Watchdog groups urge prudence with state's $5.1 billion surplus

Nov 13, 2014

New York state will begin 2015 with the largest one-time windfall budget surplus since the end of World War II, due to settlements with major banks after the financial crisis. Fiscal watchdog groups are warning lawmakers not to go crazy with ideas for how to spend it.

The settlements from Bank of America, PricewaterhouseCoopers and other financial institutions have netted the state $5.1 billion in settlements over alleged misconduct during the 2008 Wall Street meltdown.

E.J. McMahon, with the Empire Center, likens the windfall to choices a household might have to make when it suddenly gets a small unexpected inheritance of $3,000. He says everybody gets excited, with one family member wanting a kitchen rehab with granite counter tops, another wanting premium cable with more sports channels.

But he says the best course is to spend the money on what’s really needed.

“Use it to repair the roof to keep the rain from coming in,” McMahon said.

McMahon says Gov. Andrew Cuomo and lawmakers should resist temptation and spend the money on necessary upkeep of infrastructure. He says the MTA is predicting a $15 billion gap, and Cuomo has not yet detailed how he’ll finance a $3.9 billion new Tappan Zee Bridge on the New York state Thruway over the Hudson River. But McMahon says there are other necessary things that need to be done.

“The non-glamorous part of the infrastructure budget is what constantly gets short shrift from politicians,” McMahon said. “Nobody gets a standing ovation for replacing an old sewer line or for reconstructing an existing road.”

The Empire Center is fiscally conservative. The Fiscal Policy Institute is known of its progressive outlook. But FPI’s Fred Floss agrees with McMahon, saying when it comes to spending the windfall, boring is best.

“Legislators aren’t going to want to hear this," Floss said. “It needs to be a lot of small projects that give us a lot of benefits, not very fancy projects that come due in a year or two, when reelection comes up so they have something to point to.”

Floss says the money could also be used to replenish reserve funds for local governments and school districts, who’ve had to draw down their reserves in recent years to pay for operating expenses.

Betsy Lynam is with the non-partisan Citizens Budget Commission. She says the state could pay off some of its large debt.

“That reduces costs for taxpayers in the future,” Lynam said.

Cuomo has not spelled out how he would like to spend the surplus, but he’s mentioned several ideas, including a central infrastructure bank to pay for road and bridge repairs. He’s also said he might like to use some of the money for economic development aid for some upstate cities, modeled after the Buffalo Billion, where the state gave $1 billion to the Buffalo area over a multi-year period to boost the region’s economy. The governor also said he would use some for tax credits to local governments who consolidate their services with other municipalities.  

Some in the state legislature have suggested tax cuts and more money for schools. But watchdog groups say that would cause funding problems later on when the one-time windfall runs out. Lynam, with Citizens Budget Commission, admits it will not be easy for politically driven lawmakers to be prudent.

“It’s going to be hard,” Lynam said.

It might be January before the full details of how to spend the windfall are revealed in the governor’s state budget plan.