The rate of violent crime is lower than it has been in more than three decades. This means not only an improving quality of life for many New Yorkers, but an improvement in the State’s fiscal condition as well.

Combined spending for the State’s two largest entitlement programs, Medicaid and public assistance, continues to fall, as does the rate of admissions to State prisons. The New York State Assembly Ways and Means Committee staff projects all of these trends to continue at least through the 1999-2000 State fiscal year.

• Total public assistance spending for 1999-2000 is expected to be $122.5 million below the level spent in 1998-99. This decline is primarily due to the improving State economy, as well as local administrative efforts.

• Based on a projected average monthly caseload of 756,300 the Committee staff estimates the State’s General Fund will expend $420.6 million in cash grant benefits under the Family Assistance program during the 1999-2000 State fiscal year. This is $29.5 million below the Executive forecast for the same period.

• The Committee staff is also projecting General Fund expenditures of $260 million for the Safety Net Assistance program, based on an expected average monthly caseload of 157,700. This projection is $21.8 million below the Executive forecast.

• The Committee staff’s forecasting efforts pertaining to Medicaid focus on the traditional health care expenditures administered by the New York State Department of Health. The Committee staff is projecting constant policy growth of 3.9 percent, just under the expected rate of medical care inflation.

• We continue to see moderate rates of program growth, attributable in part to an improved economy which reduces the number of people who need governmental assistance in meeting their health care needs. Other significant factors include restructuring within the State’s health care industry, and finally, deliberate policy actions enacted during the last four fiscal years aimed specifically at controlling cost.

• The Committee staff expects the State Department of Health to expend $5.455 billion in State funds from its 1998-99 budget for Medicaid. This is $125.5 million above the Executive’s projection for the current fiscal year.

• For State Fiscal Year 1999-2000, the Committee staff is projecting that the Department of Health will expend $5.669 billion in State funds for the Medicaid program, assuming that those policies currently in effect for the 1998-99 fiscal year will remain in effect during SFY 1999-2000. The Committee staff projection is $173.6 million below the Executive forecast.

• Growth in New York State’s under-custody inmate population has fallen dramatically since the high rates of growth experienced between 1980 and 1992. This decline is due primarily to the fall in the State’s crime rate since 1990.

• Over the next three years, the rate of population growth is expected to decline even further. However, over the course of 1998, the impact of the decline in the crime rate was mitigated by a sudden policy shift on the part of the State Board of Parole.

• The Ways and Means Committee staff projects the State inmate population to grow to 74,217 by the end of the 1999-2000 State fiscal year. This projection is approximately 350 below the Executive projections for the same period.

• The Committee staff projects the State inmate population will fall to 73,990 by the end of the 2001-02 fiscal year as the Board of Parole gradually returns to historical rates of release. This projection is approximately 2,500 below the Executive projections for the same period.

The downstate economy is booming and the rate of violent crime is lower than it has been in more than three decades. This means not only an improving quality of life for many New Yorkers, but an improvement in the State’s fiscal condition as well. Combined spending for the State’s two largest entitlement programs, Medicaid and public assistance, continues to fall, as does the rate of admissions to State prisons. The New York State Assembly Ways and Means Committee staff projects all of these trends to continue at least through the 1999-2000 State fiscal year.

The Legislature’s $71.5 billion budget for 1998-99 was the most timely since the 1993-94 budget passed on April 5, 1993. That budget was based on a projection of Medicaid spending which was $220 million below that of the Executive and a projection of public assistance spending which was $60 million below the Executive.(1) With ten months of the fiscal year now over, spending for both of these programs is running well below the Executive’s original estimates.(2)

The Committee staff’s recent expenditure forecasting efforts have focused on either non-discretionary State spending or those factors which drive that spending in both the short-run and the long-run. That focus has centered on the State’s Medicaid program, the public assistance caseload, and the State prison inmate population. In this paper, we will carefully examine the link between the New York economy and trends in both the State’s public assistance caseload and Medicaid spending growth. We then turn our attention to trends in State prison inmate population growth ending with an in-depth look at the explanations which have been offered by experts as to the causes of the decline in the crime rate. Finally, we assess the accuracy of the Ways and Means Committee staff projections for all three programs for the fiscal year which is about to end, and present the Committee staff forecast for 1999-2000.

Although clearly recognized as the principal driver behind State tax receipts, the economy is also an important driving force behind budgetary spending. The rate of inflation drives upward the cost of maintaining a fixed level of government program services. Contract negotiations on behalf of State workers typically reflect cost-of-living increases. Capital construction costs are also driven by labor and materials costs subject to price inflation. Medicaid program spending, which accounted for fully one-third of the total 1997-98 budget, is subject to the rate of medical care price growth. Although that rate is now much lower than earlier in the decade, it still generally runs ahead of the overall rate of inflation as measured by growth in the consumer price index.

Some researchers credit the strong national economy with helping to bring down the crime rate since the early 1990’s.(3) However, the most profound impact of the economy on budgetary spending is probably to be felt in the State’s two largest entitlement programs, public assistance and Medicaid. Although changes in the public assistance caseload are likely to be influenced by many factors, including demographic and programmatic, the primary factor affecting caseload growth has been fluctuation in economic activity.(4) Moreover, a substantial portion of the demand for Medicaid services is generated by individuals and families who either receive cash grants under the State's public assistance programs, or, though not qualifying for cash grants, have lost their health care benefits due to joblessness. Of course, growth in Medicaid spending reflects not only the cyclical expansion and contraction of employment, but additional economic phenomena as well, including the rise and fall of health care prices and the ongoing restructuring of the national health care industry itself.

The national recessions of 1970, the mid-1970's, the early 1980's, as well as the early 1990's were associated with declines in employment and increases in the unemployment rate. In Figure 1, we see that the economic expansion of the 1980's produced a steady increase in State employment, while the total public assistance caseload was generally in decline.(5) As employment growth slowed in the early 1980's, the caseload increased with a lag, but then resumed its downward trend as employment returned to a steady upward growth path. Between State fiscal years 1986 to 1990, total employment increased by about 450,000 jobs. At the same time public assistance caseload declined by almost 157,000 recipients. As indicated in Figure 2, Medicaid growth was also on the decline during this period.

Figure 1

A period of strong economic growth in New York came to an end in the late 1980's. As indicated in Figure 1, New York State began to lose jobs before the start of the national recession in 1990. Employment in the finance, insurance, and real estate sector generally began to erode in 1988 and continued to deteriorate through the end of 1992. These developments were compounded by federal defense cuts and an intensification of the rate of corporate downsizing, both of which hit New York proportionately harder than other states. When the national recovery began in 1991, New York employment did not immediately increase. Indeed, net job gains failed to appear until about two years into the national recovery. Consequently, New York's recent recession not only began earlier than the national recession, but lasted much longer as well. At the national level the recession was relatively mild, lasting only the nine months from July 1990 to March 1991. The State’s downturn lasted almost six times longer and was considerably more damaging.

The severity of that recession and the accompanying dramatic loss of employment are clearly reflected in the increase in both the public assistance caseload and Medicaid spending during the period. At the depth of the recession, there were 550,000 fewer jobs than there had been in 1989. The State's Home Relief caseload grew by 67.8 percent from State fiscal years 1988-89 to 1993-94, adding an additional 157,000 recipients to the population receiving cash grants. The AFDC population grew by 30.4 percent from fiscal years 1989-90 to 1994-95, adding 296,000 needy individuals to that caseload.

