health science centers in Stonybrook, Brooklyn, and Syracuse.

• Restoring $27.3 million to fully fund the employee health insurance program and rejecting the Executive Budget proposal to raise non-represented employees’ and retirees’ health insurance premiums.

• Rejecting the Executive Budget proposal to transfer the State Library, State Archives, and State Museum from the State Education Department to a public benefit corporation. The enacted budget also rejects the Executive Budget proposal to move VESID to DOL and the Office of Professions to the Department of State.

• Rejecting the Executive Budget proposal to move the Commission on the Blind and Visually Handicapped from OCFS to DOL and the Office of Aging.

• Approving a temporary higher tax bracket for single taxpayers with taxable income of over $100,000 and couples with taxable income of over $150,000. According to the Senate Majority Report, this will raise $1.683 billion in SFY 2003-04 and $1.244 billion in SFY 2004-05; DOB claims it only raises $700 million in SFY 2003-04, $1.9 billion in SFY 2004-05, and $1 billion in SFY 2005-06.

• Closing a corporate loophole by no longer allowing corporations to use passive investment companies/subsidiaries to reduce their State corporate franchise/income tax. According to the Senate Majority Report, this reform will generate $115 million in SFY 2003-04 and $95 million in SFY 2004-05. DOB claims that this provision will raise nothing because of technical defects in the language.

• Decoupling from the Federal Bonus Depreciation provision, which gave corporations a greater reduction in their federal and State corporate franchise tax for investing in qualified property and equipment no matter where those investments are made (including foreign investments). According to the Senate Majority Report, this will raise $95 million a year; DOB claims that it will raise $58 million in SFY 2003-04, $100 million in SFY 2004-05, and $90 million in SFY 2005-06. The Fiscal Policy Institute believes this reform will raise more revenue than projected by the Senate Majority report and DOB.

SUMMARY OF EXECTIVE BUDGET PROPOSALS FOR MAJOR STATE AGENCIES This section highlights the major changes proposed in the Executive Budget for the major State agencies. Executive Board members and Statewide Labor/Management Chairs will receive a more detailed analysis for these agencies in a separate mailing. In most cases, agencies that are not mentioned in this analysis have not had any major changes made to their State Operations budget as proposed in the Executive Budget.

Office of Mental Health

Department of Health

• Restores $2 million Special Revenue-Other funds in the Health Care Standards and Surveillance Program for Triplicate Prescriptions Forms.

• Reduces nonpersonal services in the Medicaid Management Information System Program by $3 million.

• Reduces personal services in the Regulation Program by $1,945,000. Reduces nonpersonal services by $365,000 and fringe benefits by $690,000. It is unclear whether this will affect current staffing levels in the department; the DOB analysis does not cite this reduction as one which would impact the State workforce.

• Eliminates $10 million for a proposed forge-proof pharmaceutical prescription program in the Regulation Program.

• Denied the Executive Budget proposal to move the Commission on the Blind and Visually Handicapped to the Department of Labor and Office for the Aging.

• Rejects the transfer of 20 year olds to the Department of Correctional Services.

• Provides funding for the Evidenced Based Community Initiative.

• Increases All Funds funding by $8 million. This is the result of cuts in the General Fund (-$740,000) and the Special Revenue-Other (-$4,750,000) funds, and increases in the Special Revenue Fund-Federal (+$12,772,000) and Fiduciary (+$814,000) funds. Most of this is a result of full-year funding for the Commission on the Blind and Visually Handicapped ($17,951,000).

• Adds $145,000 to the Administration program ($32,000 in Maintenance Undistributed and $113,000 in Fiduciary Funds).

• Denies the merger of the Office of the Welfare Inspector General’s Office into the Office of Temporary and Disability Assistance.

• Decreases All Funds appropriations by $18.6 million. This is the result of a $13.6 million cut in General Fund support and a cut of $5 million in Special Revenue Funds-Federal.

• A reduction of $1 million in Maintenance Undistributed funding in the Administration program related to the denial of the merger of the Welfare Inspector General’s Office.

• Rejects the proposal to move the Cultural Education program to a new public benefit corporation, the New York Institute for Cultural Education in the Council on the Arts.

• Rejects the proposal to transfer the Office of the Professions to the Department of State and consolidate it with the Business and Licensing Services program.

