As attorney general, I uncovered schemes by lenders to exploit students, plots by insurance companies to defraud patients and attempts by Wall Street to deceive homebuyers. In the past 30 days, as I have prepared the state's budget, I was shocked to learn that the state's budget process is a sham that mirrors the deceptive practices I fought to change in the private sector.
The budget process is a metaphor of Albany dysfunction: special interests dominate the process with little transparency; programs continue with no accountability and the taxpayers get the exorbitant bills. The greatest challenge - and opportunity - in this year's difficult budget is to expose this chronic problem and reform it once and for all.
Here's how it works.
This year it is widely accepted and often reported that the state has a $10 billion "deficit" (I myself have often repeated this number). What does that mean? It is the difference between state revenues and the state's growth in spending in next year's budget. The next question is: who is responsible for setting the growth in the state's budget?
The answer is shockingly, no one.
It is dictated by hundreds of rates and formulas that are marbleized throughout New York State laws that govern different programs - formulas that have been built into the law over decades, without regard to fiscal realities, performance or accountability. The formulas operate year after year, generating liabilities that when totaled define the state's budget growth. The one thing the rates do well is increase year after year. These formulas (predominantly in education and Medicaid funding) are often inserted into the law by pressure from well-connected special interests and lobbyists. When a governor takes office, in many ways the die has already been cast.
Unbelievably, this year these rates and formulas in total call for a 13 percent increase in Medicaid and a 13 percent increase in education funding next year. A 13 percent increase, in this economic climate, is wholly unrealistic. Wouldn't you like your salary or savings account to be based on a formula that gave you a 13 percent increase even though inflation was under 2 percent? The world doesn't work that way - except in Albany.
Besides dictating numbers, this process frames the dialogue around the budget and biases the political discourse. First, the rate of increase is rarely discussed. The 13 percent increase this year is close to a state secret. I spoke with numerous experienced Albany hands who had no idea the programs increased 13 percent. In Albany speak, "deficit" means the amount needed to fund the 13 percent increase (as opposed to a normal rate of increase). For example, if one assumed these programs would increase at the rate of inflation (instead of 13 percent) the 10 billion dollar deficit is really a 1 billion dollar deficit. A "cut" is then defined as anything less than a 13 percent increase. By forcing the debate to start with such a large hike - the final budget ends up spending much more than the year before - even after the Governor attempts "cuts." For example, what is called a 7 percent cut in spending is actually a 6 percent increase over the prior year.
The expression used to explain this budget process is that the rates are in "permanent law," and thus, cannot be changed. "Permanent law" is a term to suggest differentiation from the state's annual budget bills which are "temporary" as they only exist for one year. This "permanent law" is really the way the "permanent government" of lobbyists, special interests and political friends manipulates the entire system and misleads the public in the process.
This is the system that has brought New York to the brink, and it is why we are the highest "spending-and-taxing" state in the nation with programs that fail to perform for the people.
This all must end. We need fundamental reform in the budget system that allows us to recalibrate spending this year to a sustainable level and replace "the special interest protection program" of automatic, unrealistic increases. There is no such thing as "permanent" laws and they must all be reviewed and replaced or modified when necessary. The state budget should increase based on objective, fair criteria such as the rate of inflation, enrollment, the Consumer Price Index (CPI) or personal income growth. Programs should be reviewed for effectiveness and terminated if they are not working well. Reimbursement rates should be negotiated to get the best bargain. Performance should be measured.
Albany must give up its insistence on pleasing the special interests rather than serving the people. This is the real budget battle that I will wage this year. We must balance this year's budget but we must also reform the process so that the cycle finally stops. This year's budget is not merely about the numbers. It's about our values and our future.