Hochul Stores Billions in Slush Funds, Continuing Cuomo-Era Budgeting Practices

For years, New York governors have used the annual state budget to create slush funds from which they can dole out billions of dollars, with little oversight and often in secret.

Hochul, who has claimed transparency as one of the signature themes of her administration, pledged a break from the past in financial practices. Announcing her first budget in April, she touted the $220 billion agreement as a model of “unprecedented fiscal responsibility.”

Some measures included in the budget or planned for the coming weeks are indeed moves in that direction. But others continue and even expand New York’s history of placing billions of dollars in state cash outside public review or the normal spending process.

One move hailed by many budget watchdogs was Hochul’s successful push to make record-breaking contributions to the state’s cash reserves, boosting their balances to more than $19 billion over the next three years. Most of that money will be deposited into funds that can only be drawn down when taxes come in lower than expected or the economy fares badly, a step Hochul pledged to take during the budget process.

But this year’s budget also steered enormous pots of money to funds with vaguely defined purposes, continuing untransparent budget practices that good government groups say marred the tenures of Hochul’s predecessors and have been a breeding ground for corruption.

There’s little public accountability or democratic control over how the many billions of dollars in these funds are doled out. Many of the spending decisions are made by the governor unilaterally or in consultation with legislative leaders, without input from most New Yorkers’ representatives. Even the state comptroller, whose job is to review state spending for potential waste and corruption, is barred from overseeing much of the spending in these “lump-sum” allocations. 

Hochul has pledged that unlike her predecessors, her administration will soon allow the public to see how these funds are spent. But that spending will still happen outside of the state’s normal democratic process, and beyond the oversight of the state’s chief financial watchdog. 

Ready for a Rainy Day

About two thirds of the $19.4 billion set to be placed in reserves over the next three years will be shared between New York’s tax stabilization fund, which can only be used to make up the gap when tax revenue comes in lower than expected, and the Rainy Day Reserve Fund, which can only be used during economic downturns or other crises.

Hochul’s initial budget proposal drew criticism for directing most of the state’s savings to the Economic Uncertainties Fund, an informal cash pile that has no restrictions on how or when it can be used. But a financial plan released after the budget was enacted fulfilled her promise to transfer most of that money to the official reserve funds that have firm limits on their uses.

Budget watchers from across the political spectrum cheered the move. Patrick Orecki, director of state studies at the fiscally conservative Citizens Budget Commission, said that the contribution to the official reserve funds was “probably the biggest positive element out of this budget.”

Charles Khan, organizing director at Strong Economy for All, a labor-backed coalition, said that he would have preferred that the money be spent on additional social programs to help New Yorkers recover from the pandemic, rather than saved. But “if we were going to put money into reserves,” he said, “putting it into statutory reserves was the way to go.”

The savings came at the expense of a number of social spending programs that the legislature had proposed to fight homelessness, expand health insurance, and other programs that did not make the final budget.

The extra cash savings could reduce the political will for tax hikes in future economic downturns, potentially frustrating those who’d like to see New York raise more revenue from the wealthy. “It’ll be a debate that we have for sure,” Khan said. “Having a strong reserve will give the governor a couple of outs in that regard.”

But it could also avoid cuts to government services during those downturns, which Orecki noted would have been likely during the first years of Covid-19 if not for the massive federal aid New York received.

Slush Funds

The budget included billions of dollars of so-called “lump-sum appropriations,” pots of cash set aside to be used on a wide range of often nebulously-defined projects throughout the state. 

For example, the budget allotted $385 million to a fund dedicated to “projects intended to improve the quality of life” of New York residents, with few guardrails on what forms those projects could take.

Another line allocated $350 million for “manufacturing, agriculture, business parks, community anchor facilities” and other projects specifically on Long Island.

And another authorized the governor to transfer and spend up to $2 billion to meet “unanticipated emergencies.”

New York’s official fiscal watchdog, State Comptroller Thomas DiNapoli, sounded the alarm on these murky budget items in a May report on this year’s budget that identified at least $18 billion in “unnecessarily opaque” spending.

“The Enacted Budget continues and expands the State’s use of lump-sum and other broad-scoped appropriations for yet-to-be-determined projects and purposes,” DiNapoli wrote. “These broad-scoped appropriations may leave the allocation of such funds almost entirely to Executive discretion.”

While legislative leaders have a say in how some of the funds are spent, most of the cash is “technically under the sole control of the Executive,” Orecki said.

Most state spending happens through the budget, which requires that every dollar be accounted for and recorded in documents accessible to the public. But the vast majority of the decisions about how to spend the lump-sum cash are made outside of public view—and often can’t be reviewed even by the comptroller. This year’s budget “further diminished” the comptroller’s ability to supervise state spending and contracts by excluding more categories of spending from his purview, DiNapoli wrote.

Earlier this month, the Senate passed a bill to expand the comptroller’s oversight powers closer to their original reach, but as New York’s legislative session winds to a close this week, the Assembly appeared unlikely to act on it.

Especially without proper supervision, the opacity of this cash pile creates a “major risk for corruption and also waste of government resources,” said Rachael Fauss, senior research analyst at the good government group Reinvent Albany. 

This isn’t just theoretical. Misuse of lump-sum funding set aside for vague health care related purposes was central to the late Assembly Speaker Sheldon Silver’s conviction on federal corruption charges in 2015. Silver died earlier this year while serving a six-and-a-half year prison sentence.

Not all uses of these funds are nefarious, though. A rare look into the way lump-sum funds are spent showed a pot of cash being used last year mostly for municipal improvements such as school renovations and fire truck updates, with the vast majority of grants under $1 million.

Shams Tarek, a spokesperson for Hochul’s budget department, said that staffers are “actively in the process” of compiling a database of how lump sum funds are spent, which Tarek said would be posted online “within weeks.” That would fulfill a 2021 promise from the Hochul administration to make these decisions public, and would mean that New Yorkers will at least know after the fact how this cash pool is being doled out.

Tarek also said that lump-sum pots allow the budget to fund “local priorities and needs” that “wouldn’t be possible without state investment.”

The appropriations are authorized in the annual budget, which is created through a process that “includes public input, public hearings, and other layers of transparency, accountability and oversight – including legislative oversight,” he said.

The funds can also be a source of leverage for legislative leaders over rank-and-file lawmakers in what is already a heavily top-down system relative to other states. Each of the lump-sum pots has different rules governing how it can be spent. In some cases, that spending is decided between the governor and legislative leadership or senior staff, allowing leaders to use it as a carrot for their members.

“Part of the leverage that they have as leaders is control over distribution of that funding,” Fauss said. “The potential for leadership to use it to reward or punish members is there.”

Open-ended allocations have been a longtime concern of Albany good government advocates. Hochul’s embrace of them is “a continuation of bad Albany budgeting practices,” Fauss said.