In 1993, the New York economy began to recover. The State experienced job growth of 0.9 percent in 1994, the best showing since 1988. Employment growth decelerated somewhat in 1995 and 1996, but rose above one percent during 1997 and even higher in 1998. In addition, since 1994, New York's 58 local social services districts have intensified their efforts to move public assistance beneficiaries into the labor force. These local initiatives, combined with the continued expansion of the State economy, has resulted in a decline of more than 650,000 in the public assistance caseload since its most recent peak in April 1994.

As in public assistance, State Medicaid spending has been influenced by both an improving economy and policy initiatives aimed at reducing program costs. In response to the great fiscal pressure produced by the high growth rates of the early 1990’s, New York, like many other states, initiated major efforts to contain costs. Indeed, the entire health care industry began to experience a significant restructuring under the pressure being exerted by the growing market for managed care and the need to control costs. Change was being felt in every sector, affecting not just Medicaid but all aspects of health care. As a result, spending growth for the 1992-93 fiscal year fell below six percent and, paralleling the national trend, has not since returned to the high levels of spending growth which were common during the last recession (see Figure 2).

Another recent phenomenon likely to have a profound impact on State spending is the dramatic decline in the national crime rate experienced since the early 1990’s. Below we present a brief history of inmate population growth in New York, followed by a discussion of why the crime rate has fallen since the 1980’s.

Between 1931 and 1962, the Department of Correctional Services (DOCS) population grew from 12,000 to 19,000 inmates, representing an average annual growth rate of 1.8 percent (see Figure 4). Beginning in 1963, the State inmate population actually declined until 1972 when the population hit its lowest point in 40 years. Federal Bureau of Investigation data indicates that incarceration rates were declining nationwide during the 1960’s to early 1970’s.(6) New York’s inmate population decline can be ascribed to several factors. First, the Conditional Release program, created in 1965, provided for mandatory early release to parole based on the amount of incident-free time served in prison, better known as accrued "good time". Second, a 1966 federal court decision known as the Baxtrom decision limited the state’s use of prisons as de facto residences for mentally ill or handicapped offenders who had already completed their sentences.(7) Finally, several revisions to the Penal Law were enacted in 1967, including both a redefinition of what constituted a drug offense and the establishment of certain authorized dispositions, such as those for narcotics addicts.(8) All of these factors contributed to a decline in the inmate population.

By 1973, the inmate population was on the rise. National incarceration rates also took an upward turn in the mid-1970’s, rising steadily during the 1980’s. In 1973, the New York State Legislature enacted the Rockefeller Drug Laws establishing the minimum drug weights necessary to be convicted of drug sale or possession, and mandating more severe sentencing for certain drug felonies.(9) Also in 1973, the State passed the Second Felony Offender Law which imposed both mandatory and extended prison sentences for those convicted of a second felony within 10 years of the first.(10) The Violent Felony Offender Law of 1978 designated additional crimes, such as kidnapping, arson, manslaughter, rape, and burglary, as violent felonies warranting longer mandatory prison sentences.(11)

Between 1980 and 1990, the national rate of violent crime increased by 22.7 percent. During the 1980’s, efforts in New York City intensified to both enhance law enforcement activities and increase the number of judges assigned to the disposition of felony cases. In 1981, the New York State Office of Court Administration (OCA) increased the number of judges assigned to the disposition of felony cases by 30 percent. During this period, crack-cocaine emerged as a virtual epidemic on the streets of the nation’s cities, including New York City. In 1988, the New York City Police Department established Tactical Narcotics Teams (TNT), which adopted a "buy and bust" strategy in an effort to reduce the volume of narcotics trafficking on City streets. As a result of these actions, New York City arrest rates for drug offenders, which had been rising throughout the period, rose even more sharply.

Figure 5

The combination of all these factors — tougher drug laws, mandatory sentencing and additional judges, the advent of "crack" cocaine, and finally Tactical Narcotics Team sweeps — caused a dramatic increase in commitments of drug felons to State prisons during the 1980’s. Between 1980 and 1992, New York under-custody inmate population more than tripled from about 20,000 to almost 62,000.(12) In order to accommodate this unprecedented growth, the New York State Department of Correctional Services (DOCS) had to triple the number of prison cells and expand its workforce at nearly the same rate. As a result, correctional services spending grew far faster than overall State spending during this period. Between the 1983-84 and 1992-93 State fiscal years, the share of State General Fund spending going toward funding the New York prison system almost doubled (see Figure 5). By the 1998-99 fiscal year, the Department of Correctional Services was consuming fully 23 percent of the General Fund State Operations budget.

Another consequence of crack-down on crack was the shift in the composition of the inmate population toward non-violent felons. This is best illustrated by the fact that in 1982, 9.5 percent of the inmates in DOCS were under custody on drug charges, while by 1992 that share had grown to almost 35 percent. Meanwhile, the inmate population share for violent felons dropped from 70 percent to 51 percent over the same ten-year period (see Figure 6).

Figure 6

More recently, we find the justice system responding to yet another trend¾ a decline in the crime rate. The decline in serious and violent crimes being experienced across the nation represents the longest decline in 25 years. The estimated number of offenses known to the police fell 4.2 percent between 1990 and 1995. The crime rate per 100,000 inhabitants fell an even more dramatic 9.3 percent during the same period.(13) Table 1 illustrates how dramatically violent crime fell throughout New York State and within New York City in particular, between 1990 and 1997.(14) Although the largest decline is related to the murder rate, violent crimes of all types have fallen substantially.

The most dramatic decline in the nation has been in New York City where violent crime dropped 46.8 percent between 1990 and 1997. Murders fell 65.7 percent below 1990 figures. Preliminary data for 1997 indicate that just over 600 murders were reported in the City, fewer than were reported in 1964. Outside of New York City, murders were also down.

The nationwide decline we are currently experiencing in violent crime is the sharpest drop since the end of Prohibition. San Francisco, Las Vegas, and several other large cities also report reduced crime rates. Moreover, the suburban metropolitan area, including the surrounding counties of New York, New Jersey, and Connecticut, show a decline in violent crime of 15 percent between 1990 and 1995. Cities in upstate New York have also experienced significant declines in violent crime, but the results are more variable. In Schenectady, violent crime in the city fell by 45 percent over the period from 1992 through the first half of 1996. The Onondaga Sheriff’s Department reports that for Syracuse and the surrounding area, serious crimes have declined for the fifth straight year. Buffalo has experienced declines of four percent during each of the past two years.

A number of theories have been advanced to explain the current decline in the crime rate. While these theories are not comprehensive, they do help us understand the overall trends of the past 15 years. A common element to them all is the dramatic rise of crack cocaine use in the 1980’s.

