The Dynamics of New York State Budget Process

The Dynamics of New York State Budget Process


By Paul Francis | February 6, 2024

Early next week, we will release Part One of a fairly in-depth Policy Brief on the FY 25 Executive Budget, which will include an analysis of the most important substantive issues in the Health and Behavioral Health parts of the FY 25 Executive Budget. What I want to talk about today is the dynamics of the Budget process, which I have watched closely since serving as Gov. Eliot Spitzer’s Director of the Budget in 2007. My observation from the last 18 budget cycles is that every Budget is influenced by the following dynamics:

  • aspirational goals versus quixotic quests;
  • the reluctance to create winners and losers in the Budget;
  • using the Budget as a policy vehicle as well as a fiscal program;
  • the rhythm of Budget negotiations; and
  • austerity budgeting in a time of plenty.

Aspirational goals versus quixotic quests

One of the strategic decisions a governor needs to make is the extent to which he or she will advance Budget proposals (or Program bills)that reflect aspirational goals that run the risk of becoming quixotic quests if the aspirational goal requires getting legislature to enact policies the legislature strongly opposes. This decision can have a defining impact on the way the press and other Albany insiders regard the strength and competence of a governor, because a loss on these issues can create an aura of gubernatorial weakness that became the press and insider narrative.

I learned this lesson the hard way with Gov. Spitzer. Although Gov. Spitzer had a number of important budget accomplishments in 2007, including the establishment of Foundation Aid in Education, the perception among Albany insiders was that he had been rolled by the legislature. Gov. Spitzer pursued the quixotic quest of “breaking” the rigid shares of School Aid distributions that benefited Long Island and other suburban school districts at the expense of New York City and urban districts upstate. Similarly, Gov. Paterson felt he needed to advance in a Program bill Mayor Bloomberg’s top priority of congestion pricing even though he knew it would be politically dead on arrival with the legislature. In last year’s budget, Gov. Hochul advanced an ambitious policy-worthy but politically-impossible Housing Plan that would have override of local zoning. The Housing Plan was promptly described as an “existential threat” to suburban Democrats and got nowhere with the legislature and its defeat overshadowed other accomplishments of the executive in the budget.

Gov. Cuomo had a very different philosophy. He had no interest in advancing worthy policy proposals that would win editorial praise but would erode his aura of invincibility when they were not adopted by the legislature. In addition to avoiding quixotic quests by not introducing unwinnable proposals, Gov. Cuomo took pains to read the political winds and sought to co-opt initiatives that had gained enough momentum with the legislature that they likely could not be stopped. Betting on sure winners was another way for Cuomo to enhance his aura of invincibility, which was a cornerstone of his political and programmatic strategy.

Gov. Hochul’s FY 25 Executive Budget includes fewer proposals than last year’s Budget which would require the legislature to take tough votes. She clearly got the message that “no good deed goes unpunished” and just advancing ambitious and noble policy proposals that are dead on arrival with legislature is counterproductive.

At the same time, Gov. Hochul is trying to exercise some level of spending discipline in the FY 25 Executive Budget, which can only be achieved through Budget reductions from baseline spending growth. For example, her School Aid proposal would reduce funding to a majority of school districts in the State for the very defensible reason that their enrollment has declined significantly. This would be accomplished by allowing the School Aid formula to run rather than being overridden by a “hold harmless” provision that ensures that no school district will receive less funding than it did in the prior year. The prospects for this proposal are probably dim, however, because it violates the next iron law of budget making dynamics.

The reluctance to create winners and losers in the Budget

The “hold harmless” provision in School Aid illustrates a cardinal rule of the budget making dynamic, which is the political system’s reluctance to create winners and losers in the Budget. Stakeholders are far more willing to accept across-the-board reductions than they are to acquiesce to programmatic changes that may be logical – even compelling – from a policy standpoint, but which makes some stakeholders winners and other stakeholders losers.

This dynamic creates cognitive dissonance for technocrats, like I was, who develop programmatic proposals in the belief that there should be a policy logic to the way Budget funding is distributed. Distribution formulas in theory operate under a Rawlsian “veil of ignorance” in which the winners and losers are not known until the formula is run. This objectivity conflicts with the real world of politics in which legislators and stakeholders only care about the outcome (for them) and are indifferent to the process that achieves the desired result.

This reluctance to create winners and losers often leads to a gerrymandering of the distribution formulas to get a more politically palatable result. This gerrymandering serves to maintain inefficient resource allocations compared to stated policy objectives. In the Health portfolio, among many examples of the conflict between neutral formulas and desired outcomes is the distribution formula for allocations of funding to hospitals from the Indigent Care Pool. For number of years, the Budget tried to create a soft landing for the losers under the distribution formula by creating a “transition collar” to smooth out the effects on winners and losers that resulted from a pure application of the funding formula.

