Where New York's Budget Windfall Comes Up Short

Banks behaving badly has been good news for New York state’s budget. Settlements for a range of accusations – from violating sanctions against Iran and Sudan to bad lending practices – have created a five and a half billion dollar windfall for the state.

"These are funds that were basically a gift from above," Governor Andrew Cuomo said during his budget address last month.

The governor is proposing putting the money toward a variety of infrastructure and economic development projects including construction of the new Tappan Zee Bridge, broadband expansion, improvements to hospitals, and revitalization upstate.

Fiscal watchdogs say these are generally good plans for desperately needed projects, especially since most of the money didn’t have specific strings attached.

But about $500 million of the windfall did. The settlements with Bank of America, Citigroup, and Ocwen, all related to mortgage practices, say the money should help fight foreclosures and rebuild communities. 

"It’s very clear from the governor’s budget that none of the money is being targeted to those people," said Ira Rheingold, executive director of the National Association of Consumer Advocates. 

Rheingold said this sort of thing has happened across the country. After the 2012 National Mortgage Settlement, some states diverted money to pay for other priorities, partially because the settlements were vague, and because there wasn't much oversight on how those dollars got spent. He said states used the funds to plug budget gaps as they recover from the recession and cuts in federal spending on infrastructure projects and social services.

"States are looking for new sources of revenue," Rheingold said. "And when they see this money coming in, they use that money so that they don’t have to raise taxes."

Rheingold said New York had been an exception to that trend. When Attorney General Eric Schneiderman won money from the National Mortgage Settlement a few years ago he spent it on legal services, loan modifications and affordable housing.  

But last spring lawmakers directed all subsequent settlements to the state’s general fund.

A spokesman for the state budget office says the money is going exactly where it should: The settlement calls for “rebuilding communities" and it would, through economic development, new bridges and hospitals. On top of that, he points to the governor’s ongoing commitment to affordable housing and millions from earlier settlements that have been used to help homeowners. 

The legislature will vote on plans for the mortgage settlement money, and the rest of the windfall, as part of the budget process this spring.