The decline of the popularity of crack, and cocaine more generally, since the late 1980’s has important implications for criminal activity. One prominent criminal justice expert emphasizes the important impact of the illegal crack market on the course of criminal activity since 1985. "One explanation for this array of changes from a stable pre-1985 period to a rapidly deteriorating post-1985 period derives from examining the changes in the illegal drug market associated with the introduction of crack cocaine." The 1991 Survey of State Prison Inmates, conducted by the Bureau of Justice Statistics at the U.S. Department of Justice, indicated that 32 percent of prisoners reported using cocaine or crack regularly, prior to their incarceration; 14 percent reported using cocaine or crack at the time of the offense that led to their imprisonment.(15)

There are indications that the crack epidemic may have run its course and may have begun to diminish in the early 1990’s. Although abuse of crack-cocaine, and all drugs in general, remains a serious concern for both New York and the nation, there are indications that the intensity of the epidemic, along with the violence associated with it, may be diminishing. New York City arrests related to cocaine for 1996 were down 5.0 percent from 1995 and 16.3 percent from 1990. It is reported that since 1992, declining trends in cocaine emergency department patients are evident in New York City among those between the ages of 18 and 34, and among Blacks and Hispanics.(16) Felony arrests related to crack were down by about 1,200 or 6.8 percent between 1994 and 1995 in New York City.(17)

Some demographers maintain that with a dwindling population of teenage males and the overall aging of the baby boom generation, a decline in the crime rate was inevitable. New York City demographers report a six to seven percent decline in the City’s population of 15 to 29 year-olds between 1990 and 1995.(18) However, a more compelling picture emerges when demographic trends are looked at in conjunction with the mechanics of the crack market. An analysis of age-specific crime rates, indicates that individuals began to engage in violent crime at a younger age beginning in about 1985, the time when crack was ascending in popularity in New York City and Los Angeles (and subsequently in other parts of the country). In contrast, homicide rates for adults over the age of 25 have been falling for almost 20 years.(19) One expert attributes the increase in juvenile participation in violent crime largely to their recruitment into the crack trade, with its special characteristics. The nature of the crack market - lower prices than other drugs, as well as one-hit-at-a-time buyers - created the need for large numbers of sellers. "Juveniles were the natural source of supply for that labor market."(20)

Although age is one of the most important factors affecting crime rates, it is clearly not the only important one. Pointing to the growth in juvenile violence during the late 1980’s, some have warned of the potential for an increasing level of violence as the number of youth between the ages of 15 and 20 increases after the year 2005. The current level of juvenile crime remains a concern for both public and policy makers, alike. However, the above warnings may be unfounded unless some cultural phenomenon comparable to the emergence of the crack market appears simultaneously.

Law enforcement officials in New York City report fewer guns on the street with arrests for gun possession, shootings, and murder with guns all dropping. Again, this may be related to the decline of the crack market. One expert observes that, "beginning in 1985, and especially in 1988, there was a steady growth in the use of guns by juveniles, with no corresponding upward trend…in non-gun homicides….juveniles, like many other participants in the illicit-drug industry, are likely to carry guns for self-protection, largely because that industry uses guns as an important instrument for dispute resolution."(21)

Tougher sentencing laws in many states and localities are seen as contributing to the decline in the crime rate by increasing the incarceration rate and the length of time served. However, the evidence surrounding this claim is mixed. Studies show that from 1980 to 1992, the 10 states where incarceration rates increased the most saw violent crime decrease by eight percent. On the other hand, Florida has the twelfth highest lock-up rate, but ranks first in violent crime. Between 1981 and 1984, the number of individuals incarcerated nationwide rose by 25 percent, while violent crime fell by nine percent. However, the 78 percent increase experienced from 1985 to 1992 was accompanied by an increase in the rate of violent crime of 42 percent.(22)

The New York City Police Department (NYPD), as well as some observers, contend that the explanation for the City’s decline in crime lies in a combination of policies that altered the size, approach, and management of the police department. New York City has expanded its police force, adding 7,000 officers since 1990, as a result of the "Safe Streets, Safe Cities" legislation adopted by the New York State Legislature at the request of then New York City Mayor David Dinkins.(23) Moreover, in its implementation of "Safe Streets," the NYPD has moved away from the citywide deployment of Tactical Narcotics Teams toward a concentration of its efforts in the City’s most crime-ridden neighborhoods, and toward more community-based strategies commonly referred to as Community Policing.

Consistent with a more community-based strategy, the New York City Police Department has implemented procedures giving precinct commanders greater discretion in developing approaches that work in their neighborhoods. At the same time, commanders are held more responsible for the declines and increases in crime in their precincts. Finally, while precincts now have greater operating flexibility, information on their performance is regularly and rapidly forwarded to central headquarters. Information is reviewed and acted upon quickly. In addition, the department information system, known as Compstat, provides horizontal as well as vertical integration of important crime data across the police, parole, and corrections departments, as well as the district attorney’s office.

An expanded and better-coordinated police presence may be having an impact on the operation of the drug market in a way that reduces the level of violence associated with it. It has been observed that "major drug-selling sites have relocated because of police presence in their area. The police activity has forced them to move some of their drug operation either indoors, to nearby locations, or into areas previously untapped by drug selling."(24) The pressure associated with the awareness of the increased police presence and the associated need to conduct their activities in a more clandestine manner may also be promoting the avoidance of violence as a regular part of doing business.

Other large cities have also seen dramatic declines during the recent period. In Houston, the murder rate declined 48 percent, 46 percent in San Diego, and 45 percent in Dallas. Police departments in these cities undertook similar policies during the same period—expanding the number of police and/or engaging in more aggressive community policing. Other cities in New York State, such as Schenectady and Syracuse, also credit community policing as contributing to reduced crime.

As the New York economy continues to improve, spending for public assistance benefits continues to fall, while growth in the demand for Medicaid services continues on its moderate growth path. With both employment growth and local district policies keeping caseloads down, the public assistance caseload is expected to fall 13.3 percent in 1999-2000. The Committee staff is also projecting constant policy growth of 3.9 percent in Medicaid spending for the coming fiscal year, which is just under the expected rate of medical care services inflation for the northeast region. Finally, the decline in the State’s crime rate will continue to produce lower numbers of new court commitments to prison. However, the impact of this trend on the State’s prison inmate population is temporarily being mitigated by a dramatic shift in Parole Board policy toward lower release rates.

For more than 60 years, New York State has been providing financial assistance to low income families and individuals who have fallen upon hard times and found themselves in need of some degree of financial stability until successfully transitioning back into the workforce. Spending for cash benefits under the Family Assistance and Safety Net programs is estimated to have totaled $965 million for the 1997-98 State fiscal year, amounting to approximately 3.0 percent of State General Fund spending.

Based on a projected average monthly caseload of 756,300, the Committee staff estimates the State's General Fund will expend $420.6 million in cash grant benefits under the Family Assistance program during the 1999-2000 State fiscal year. This is $29.5 million below the Executive forecast for the same period. The Committee staff is also projecting General Fund expenditures of $288.1 million for the Safety Net Assistance program, based on an expected average monthly caseload of 152,700. This projection is $21.8 million below the Executive forecast. Below we examine those factors which drive the need for these programs in our State and underlie the Ways and Means Committee staff outlook for 1999-2000.

The State Legislature responded to the challenge posed by federal welfare reform by passing the Welfare Reform Act of 1997, which accompanied the 1997-98 budget. This legislation transformed the State's public assistance system into two new programs.(25) What had formerly been known as Aid to Families with Dependent Children (AFDC) is now the Family Assistance program. Prior to federal welfare reform, the Federal Government contributed fifty percent of the benefit costs for eligible families. However, since the 1996-97 federal fiscal year, the State has received the federal contribution in the form of a $2.4 billion block grant, called the Temporary Assistance for Needy Families (TANF) Block Grant. The State and county governments split the costs not covered by the federal TANF block grant.

As of December 1, 1996, adult Family Assistance recipients became eligible to receive federally funded benefits over the course of their lifetimes for up to five years. In New York State, families that receive benefits for a cumulative period of five years will be transitioned to the new Safety Net Assistance program and will receive assistance in the form of vouchers with restricted cash. After two cumulative years receiving Family Assistance benefits, the head of household must participate in some form of a work activity, unless exempt or determined to be disabled. The employability of all Family Assistance and Safety Net Assistance recipients is assessed by local social services district personnel on the basis of work history, work skills, and educational background. Family Assistance work rules are governed by both Federal and State law, whereas Safety Net Assistance work rules are governed solely by the State.