• Rejects the proposal to merge portions of the State Education Department’s (SED) Vocational and Educational Services for Individuals with Disabilities (VESID) and portions of OCFS’s Commission for the Blind and Visually Handicapped into the Department of Labor.

• Adds $78.2 million to the All Funds appropriation for a total increase of $71.7 million over last year’s budget. The appropriation increased by the Legislature was made up of increases of $5.5 million in the General Fund, $40.3 million in Special Revenue Fund-Federal, and $31.9 million in Special Revenue Fund-Other. Most of the overall increase in the SED State Operations budget is due to an unexplained $72.79 million increase in the Special Revenue Federal appropriation in the Federal DOE fund within the Elementary and Secondary Education program.

• Decreases by $5.7 million the proposed across-the-board Management Efficiencies program cut of $8.7 million. This means that SED has to make $3 million, rather than $8.7 million, in across-the-board State Operations cuts in SFY 2003-04.

• Denies the Executive request to authorize the Board of Trustees to restructure and privatize the SUNY Health Science Centers.

• Reduces the in-state tuition increase from $1,200 to $950 per year, a $250 decrease.

• Increases out-of-state tuition by $4,700 to $13,000. According to DOB, if lower out-of-state tuition increases are adopted, it could result in operating cuts of $52 million in SUNY. The Governor could direct the SUNY Board of Trustees to take this action.

• Denies the Executive request to transfer the Commission on the Blind and Visually Handicapped from the Office of Children and Family Services to the Department of Labor.

• Denies the Executive request to transfer the Vocational and Educational Services for Individuals with Disabilities from the State Education Department to the Department of Labor.

• Denies the Executive request to merge the Employment Relations Board with the Public Employment Relations Board.

• Reduces All Funds funding by $57 million relating to the denial of these proposals but which still reflects a $29.4 million increase over last year’s budget which is mostly due to Special Revenue-Other and Special Revenue-Federal increases in the Unemployment Insurance Fund.

• Reduces funding for the Employment Relations Board by $500,000. This was from the Maintenance Undistributed funding and was for the Empire State Advantage: Excellence at Work program.

• Article VII legislation (S1406-B, section E2) establishes a special task force to report on funding options for the New York State Occupational Safety and Health Hazard Abatement Board.

• Rejects the proposal to create the new public benefit corporation, the New York Institute for Cultural Education (NYICE).

• Decreases All Funds funding by $11,970,000 which relates to the rejection of the NYICE proposal. Overall, the Council’s budget increases by $72,000 over last year’s budget.

• Adds $137 million to Capital Projects. All of these funds are found in the Non-Federally Aided Highway Capital Projects account. $100 million is allocated for fully restoring letting levels for “the costs of the contract services provided by private firms performing preventive maintenance and for expenses of highway maintenance.” The remaining $37 million is added to the engineering services portion that may be used to support DOT engineering positions or consultant engineer positions. According to DOB, new revenues are not available to support this increase and the Legislature has not extended a Federal mandate regarding penalties for certain drug related traffic offenses. DOB estimates this will result in the loss of $27 million in Federal highway aid during SFY 2003-04, which will grow to $54 million in SFY 2004-05.

• Reduces by $5,777,000 the General Fund maintenance undistributed state operations appropriation related to services and expenses of tourism marketing in the Marketing and Advertising Program. While this cut is in the State Operations program, the language governing the appropriation states that “all or a portion of this appropriation, may, subject to the approval of DOB, be transferred to the general fund, local assistance account, for local tourism promotion matching grants program pursuant 5-A of Economic Development law.” Therefore it is unclear how much of the total appropriation for this program is currently used to fund state employee positions. There remains a $5.4 million State Operations appropriation for this program and a specific $5,777,000 local assistance appropriation for the local tourism promotion matching grants program. The DOB analysis does not identify this cut as one which threatens state employee positions. According to the Senate Majority Staff Report on the SFY 2003-04 Adopted Budget, the Legislature simply denied the Executive Budget proposal to merge the I Love New York Tourism Advertising Program and the Local Tourism Promotion Matching Grants Program into one state operations appropriation.

• Adds $4,891,000 to the Forest & Land Program. All of the increase is found in a Maintenance Undistributed General Fund State Operations appropriation for personal services, fringe benefits, and other indirect costs related to projects and purposes authorized to receive funding from the open space account of the Environmental Protection Fund, including suballocation to the Department of Agriculture & Markets and the Office of Parks, Recreation and Historic Preservation.