The Budget as a policy vehicle as well as a fiscal program

The Budget is principally comprised of two types of bills: Appropriation bills that authorizes the State government to spend a specific amount of money for particular programs; and Article VII bills that propose changes to existing laws necessary to implement the Budget’s financial proposals. However, Articles VII bills are often used to implement policy changes that go beyond the minimum necessary to implement the fiscal aspects of the Budget. The distinction between these two types of bills lies at the heart of the Silver v. Pataki decision, which says, in effect, that the Legislature can accept or reject Appropriation bills, but cannot modify them. When the executive puts policy proposals in the

Appropriation bills (rather than standalone Article VII bills) to take advantage of the leverage of Silver v. Pataki, it is viewed as a hostile act by the legislature.

The policy embedded within the Article VII bills must have some linkage in the form of fiscal impact to the State to be included in the Budget. When I started in State government in 2007, the executive was more open to addressing purely policy issues through Program Bills that were considered in the second half of the legislative session, after the Budget was adopted. By the later parts of the Cuomo administration and continuing today, the prevailing view is that for any policy proposal of the governor to have a chance of adoption, it must be in the Budget. In effect, the first half of the legislative session (the Budget) is for the governor, and the second half of the legislative session is for the legislature.

A major reason that almost all material policy proposals of the Executive are included in the Budget is that it is the one bill the legislature must vote on. The legislature recognizes that and pushes back when the Executive Budget includes policy changes that have little, if any, fiscal impact. Except for the most important policy priorities of the Governor, the legislature’s strategy in rebelling against pure policy proposals being included in the Budget is to “just say no” at the negotiating table. At some point, when an agreement is reached on fiscal matters and a handful of major policy priorities are decided at the highest levels, the desire to get as close as possible to an on-time budget takes over and many run-of-the-mill policy proposals are left on the cutting room floor.

The rhythm of Budget negotiations

The New York State Constitution requires the State to enact a “balanced budget”(1) by 11:59 PM on March 31 of each year. For the 24 years of the Mario Cuomo and George Pataki administrations, New York never had an “on-time” Budget, with Budget enactment sometimes stretching into the summer.

One of the most serious decisions I had as Budget Director with Eliot Spitzer was when he told me a few weeks out from the budget deadline that the public cares deeply about whether a budget is completed on-time, because they see it as a sign that government is competent and functioning. I favored holding out beyond the March 31 deadline in an effort to gain more ground in the resolution of a number of tough issues. But Eliot was right. An on-time budget sends a powerful signal to the public and the press that the train is on the track. Gov. Andrew Cuomo shared the same conviction as Gov. Spitzer on this issue and he made on-time budgets an almost a religious imperative.

Achieving an on-time budget imposes a brutal timetable on the executive and the legislature. The governor introduces the Executive Budget in the second or third week of January. The legislature conducts Budget hearings which last for weeks as it digests the Executive Budget and as each House develops its own positions on the issues. In the first half of March, the legislature passes its “One-House” budgets, which sets off a furious 2-3 week effort to complete the Budget negotiations.

If an Executive Budget proposal is included in both one-house budgets, the issue is settled. If an Executive Budget proposal is included in only one of the one-house budgets, it often leads to the old Albany math of “1 + 1 = 3” and the measure has a good chance of making it into the enacted Budget. If an Executive Budget proposal is not included in either one-house budgets, it becomes an uphill fight for the executive.

Austerity budgeting in a time of plenty

When Gov. Cuomo took office in 2011, his staff said they were as shocked to discover that funding formulas in the Budget resulted in automatic increases in spending as Captain Louis Renault was to discover gambling in the back room of Rick’s Café in Casablanca. Unwinding many of the statutory formulas became part of Gov. Cuomo’s strategy to gain control over the budget making process.

Funding formulas and entitlement programs still automatically increase baseline spending every year. This is significant because any changes from that baseline spending under “current law” are considered “budget cuts” – even if spending is up year over year. The basic dynamic of budget making in New York is that the executive wants to shift some of that baseline spending growth to its own new priorities while maintaining some amount of fiscal discipline, while the two houses of the legislature want to increase spending to advance their own priorities and to prevent the Budget from creating losers. If there is sufficient revenue without increasing taxes to achieve a balanced Budget without cuts and without creating losers, the legislature has a fairly strong hand to play.

I expect that will be the dynamic this year for Gov. Hochul. Revenue has been much stronger-than-expected and there is a lot of money sloshing around. There is no single issue, such as Bail Reform was last year, that the governor must win in the Budget at all costs. The criticism that followed last year’s late budget may ring in the administration’s ears, which may be another motivation for the administration to take the best deal it can get by close to April 1 and just declare victory. However, I have never been known as a political seer and I would not advise readers to put money on this prediction.

(1) A discussion of what a “balanced budget” actually means will be left for another day.

Paul Francis is the Chairman of the Step Two Policy Project. He served as the director of the Budget in 2007 and as the Deputy Sec. for Health and Human Services from 2015-2020, among other government positions. This note and other writings by the Step Two Policy Project are also published on Substack, and are available at the Step Two Policy website.


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