States do not receive the full value of the federal TANF Block Grant unconditionally. The states must prove "maintenance of effort" by spending at least 80 percent of what they spent for AFDC during the 1996 federal fiscal year. In addition, there are statewide work activity participation targets which rise in future years. However, these targets are discounted based on the success states have had in reducing their caseloads. For the 1996-97, New York State exceeded its 19.6 percent work target for all families receiving benefits by 8.3 percentage points, and its 61.1 percent target for two-parent families by 2.5 percentage points. Without the caseload reduction credits, New York State’s 1997 work activity participation rate targets would have been 25 percent of the total Family Assistance caseload, and 75 percent of the two-parent family caseload.(26)

On November 1, 1997, Home Relief, the State's general assistance program for financially needy individuals and families who previously did not qualify for federal funding, was replaced by the Safety Net Assistance program.(27) Beneficiaries under the Safety Net program primarily comprise single adults and childless couples. Non-disabled adult recipients, whose household does not contain minor children, must participate in any of the statutorily authorized work activities, including job search and workfare, as soon as they are assigned by the local social services district.(28) Adult recipients of Safety Net Assistance can receive cash benefits over the course of their lifetimes for up to two years. Anyone exceeding the two-year cumulative limit will be transitioned from the cash grant component of the program to the voucher-with-restricted-cash component.

Monthly Family Assistance and Safety Net Assistance benefits consist of the basic grant, a home energy allowance, and a shelter allowance. The total value of these benefits varies by county to account for differences in the cost of living. For example, the value of the shelter allowance ranges from a low of $203 per month in Lewis County to a high of $412 in the county of Suffolk. Most public assistance recipients are also eligible for the federal Food Stamp program, based on family size and income. The typical monthly public assistance benefit package for a family of three is $510, supplemented by an average of $240 per month in Food Stamps. This package translates into an annual value of $9,000, which is approximately $4,330 below the federal poverty threshold, or 67.5 percent of the federal poverty level.(29) A single person in the Safety Net Assistance program receives an average grant of $297 per month, plus $80 in Food Stamps. These benefits provide an annual value $4,524, which is $3,366 below the official poverty threshold for a household of one, or 57.3 percent of the federal poverty level.

The Ways and Means Committee staff carefully examines those critical factors which can be expected to influence the need for financial assistance in New York. These include economic forces, demographic factors, and administrative and programmatic policy changes. Among the available indicators of job opportunities, the Committee staff finds total employment in those industries where recipients have been most successful at finding jobs to be the most closely associated with caseload growth in New York City. Outside of the City, the unemployment rate was found to best capture the impact of economic fluctuation on caseloads. The effect of economic growth may occur with a lag, particularly where the existence of large social networks to which individuals in need can turn, as well as informal employment opportunities, may delay the application for assistance. We find this lag to be much greater for New York City than for the rest of the State.(30)

We also consider those administrative actions which have recently resulted in caseload declines beyond what economic conditions alone might have achieved. Many counties have taken initiatives to reduce the size of their caseloads either by targeting fraud or administering workfare programs. These actions have the effect of reducing caseloads beyond what would have occurred due to the economy alone. The Ways and Means Committee staff projections incorporate the effects of these actions.(31)

The diversity of the State economy tends to cause State's regional economies to respond differently to market forces. For example, four straight years of spectacular profit growth on Wall Street has spurred solid economic growth for much of New York City and the surrounding downstate counties, while having very little impact on the upstate regions. Therefore, we divide the State economy into two regions, the New York City region and the rest-of-state region which comprises all of the State's counties outside of the five boroughs of New York City.(32) The following summarizes the Ways and Means Committee staff projections for both Family Assistance and Safety Net Assistance, for both the New York City and rest-of-state regions.

The Family Assistance caseload projection for New York City incorporates the impact of both regional economic forces and administrative actions taken by the New York City Human Resources Administration which administers the program. The caseload is found to respond to changes in the City's employment growth in certain retail trade, manufacturing, and services industries where welfare recipients are most likely to find employment.(33) For 1998, while total New York City employment stood at 3.3 million, employment in these selected industries stood at 397 thousand, based on the first two quarters of the year. Figure 7 compares the path of selected industry employment with that of the New York City Family Assistance caseload from 1980 through the forecast period.

Figure 7

The Committee staff estimates that the total number of Family Assistance recipients in New York City will decline by 11.0 percent for the 1999-2000 State fiscal year, following a decline of 11.9 percent for the 1998-99 fiscal year. Average caseload for the period from April 1998 to January 1999 (the most recent month for which data are available) was 12.2 percent below the level for the same period of the previous fiscal year. The decline in the number of beneficiaries for the 1999-2000 fiscal year is consistent with continued growth in City employment, as well as the continuation of the City's administrative efforts. City employment grew by 1.4 percent during the first two quarters of 1998, over the same period in 1997, adding approximately 44,000 new jobs, although these gains were not shared equally among the City's five boroughs.

The Human Resources Administration is reported to be continuing to review and contact five thousand cases per week, the prevailing policy since January of 1997. The continuation of this effort can be expected to produce almost as dramatic a caseload decline as was experienced during the 1998-99 fiscal year. In addition, under the more liberal employability criteria set by the New York State Department of Labor, the proportion of recipients under Family Assistance who are classified as employable has risen since before passage of the Welfare Reform Act.

Figure 8

The Family Assistance caseload projection for the Rest-of-State region incorporates the behavior of the regional economy, as well as administrative actions taken by the counties. We find that caseload responds to changes in the regional unemployment rate (see Figure 8). The Committee staff estimates that the rate of decline in the number of Family Assistance recipients in the Rest-of-State region will accelerate to 13.4 percent for the 1999-2000 State fiscal year, following a decline of 13.1 percent for 1998-99. Average caseload for the period from April 1998 to December 1998 (the most recent month for which data are available) was 13.1 percent below the level for the same period of the previous fiscal year. We expect much of this decline to occur in the downstate regions outside of New York City, where job growth has been much more robust than upstate.(34) However, administrative efforts will continue to be successful in reducing caseloads upstate as well.

The projection for New York City's Safety Net Assistance caseload incorporates the impact of both the City economy and administrative actions taken by the Human Resources Administration. The caseload is found to respond to changes in selected industry employment (see Figure 9).(35)

Figure 9

The Committee staff estimates that the total number of Safety Net Assistance recipients in New York City will decline by 16.0 percent for the 1999-2000 State fiscal year, following a decline of 16.1 percent for SFY 1998-99. Average caseload for the period from April 1998 to January 1999 (the most recent month for which data are available) was 16.0 percent below the level for the same period of the previous fiscal year. The continuation of the City's solid rate of employment growth, as well as the City's administrative efforts, will continue to reduce the caseload. A shift in administrative efforts toward the special needs of the seemingly less employable will enable the caseload to continue in its rapid rate of decline.

Safety Net Assistance - Rest of State

The Safety Net Assistance caseload projection for the Rest-of-State region incorporates the behavior of the regional economy, as well as administrative actions taken by the counties. We find that increases in employment opportunities, and therefore, the rate of unemployment have a contemporaneous effect on the Safety Net caseload outside of New York City (see Figure 10). The Committee staff estimates that the total number of Safety Net recipients in the Rest-of-State region will decline by 19.8 percent for the 1999-2000 State fiscal year, following a decline of 22.2 percent for the previous year. Average caseload for the period from April 1998 to December 1998, was 23.4 percent below the level for the same period in 1997. Again, we expect that much of the decline associated with the improvement in the economy will occur downstate.

