MOODY'S ISSUES COMMENT ON STATE OF NEW YORK
MOODY'S ISSUES COMMENT ON STATE OF NEW YORK NEW YORK, Dec. 4 /PRNewswire/ -- Effective yesterday, Moody's
Investors Service assigned an A rating to $212,485,000 state of New York Dormitory Authority, State University Educational Facilities Revenue Bonds, Series 1991A; $14,575,000 Dormitory Authority, Upstate Community Colleges, 1991B bonds; and $103,805,000 New York State Urban Development Corporation, Correctional Facilities Revenue Bonds, Series 3. All of these issues are ultimately secured by annual state appropriations, and their ratings reflect the credit standing of the state.
The state's credit standing reflects its diverse and substantial economic base, but this source of strength is offset by structurally imbalanced finances and growing debt levels. Chronic financial problems weigh most heavily in the evaluation of New York State's credit position. The state has a long history of deficit operations, having reported balanced or surplus operations in only two years out of the last ten that it has reported in accordance with generally accepted accounting principles. The imbalance between revenue growth and expenditure demands has been exacerbated by the economic downturn, and the accumulated deficit has grown by $2.8 billion over the last three years to a level of $6.2 billion. Repeated efforts to realign spending and revenues have failed, and a large projected gap has again emerged midway through the fiscal year. Recent estimates project a 1992 deficit of $875 million, up from an estimate of $689 million several weeks ago, and the 1993 deficit is now expected to be at least $3.6 billion. The 1992 gap is dominated by economically driven spending overruns and revenue shortfalls as compared to budgeted amounts. In addition, approximately $100 million of the shortfall is explained by a failed "one-shot" included in the 1992 budget, a lag in Medicaid payments to providers. The 1993 gap reflects several factors; the absence of approximately $1 billion in nonrecurring resources relied upon in 1992; the loss of approximately $1 billion in revenue due to scheduled tax reductions; and the impact of a weak economy on revenue growth, Medicaid and income maintenance spending. This structural 1993 gap was identified when the 1992 budget was adopted, and originally projected at $1.8 billion. The most recent revisions to the projected 1993 gap largely reflect the revenue and spending growth impact of more pessimistic expectations regarding the timing and strength of the national and state economic recovery. A recovery originally projected to begin during fiscal 1993, is now expected to be delayed significantly, producing very large revisions to tax revenue forecasts. Over the last few weeks, the governor and the legislative leadership have been attempting to agree upon a multiyear accelerated budget plan to address both the current year and the 1993 deficits. Last week, the governor announced that agreement with the legislature regarding a multiyear plan had not been reached, and proposed a deficit reduction plan to address the 1992 imbalance. Negotiations continue on both the single-year deficit reduction plan and the two-year accelerated budget plan. The 1992 deficit reduction plan would close the $875 million gap through a combination of spending reductions and a small amount of short term borrowing, to include $95 million in deficit notes and $44 million in internal borrowing. The largest single cut proposed is approximately $250 million in school aid, followed by approximately $115 million in social services cuts, not including a second attempt at a lag in Medicaid payments designed to yield $100 million in one-time savings. Although formally not a two year plan, the actions outlined in the 1992 deficit reduction plan include a number of permanent proposals that would yield recurring savings on an annual basis, estimated at $1.4 billion for 1993. The major components are state workforce reductions of approximately 7,500 projected to yield $160 million in savings in 1993, sentencing reform designed to save $25 million, and $644 million in social services actions, primarily in Medicaid. The latter would include eliminating or limiting podiatry and dental services, limiting services for adult home relief recipients, limiting personal care program services, and imposing copayments to the maximum extent permitted under federal law. With less than four months remaining, options for funding the current fiscal year problem are extremely limited. More central to the evaluation of the state's credit standing is the approach taken to fiscal 1993, both substantively and procedurally. Given the magnitude of the state's budget imbalance, a reasonable plan to close the gap will require reductions in the state's spending base of the scope identified in the proposed deficit reduction plan. Many alternatives exist as to the distribution of cuts across the broad categories of state spending, as well as to specific options within these spending categories. However, sufficient savings cannot be generated without affecting all areas of spending, including the workforce supporting state operations, medicaid and other social services, and aid to localities. The proposed deficit reduction plan, by identifying permanent cuts across a broad base of state spending, provides a constructive framework for making the extremely difficult choices involved in achieving a budget solution. The small level of proposed deficit borrowing, if followed by a responsible plan that genuinely addresses 1993 and beyond, does not pose serious credit concerns. However, expanded deficit borrowing in order to postpone difficult spending cuts from 1992 to 1993 raises questions about the willingness to follow through with even more difficult cuts. Procedurally, because spending reductions of the magnitude necessary require significant implementation time to yield planned savings, serious and detailed negotiations regarding fiscal 1993 should already be well under way. In recent years, legislative debate over the budget has been characterized by contentious and intransigent defense of the state's extensive spending structure, producing long delays in adopting a budget while only affecting the level of state spending on the margin. These delays have limited the savings from cost cutting actions and produced tightly balanced budgets that are extremely vulnerable to adverse developments during the year. Many states and localities have felt the impact of deterioration in the economy beyond that expected when the budget was adopted. However, others are better equipped to respond because their budgets were adopted on time and maintain a reserve of revenue and spending actions for such contingencies. In contrast, New York State exhausts these options in adopting the budget. Similarly, many states have already begun to outline options for fiscal 1993 in light of changed economic expectations, even though their fiscal years do not typically begin until July. With the beginning of New York State's fiscal year less than four months away, current discussions of its 1993 problem can only be considered accelerated in comparison to the now routine delays in adopting a budget. A viable plan to achieve balanced operations will require changes in the process by which the administration and the legislature reach compromise such that timely agreement can be reached on fundamental broad-based spending reduction plans for the longer term. -0- 12/4/91 /CONTACT: George W. Leung, 212-553-0342, or Renee Bolcourt, 212-553-7162, of Moody's Public Finance Department/ CO: ST: New York IN: SU: RTG SM-KW -- NY075 -- 9352 12/04/91 16:18 EST
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|Date:||Dec 4, 1991|
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