• Adds $33,625,000 in a Special Revenue Other appropriation for the Solid & Hazardous Waste Management Program. This add is distributed as follows:

- Increases the Waste Tire Management & Recycling Fund maintenance undistributed appropriation by $5,625,000. This increase is funded by expanding the Executive’s proposed $2.50 recycling fee for each tire sold to new car sales which will generates $5.625 million in SFY 2003-04 and $11.2 million when fully annualized. According to the Senate Majority Staff Report on the SFY 2003-04 Adopted Budget, fees associated with this program will generate $28.1 million in SFY 2003-04 and $56.2 million when fully annualized.

- Adds $28 million for the Hazardous Waste Remedial Fund (Site Investigation & Construction Acct) for services and expenses to implement the Environmental Quality Bond Act of 1986. Approximately $20.4 million will be for personal services and fringe benefits. A suballocation of $6.5 million will support services and expenses related to hazardous waste remedial programs for DOH and Department of Law.

- This additional appropriation was necessary because the Legislature denied the Executive’s proposal to shift 254 positions in the Solid & Hazardous Waste Program supported by Special Revenues Fund Other to the Environmental Protection Fund (EPF). The Legislature reduced the Capital Projects funds associated with this shift by $25 million.

• Provides that up to $77.960 million may be transferred from the EPF to the General Fund. The Governor proposed a $20 million sweep to the General Fund. According to DOB, the Legislature would be sweeping an additional $33 million in undisbursed balances from the EPF to the General Fund to pay for moving a $33.625 million appropriation from a Capital Projects appropriation to a Special Revenue Other appropriation. DOB claims the balances remaining in the EPF will be insufficient to manage the program and will require DEC to delay important environmental protection projects. It is unclear how this could be true since DOB was using the same EPF funding to support this program as a Capital Projects appropriation.

• No proposal for Superfund/Brownfields is included. Denies the Executive proposal to merge the three separate Superfund, Oil Spill, and Voluntary Cleanup Programs into one pay-as-you-go program.

• Denies legislation for a photo document fee increase that would have added 126 FTEs for the new Homeland Security Identification Centers that are intended to enhance oversight and security for the issuance of new driver’s licenses and non-driver identification cards. This results in the elimination of all funding (an $8.471 million cut) for the newly created Identification Document Security program, which was supposed to fund 126 new FTEs. According to DOB, the failure to provide funding for these new Centers, for which staff have already been hired and trained, will jeopardize this initiative, including at least 50 “supporting” staff positions. According to PEF leaders in DMV, there are 52 PEF members currently working in the Centers across the State, some of whom transferred from the Rochester and Suffolk DMV offices that have been closed.

• Adds $2.5 million in a capital projects maintenance undistributed appropriation for “services and expenses related to the establishment, operation, and maintenance of stationary offices in Rochester and any incorporated village in the county of Suffolk with a population of 7,000 or more.” It is possible that some of this funding could be used to support the 52 PEF positions eliminated in the Identification Document Security program. PEF is asking the Legislature about their intent regarding DMV and the Identification Security program, and will meet with DMV management to determine what actions the agency may take.

• Decreases by $1.8 million the non-personal service appropriation for the Administrative Adjudication program. According to the Senate Majority Staff Report on the SFY 2003-04 Adopted Budget, this decreased appropriation was related to DMV’s E-ticketing initiative.

• Approves legislation for a new vehicle inspection program resulting in 27 new positions.

• Reduces the General Fund appropriations by an additional $500,000. The entire reduction is found in the Administration Program’s non-personal services appropriation and is related to the relocation expenses of the Department.

• Denies the Executive’s proposal to shift the funding for 18 positions to the Environmental Protection Fund (EPF). Adds $1,356,000 in a maintenance undistributed appropriation for the Parks Operation Program to support personal services expenses and costs associated with the EPF related positions.

• Reduces the General Fund nonpersonal services appropriation in the Office for Technology program by $1,600,000 which results in an $11.092 million decrease from last year’s nonpersonal services appropriation.

• Denies the Executive proposal to abolish the State Liquor Authority and transfer its functions to ABC. Adds $171,000 in personal service, $62,000 in fringe benefits, and $7,000 in indirect costs to the Administration Program to fund the positions restored due to the denial of this proposal.

• Denies transfer of the Office of the Professions from the State Education Department, reflected by the reduction of an $18.3 million Special Revenue-other appropriation in the Business and Licensing Services program.