Figure 10

General Fund Spending

The Ways and Means Committee staff projects total spending for public assistance cash benefits by multiplying total projected caseload for each program by the monthly average payment to beneficiaries for the twelve months of the fiscal year.(36) The State's General Fund contribution to total benefit payments is 25 percent of total Family Assistance spending, and 50 percent of total Safety Net Assistance spending. It is estimated that the State will spend $420.6 million for Family Assistance and $288.1 million for Safety Net Assistance during the 1999-2000 fiscal year (see Table 2).

The Medical Assistance program, or Medicaid, is the nation's "health insurer of last resort." The program is designed to provide health care for those elderly, physically and mentally disabled, children, and families who cannot afford to provide that care for themselves. Totaling $27.7 billion during State fiscal year 1997-98, Medicaid spending has become the largest component of the New York State budget and is the second largest component of spending from the State's General Fund.(37) In 1997-98, the Medicaid program comprised approximately 27 percent of total State General Fund spending.

The Committee staff's forecasting efforts focus on the traditional health care expenditures administered by the New York State Department of Health. According to the financial plan estimates prepared by the Executive in conjunction with the presentation of the 1999-2000 State Budget Proposal in January 1999, the State Department of Health is expected to expend $5.581 billion in State funds from its 1998-99 budget for Medicaid.(38) For State fiscal year 1999-2000, the Committee staff is projecting that the Department of Health will expend $5.669 billion in State funds for the Medicaid program, assuming that those policies currently in effect for the 1998-99 fiscal year will remain in effect during SFY 1999-2000. The Committee staff projection is $174 million below the Executive forecast of $5.842 billion.(39)

Following three years of double-digit growth during the recession of the early 1990's, the Medicaid program's rate of expansion has fallen to more modest levels, not only in New York State but at the national level as well.(40) The slowdown in growth is related to a decline in the rate of medical care inflation, an improved economy, which reduces the number of people who need governmental assistance in meeting their health care needs, restructuring within the State's health care industry, and finally, deliberate policy actions enacted during the last four fiscal years aimed specifically at controlling cost. Below we demonstrate the consistency of the Committee staff's projection of Medicaid growth with all of these developments.

Medicaid services are provided to three major types of clients: the aged, blind, and disabled who require expensive long-term care in addition to other services; the mentally disabled; and children, families, and single adults in need of temporary assistance due to their financial circumstances (see Figure 11). Although the aged, blind and disabled accounted for about 74 percent of total program costs during the first nine months of this fiscal year, they comprise less than one third of all Medicaid recipients. About 56 percent of the approximately two million people who received care through the Medicaid program on an average monthly basis were families with dependent children, although this group accounted for only about 19 percent of program costs. The focus here will be on the two populations that comprise the "traditional" Medicaid population: the aged, blind and disabled; and those in need of assistance due to their financial circumstances.

Figure 11

The Medicaid program is operated by the states according to federal guidelines. In New York State, Medicaid costs are shared by the federal, State, and county governments. The federal government covers roughly half of the overall cost, the State about one third, while local governments are responsible for the remaining portion. In the past, Medicaid traditionally has provided its government-financed services through a broad array of local health care providers including hospitals, clinics, doctors, dentists, and pharmacists; nursing homes and home care agencies serve the smaller, but typically more costly, population of the elderly and the disabled. More recently, however, the traditional approach has been abandoned in favor of managed care plans, which are thought to be a more effective and efficient means of delivering health care services to the recipient while providing cost savings. In New York State, the movement towards a managed care approach resulted in the July 1997 approval by the federal government of an "1115 waiver" that allows the State to implement a Statewide mandatory managed care program for all those who are eligible for Medicaid, aside from those requiring long-term care services.(41)

As the Medicaid program is administered in New York, eligible persons include: low-income elderly and disabled beneficiaries of the Supplemental Security Insurance program; elderly and severely ill persons who have exhausted their assets paying for long-term or chronic medical care; pregnant women with family incomes up to 185 percent of the federal poverty level; and children under age 19 whose family income ranges between 100 percent to 185 percent of the poverty level, depending on the age of the child. Children under 21 may also be eligible for Medicaid when family income is below 100 percent of the poverty level. Coverage is also available for certain classes of elderly persons who need help paying the premiums and co-payments required under Medicare. Until 1997, cash grant recipients under the State's public assistance programs were automatically eligible for Medicaid as well. Under federal welfare reform, however, eligibility for Medicaid is now determined separately.

In recent years, the Legislature and the Governor have approved comprehensive plans aimed at containing costs within the State's Medicaid program and providing savings to the General Fund. In SFY 1995-96, a plan to save the General Fund over $1 billion was approved.(42) Of this amount, $650 million was directly related to efforts to control provider costs. The remaining savings were achieved through a variety of revenue actions that have the effect of maximizing federal reimbursement without a commensurate State General Fund increase.

In 1996-97, the Legislature and the Governor continued actions from the previous year that were due to expire and approved new cost containment measures that together resulted in an estimated $334 million in savings to the State's General Fund.(43) These provisions included provider reimbursement rate reductions and policies designed to encourage more efficient delivery of service. Additional General Fund savings of an estimated $289 million were again achieved through revenue actions designed to maximize federal reimbursement that did not affect providers.

Enactment of Chapter 433 of the Laws of 1997 continued through 1997-98 all the cost containment actions enacted in the prior two years. In addition, the Legislature approved an estimated $121 million in new measures producing savings to the State of $404 million. Once again, additional General Fund savings, estimated to total $428 million, were realized through revenue actions maximizing federal reimbursement. These savings actions are somewhat offset by other provisions that allowed for $24 million in new General Fund spending. The cost containment provisions incorporated in the 1997-98 budget were enacted for a two-year period and, hence, were continued into SFY 1998-99. The Executive is recommending an additional $511 million in new cost saving initiatives for 1999-2000.

The effect of the State's cost containment efforts over the past four years has been restrained growth in those sectors that have been targeted for control, namely hospital inpatient services, nursing homes, and long term home-based care. Lower Medicaid spending growth, in conjunction with the restructuring of the State's overall health care industry, has in turn been associated with employment decline in the health care industry. New York's health care industry experienced growth of only 0.3 percent during the first two quarters of 1998 relative to the same period in 1995. The hospital sector, which accounts for almost half of total industry employment, lost almost 29,000 jobs over the period, a decline of 6.6 percent.

Within the hospital industry, public hospitals, which serve a disproportionately large share of the Medicaid population, were hit the hardest. Private hospitals eliminated more than 6,000 positions, a decline of 1.9 percent, while public hospitals shed nearly 7,500 jobs, a decline of 7.7 percent. In contrast, employment in the U.S. health care industry, which is also in the midst of a restructuring, grew by 2.2 percent during 1997, a slowdown from 2.6 percent growth in 1996. National hospital sector employment experienced growth of 1.9 percent during 1997, compared to 1.6 percent during 1996.

