BUDGET MESSAGE 37

CONTINUING STATE SURPLUSES

Every year the State budget is closely balanced, and at the end of
every fiscal year the Comptroller announces that the State has a sur-
plus. This is not the fault of the people who estimate revenues and
make budgets. The surplus is almost mandated by the system that
we use.

A budget is a fiscal plan looking eighteen months into the future.
Economic fluctuations over this period can cause considerable shifting
in both tax receipts and expenditure patterns. If we consider only the
State's General Fund of approximately $500 million and assume that
the revenue estimates are only 5% off, we could still have a fluctuation
of $25 million, plus or minus. This would mean a total shift of up to
$50 million in tax income. Expenditures might vary by a similar
amount.

Since the State is legally prohibited from being, and practically can-
not afford to be, in a position where it cannot pay its bills, both rev-
enue and expenditure estimates must be conservative. Our current
State surplus can be traced to two windfalls in the estate tax, and it is
not impossible that a similar windfall might develop in the next fiscal
year. However, it would be foolhardy to budget such a contingency.

It is also probable that savings will accrue because of difficulties
in the recruitment of State employees, but we must do our utmost to
fill these necessary jobs. It would be self-defeating to eliminate vital
positions from the budget because it is difficult to fill them. Also, some
local governments may not qualify for the total amount of State aid
available in all our programs, but we must have that State aid ready
to meet our commitments.

Because of all these factors, the present system dictates conservative
budget estimates resulting in probable surpluses at the end of each
fiscal year, but we cannot count on them. A shortage could be disas-
trous so we have to insure that any variations from our estimates are
all in one direction — in the State's favor.

The need is for a substantial reserve fund to absorb the inevitable
fluctuations in both revenues and expenditures, to act as a depository
for small surpluses and as a source of money to finance deficits. With
such a reserve fund it would be possible to make closer revenue and
expenditure estimates without the fear of disaster should a deficit oc-
cur. I shall work with the chairmen of the appropriate legislative com-
mittees to develop such a system.