• Reduces the nonpersonal services appropriation in the Technical Police Services program by $2 million, which still results in a $1.343 million increase over last year’s appropriation.

• Adds a $4.0 million maintenance undistributed appropriation to the Administrative and Data Processing Program.

• Rejects the Executive proposal for $3 million for development of a statewide voter registration database in the Regulation of Elections program.

• Eliminates $3 million in Special Revenue-Federal funds in the Regulation of Elections program related to the Help America Vote Act of 2002.

• Reduces the non-personal services appropriation in the Executive Direction Program by $132,000, which results in the same level of funding as last year.

• Reduces funding for the Administration program by $350,000 in personal service and $491,000 in nonpersonal service reflecting the denial of the executive proposal for the transfer of the State Employment Relations Board from the Department of Labor to PERB.

• Adds $3.8 million to the Workers’ Compensation program reflecting the denial of the Executive proposal to move off-budget certain costs for workers’ compensation benefits and payments for employees of insolvent self-insured companies.

The Legislature passed S4902/A8352, which will allow the Comptroller to make changes in the way the State and local governments are billed for their payments to the New York State Retirement System. The Comptroller has told PEF that he supports this legislation and will implement it. The major provisions include the following:

• Beginning in 2003, the timing of bills to employers for their contributions to the State retirement system will change. At present, employers get an estimate of their bill each year, but do not get the actual bill until later in that year. The estimated payment is based on the Retirement System’s investments’ estimated performance for the current year; the actual bill is based on the actual performance of the Retirement System’s investments’ performance for the current year. Under the new language, employers will get their actual bill in advance based on the previous year’s Retirement System’s investments’ actual performance so they will know their final contribution figure before their fiscal year begins.

• Employer contributions will continue to be based on actuarial calculations to keep the fund solvent, but there will be a new minimum annual employer contribution of 4.5% of payroll. This is intended to reduce fluctuations in employer rates. It does not affect employee contributions.

• Beginning in SFY 2005-06, it eliminates a right that the State has under current law to defer payment of its annual pension contributions into the next fiscal year. This is done in part because the State will now get its actual bill in advance and can therefore budget accurately for that cost.

• For the current fiscal year, this bill has the effect of reducing the expected employer contributions from 11% of payroll to 4.5% of payroll.

• For the next fiscal year it is expected that employer contributions will increase. This bill provides that if the rate increases to more than 7% of payroll next year, the amount of increase over 7% can be amortized over a five-year period.

• Local governments are allowed to amortize over five years the costs of Early Retirement Incentives from 2002.

The DOB analysis claims that the SFY 2003-04 budget enacted by the Legislature will result in a “potential $1.53 billion budget shortfall” this year, a $5.343 billion budget gap in SFY 2004-05, and a $7.7 billion budget gap in SFY 2005-06. DOB has criticized the Legislature by stating that their budget “increases the State’s out-year gaps over the next two years to a staggering $13 billion.” Their press release neglects to state that the proposed SFY 2003-04 Executive Budget had a $2.8 billion gap in SFY 2004-05 and a $4.146 billion gap in SFY 2005-06, for a total gap of $7 billion over the next two fiscal years. DOB also did not state that $1 billion of the cumulative budget gaps are due to revenue shortfalls in SFY 2002-03 that the Executive Budget did not address. It appears that DOB’s projected potential $1.530 billion gap for SFY 2003-04 is based on the assumption that much of the revenue from the income tax surcharge will not be received by the State by March 31, 2003. DOB also appears to have ignored the pension reforms enacted by the Legislature in S4902 as it attributes $615 million of the potential budgets gaps for SFY 2003-04 through SFY 2005-06 to “denial of the Governor’s pension reforms.” It is clear that both the proposed SFY 2003-04 Executive Budget and the SFY 2003-04 budget enacted by the Legislature have substantial budget gaps in the next two fiscal years. It is unclear whether the proposed Executive Budget or the budget enacted by the Legislature would result in budget shortfalls in SFY 2003-04. We will continue to analyze and monitor this issue with the Fiscal Policy Institute.

Attached is a list of all the revenue increases approved by the Legislature, excluding fee increases which are too numerous to list, and how much the Senate Majority estimates each would raise over the next two fiscal years. We will continue to update you on the budget veto process if it begins next week and the status of the SFY 2003-04 budget.