The 1980's and the early 1990's saw dramatic growth in hospital inpatient services, the largest category of Medicaid services. This growth can be attributed to changes in program policy, the rapid growth in medical prices, as well as growth in the demand for hospital services due to the downturn in the State economy. During the early 1990's, growth in hospital inpatient spending was amplified by growth in the federal government's Disproportionate Share program. In 1986, the Federal Budget Reconciliation Act allowed state Medicaid programs to make supplemental payments to hospitals that serve a disproportionate number of low-income patients. The federal government agreed to provide half of every dollar spent on such "disproportionate share adjustments." The impact of this program has been to shift some of the cost of Medicaid from the State and local governments to the federal government. While Disproportionate Share funding had the welcomed effect of easing the State's financial burden, it also resulted in an overall increase in the size of Medicaid, as services which formerly were delivered outside the program were included under the Medicaid umbrella in order to draw federal reimbursement. This policy change accelerated the growth of Medicaid spending during the transition period of the early 1990's.

Figure 12

Hospital inpatient spending is determined by changes in the price of health care, as well as changes in the demand for inpatient services. The change in spending due to a change in demand alone can be more accurately measured by adjusting total spending by the rate of medical care inflation. Isolating spending increases due to an increase in demand alone permits an illustration of how closely demand for hospital inpatient services is related to the state of the economy. This is done in Figure 12, which combines hospital inpatient spending with spending for hospital outpatient and free standing clinic services, all adjusted for inflation. Economic growth is measured by an index of current economic conditions developed by the Ways and Means Committee staff.(44)

During the mid-1980's, when the State economy was experiencing strong job growth, the rate of growth in Medicaid hospital and clinic spending declined significantly. When the economy weakened in the late 1980's, spending began to rise again. The growth in spending peaked above 20 percent during the 1991-92 fiscal year. Since the end of 1992, the State economy has experienced moderate growth and State growth in Medicaid costs has declined. Modest economic growth is expected to continue through the current fiscal year and into the 1999-2000 fiscal year as well, resulting in continued downward pressure on the demand for both hospital inpatient and, to a lesser degree, outpatient services.

More recently, however, additional factors have had a constraining effect on hospital inpatient spending. Specifically, the overall restructuring of health care delivery, with its emphasis on shorter hospital stays and more community-based support services; the expansion of managed care; as well as the enactment over the past two years of deliberate actions to contain costs, have all contributed to a decline in hospital inpatient expenditures.

National debate surrounding the rapid rate of health care expenditure growth brought the health care industry to the realization that the nation would no longer tolerate the rate of medical price growth exhibited through the early 1990's. The industry has taken steps to streamline, as evidenced by the large numbers of recent hospital mergers. In addition, some public hospitals are now in the process of changing their corporate structure so that they can become involved in the development of health networks and joint ventures with other health care providers. Moreover, hospitals are demonstrating an increased interest in sponsoring their own managed care plans in order to develop new revenue streams and to maintain a sizable client base.

In addition to self-directed industry restructuring, New York State recently moved to a deregulated hospital reimbursement system with the passage in July 1996 of the Health Care Reform Act of 1996. Prior to its enactment, New York's hospitals had operated since 1983 under a tightly regulated rate reimbursement system known as the New York Prospective Hospital Reimbursement Methodology (NYPHRM) which exerted significant governmental control over hospital financing. The passage of the Health Care Reform Act marked a conscious move away from the strict regulatory environment of NYPHRM and towards a system of negotiated rates. As the Legislature noted in the preamble to the Act: "This legislation will promote competition in the health care marketplace by increasing reliance on market incentives while reducing the role of regulation."(45)

During the State's most recent recession, outpatient services grew at double-digit rates, peaking at almost 30 percent during 1991-92. The rate of spending growth subsequently began to decline, falling to 3.4 percent in the 1994-95 fiscal year. More recently, however, cost-reducing advances in medical technology have permitted the health care industry to direct more and more services formerly delivered on an inpatient basis to an outpatient setting. This restructuring has put upward pressure on outpatient spending, counterbalancing the impact of an improving economy. Consequently, outpatient spending began to rise once again during the 1995-96 State fiscal year, and has since remained high. Moreover, cost containment measures enacted over the past two fiscal years eliminating inflation increases and rate enhancements and lowering reimbursement for administration have been modest and have not noticeably decelerated growth.

An important component of the restructuring of health care has been the emergence of the managed care industry as an increasingly important component of health care spending. Managed care, which utilizes a capitated payment structure, is seen as a cost-effective alternative to more traditional fee-for-service medical care. Moreover, it offers the opportunity for better and more efficient health care because of its emphasis on preventive primary care. The growth in managed care is linked to the actual decline in fee-for-service spending which has been observed in hospital inpatient, physician, dental, eye, lab and x-ray, and rehabilitation and therapy services.

Managed care enrollment grew very rapidly beginning in the late 1980's, but enrollment in this State has been restrained for more than two and one-half years due to policy and administrative changes. Following an audit by the U.S. Health Care Financing Administration which uncovered numerous violations, the State Department of Health ordered the suspension of managed care enrollment among nine of the largest private managed care providers in New York City in the summer of 1995. Subsequently, enrollments dropped and have remained relatively flat throughout the last two fiscal years and into the current fiscal year. Moreover, in implementing its mandated Medicaid managed care plan, the State instituted a procurement process that resulted in lower than feasible premium rates and the subsequent withdrawal of some major providers from serving the Medicaid population. The Committee staff anticipates, however, that enrollment numbers will begin to rise again by the end of the current fiscal year and into the next fiscal year due to the approval by the federal Health Care Financing Administration (HCFA) in July 1997 of a waiver permitting New York to implement fully its mandatory Medicaid program. Under the waiver agreement, 12 counties have already implemented mandatory programs, with New York City to expected to receive HCFA’s consent to begin mandatory enrollment before the end of the current fiscal year. In addition, the industry is in the process of negotiating a rate increase with the Department that should take effect during the next fiscal year.(46)

Since the primary users of long-term care are the aged, blind, and disabled, fluctuations in nursing home spending are not closely related to the changes in the level of employment or any of the other cyclical aspects of the economy. Demand for nursing home services is affected by changes in prices and the size of the Supplemental Security Income caseload and related populations.

The demand for nursing home services has grown steadily since the early 1980's, but accelerated significantly in the early 1990's to over 30 percent during SFY 1991-92 and over 14 percent the following year. This growth was due largely to outreach efforts which successfully targeted elderly and disabled clients, the populations most likely to require nursing home services. Over 85 percent of nursing home spending is for elderly, blind, and disabled clients who, due to the high cost of institutional long-term care, have qualified for Medicaid benefits by spending down their incomes.

More recently, however, efforts to encourage the use of home-based care, combined with close regulation of bed expansion, have successfully limited growth in nursing home spending. Underlying growth fell to 4.4 percent in the 1996-97 fiscal year from 7.4 percent in the previous year. Moreover, the continued selective use of alternatives to institutional care has contributed to a reported modest decline in capacity utilization, which industry experts are attributing to a reduction in the average nursing home stay.

In addition, the State has taken steps to curb nursing home growth through the implementation of cost containment initiatives estimated to have saved the State over $500 million over the past four fiscal years. These measures have been directed at freezing inflation increases, lowering rates and barring rate increases through the appeals process. Cost reducing measures have also encouraged the use of alternative funding sources, such as the federal Medicare program, promoting a more efficient usage of State Medicaid dollars. As a result, we have witnessed a deceleration in the growth of nursing home services.

High rates of nursing home utilization and their high cost of care comprise one of the factors which make New York's Medicaid program costly. In order to contain these high costs, the State has encouraged the utilization of home-based long-term care services such as personal care and home health care. Personal care services assist an individual with non-medical care deemed by a physician to be essential to the recipient's health. Home health care includes medical services prescribed by a physician in accordance with a plan of treatment for the recipient and administered under the supervision of a registered nurse. These services provide a less expensive alternative (roughly a third of the cost) to more costly institutional nursing home care. Hence, demand for these services grew at double-digit rates from the mid-1980's until the early 1990's, peaking at close to 30 percent growth during SFY 1986-87, remained close to 20 percent through the 1991-92 State fiscal year.

To reduce yet further the cost of long-term care services, the State has encouraged increased utilization of systems that promote efficiencies in the delivery of home-based care. These systems include programs which improve the efficiency of service-time allocation through the use of a more flexible, task-oriented system which minimizes idle time spent by the home attendant. Spending for personal care had been declining for the last two fiscal years while home health care had been continuing its expansion as clients who require skilled nursing care were diverted from costly institutional to less expensive home-based settings. For the current fiscal year, this trend has reversed itself and we are witnessing growth in personal care in part due to constraints placed on home health and State government that have forced personal care agencies to take on more clients, particularly in New York City.

The most recent spending data shows evidence of significant belt-tightening on the part of the home health industry as a result of government actions to control costs. Prior year cost containment efforts were mainly directed at promoting greater efficiency in the delivery of personal care services in New York City. These efforts appear to have been successful. Additional cost containment actions enacted with the 1996-97, 1997-98, and 1998-99 budgets also targeted the home health industry that had been experiencing burgeoning growth as personal care services dipped. This two-pronged approach to reduce costs has resulted in slower spending growth in this sector.

Critical factors that determine Medicaid spending include the rate of growth in medical costs, changes in demand for Medicaid services due to changes in the rate of job growth, the overall restructuring of the health care industry, as well as government policy actions. As the above discussion indicates however, these factors do not operate uniformly on the various categories of Medicaid spending. For example, the shift away from institutional settings toward outpatient or home-based settings will tend to increase demand for hospital outpatient and home-based long-term care at the expense of hospital inpatient and nursing home services. We therefore decompose total spending into five major components: hospital inpatient services, outpatient services, nursing homes, long-term home-based care, and non-institutional fee-for-service spending in order to make projections.(47) This enables us to properly assess the effects of the various forces that operate differentially on each area.(48)

To measure spending growth due to medical care price inflation, we incorporate the medical services component of the Consumer Price Index for the Northeast region published by the U.S. Department of Labor.(49) In the case of hospital inpatient and outpatient services, service demand reflects the state of the economy.(50) In addition, demand for hospital inpatient services is related to the growth in managed care enrollment and growth in the Income Maintenance caseload independent of economic trends. Changes in the demand for nursing home services reflects the caseload of the Supplemental Security Income program, which serves the aged, blind, and disabled. In addition to the incorporation of the above factors, demand for outpatient, nursing home, home-based care, and non-institutional fee-for-service spending is projected using a sophisticated method of extrapolating past spending patterns into the future.

Program policies that significantly affected spending growth are also taken into account. The cost containment policies discussed above are found to have had a significant impact on program spending for hospital inpatient, nursing home, and home-based long-term care services. In addition, the model is specified to take into account behavioral changes by service providers, such as hospitals accelerating their billing practices in 1991-92 in response to Executive administrative actions. As discussed above, disproportionate share spending also expanded during the early nineties. Administrative outreach efforts increased the nursing home population beyond what is represented by growth in the Supplemental Security Insurance caseload during 1991 and beyond. By the end of 1993, spending for personal care services began to fall due to successful cost containment efforts by the New York City government. Finally, an acceleration in the use of hospital outpatient and clinic services in place of inpatient and private practitioner care is found as of the first half of 1995.

The Ways and Means Committee staff estimates that projected Medicaid spending by the Department of Health in SFY 1999-2000 will rise by 3.9 percent to $5.669 billion. However, on a constant policy basis¾ after accounting for a reduction in the nursing home provider assessment fee and the carve-out of pharmacy spending from managed care coverage¾ the Committee staff's projection represents growth of 4.4 percent. Constant policy growth rates, permitting the identification of the true underlying growth in Medicaid, are presented in Table 3 by major category of service.

The constant policy growth rates for both 1998-99 and 1999-2000 found in Table 3 reflect current trends in the health care industry, as well as the provisions of a two-year plan to contain costs enacted with the 1997-98 budget. The 1.6 percent decline in hospital inpatient spending reflects the continuing decline in the demand for inpatient services and a policy move toward shorter hospital stays, as well as the impact of cost containment actions that have effectively prohibited the price of inpatient care from rising. The decline in demand for inpatient services is due to the continuing shift of service delivery from inpatient to outpatient settings, the improvement in the economy, and the decline in the public assistance caseload. Also contributing to the declining growth is the impact of cost containment measures, as well as the deregulated reimbursement system.

Growth in outpatient spending of 5.0 percent is consistent with the recent trend toward increasing substitution of outpatient services for inpatient services in an environment governed by all of the same forces which account for the decline in inpatient spending. Growth in nursing home spending of 5.1 percent reflects continued growth in the demand for long-term care services in an environment that prefers home-based to institutional settings, as well as lower price growth and the impact of cost containment. Growth in home-based care spending of only 3.0 percent is consistent with conscious efforts toward belt tightening in response to governmental intervention to require efficiencies. Non-institutional fee-for-service care growth of 5.3 percent reflects the same forces influencing the decline in demand for hospital inpatient and outpatient care, offset by an increasing demand for high-priced prescription drugs. Finally, growth in spending for managed care services of 21.0 percent reflects stepped-up enrollment consistent with a phase-in of the mandatory managed care program and an anticipated rate of increase.

The Ways and Means Committee staff projects the New York State Department of Correctional Services inmate population by means of a simulation model.(52) The Committee staff criminal justice simulation model is a dynamic, disaggregated flow model comprising two components — a court phase and an incarceration phase.(53) The court phase is driven by the total of all violent and non-violent felony arrests. This distinction is useful, given that the sentencing reforms passed in 1995 and 1998 specifically targeted violent felons. Historically, there has been an average lag of about twelve months between arrest and conviction for those offenders who are ultimately sentenced to State prison. Therefore, the number of arrests provides a strong indication as to the number of prison admissions to expect about one year into the future. The incorporation of arrests into the model permits the analyst to take advantage of this fact.

In order to project prison admissions more than twelve months into the future, it is necessary to forecast both violent and non-violent arrests. The simulation model itself does not project the number of arrests. Future arrests are projected using a multivariate econometric model which combines demographic factors with a statistical method of extrapolating past patterns into the future. The model also captures the impacts of the change of administration in New York City, where 70 percent of statewide arrests take place, shifts in policing practices, as well as the seasonality in arrests.(54)

Figure 13 displays historical arrests going back to 1970, as well as the Ways and Means staff forecast through the year 2002. Non-violent arrests are seen to rise significantly during the 1980’s with increases in the trafficking of crack cocaine and, particularly, with the City’s response in the form of Tactical Narcotics Team sweeps later in the decade. Violent arrests also rose during the late 1980’s, as a result of an increase in the rate of violent crime. However, both types of arrests abated under the Dinkins administration, consistent with the decline in the crime rate which began in 1990 following the implementation of Safe Streets Legislation. This downward trend in arrests was temporarily interrupted upon Mayor Giuliani taking office, but subsequently fell off once again, in line with the reported decline in the City’s crime statistics discussed above.

Figure 13

Arrests have remained essentially flat for the past three years and are expected to remain so into the out-years. However, the mix between violent and non-violent arrests continues to shift toward the latter. For 1998, violent arrests are estimated to have dropped by 4.0 percent, while non-violent arrests are estimated to have risen 2.1 percent. Violent arrests are estimated to continue to fall an average of 0.7 percent per year through 2002, while non-violent arrests are expected to remain flat. This shift appears to be resulting in a decline in the rate at which arrested individuals make it to the disposition phase of the court processing system. According to New York State Office of Court Administration, the number of felony dispositions dropped 4.3 percent in 1997 and 3.2 percent in 1998.(55) Since the rate at which non-violent arrests ultimately result in convictions to prison is lower than for violent arrests, recent and projected arrest trends result in fewer new court commitment admissions to State custody.

Recent arrest trends have begun to translate into a decline in the number of admissions to State prison. New court commitment admissions peaked during 1992 at a monthly average of almost 2,100 inmates, and have fallen steadily since (see Figure 14). The Ways and Means Committee staff is projecting a continuation of the decline in the number of new court commitment admissions through 2002, consistent with these trends.

Typically, a new court commitment admission will serve some portion of his or her maximum sentence, and be released to supervision by the New York State Division of Parole. The duration of time which an offender spends in prison depends on two factors: the sentence imposed by the court and the decision by the Parole Board as to how much of the sentence will be served. In the case of an indeterminate sentence, the State Board of Parole has a great deal of discretion as to how much time a convicted offender spends in prison, since the minimum court-imposed sentence is typically only one third to one half the maximum. In the case of a determinate sentence, it is the judge who has the most influence as to how much time under custody is served. In the latter case, the offender is given a flat sentence and must serve at least 85 percent of that sentence prior to being considered for release. A sentencing framework set in statute establishes parameters which judges must abide by when imposing sentence on a convicted offender. Portions of this framework were reformed in 1995 to keep violent offenders incarcerated for longer periods.

The reform of sentencing guidelines is but one way the State can ensure that offenders serve more time in prison. The New York State Board of Parole can extend time served by reducing the rate at which it grants approval for release to parole. That rate fell dramatically in 1998 to 50.2 percent from an average of 63.8 percent for the preceding six-year period. Over the period from 1992 to 1997, the parole approval rate ranged from a low of 59.1 percent in 1997 to a high of 67.7 percent in 1993. The largest single year-to-year fluctuation during this six-year period was the three percentage point decline which occurred between 1993 and 1994. The impact of the relatively sudden 1998 shift in parole policy is incorporated into the Committee staff forecast assuming a gradual return to historical average rates of approval.

Some portion of the individuals released to parole supervision will return to prison as parole or conditional release violators. A relatively small number of inmates are released from Department of Correctional Services custody for reasons other than the completion of their sentence, such as admission to mental hygiene facilities or for court appearances. Almost all of these individuals will return to custody. The Committee staff projects future parole and conditional release violators, as well as re-admissions of individuals released for these other reasons.(56) The parole and conditional release violator model incorporates the number of new court commitments who have completed their initial terms of incarceration, the volume of arrest activity (as an indicator of the intensity of police activity), as well as factors which capture past trends and administrative policy changes. The "other" admission model incorporates lagged values of new court commitment admissions, as well as factors which capture past trends.

With the passage of the 1995-96 State budget, the New York State Legislature enacted a sweeping package of reforms which altered the way judges may sentence violent felony offenders.(57) The reforms identify four classes of violent offenders: first-time felony offenders, second-time felony/first-time violent felony offenders, second-time felony/second-time violent felony offenders, and persistent violent felony offenders (those having three or more violent felony convictions). The Committee staff projects the impact of the sentencing guideline reforms on each of these groups using the computer simulation model described above.

For first-time felony offenders, the new reforms parallel the Second Felony Offender Law enacted in 1973 by mandating that offenders receive minimum sentences which are one half the maximum sentence, rather than the one third, as was the previous practice for first-time felons of all types. The reforms mandate determinate sentencing for both second-time felony/first-time violent felony offenders and second-time felony/second-time violent felony offenders. Offenders must be given a single sentence within a specified range and must serve at least six-sevenths of that sentence before becoming eligible for release. Finally, persistent violent offenders must be given lengthier minimum sentences, their maximum sentences already fixed at life-sentences under prior statute.

The Sentencing Reform Act of 1995 introduced determinate sentencing to the State’s criminal justice system. The enactment of the 1998 statute mandating determinate sentences for first-time violent felons in August of 1998, mandated a similar determinate sentencing structure for first-time violent offenders.(58) The statute also establishes a mandated post-release supervision term for all violent felony offenders upon their release from prison. In addition, the new law authorizes a judge to impose an indeterminate sentence in the case of a first time violent offender who him- or herself has been a victim of domestic violence. It was assumed that on average, those given determinate sentences would spend six-sevenths of that sentence in prison.(59)

Both first-time violent felons who committed crimes prior to September 1, 1998 and persistent violent felons will continue to serve indeterminate sentences as before. For first-time violent felons, it was assumed that judges would hand down maximum sentences with roughly the same frequency as before. However, the frequency of minimum sentences would change to reflect the new law. Before the new law went into effect, approximately 35 percent of persistent violent felons received minimum sentences of ten years or more. All of these offenders will receive sentences of ten years or more under the new law, significantly increasing their average sentence length.

The results of the Committee staff simulation appear in Table 4. The projections which appear here are significantly higher than those published last year at this time.(60) This change is due largely to the shift in Parole Board policy observed during 1998-99, which continues to have an impact into the out-years. Absent the 1995, 1996, and 1997 reforms, and the Parole Board shift, the State prison population would be expected to experience modest growth of 0.7 percent for the 1998-99 fiscal year, followed by declines throughout the forecast period. After peaking near 71,000 at the end of the 1998-99 fiscal year, the inmate population would decline by more than 1,400 individuals by the end of the 2001-02 fiscal year, due to a continuing decline in the crime rate and the resulting decline in adult violent arrests and sentences to State prison. By March 2002, the inmate population would have been projected to total 69,507 under prior law.

In State fiscal year 1997-98 the Legislature authorized a two-year plan for the construction of an additional 3,100 beds.(62) This plan included the construction of one 750 double-cell maximum security prison now being built in Franklin County, with beds coming on-line in July of 1999. The plan also called for the construction of eight 100 double-celled special housing units located at existing medium security facilities. Construction for these smaller facilities has already been completed.

In an additional effort to assist the Department of Correctional Services in managing the prison population, the Legislature authorized the establishment of a new Local Jail Utilization program as part of the 1995-96 budget agreement.(63) This new program makes available additional beds through the rental of vacant local jail beds. With the enactment of the 1997-98 State budget, the Legislature established a reimbursement rate for these rentals of up to $100 per day.(64) On any given day, it is expected that between 600 and 700 State-ready inmates are currently being housed under this arrangement.

New York continues to spend an ever larger portion of its budget on the operation of State prisons. In the past fourteen years, the New York State Department of Correctional Services’ share of General Fund State Operations spending has grown from 9.5 percent to 25 percent. Historically, the prison system has been almost entirely financed through General Fund revenues. Although the Department has received increased financial assistance from the federal government, as well as other "special revenue" sources, such as the sale of prison-made goods and charges to inmates for both commissary purchases and collect telephone calls, 90 percent of the Department’s operating budget is still supported by tax dollars from the General Fund.