NEW YORK, July 28 (Reuters) - Half of the money spent so far from New York state's $10 billion in legal settlement windfall has gone to support the state budget rather than the capital projects for which it should be used, the state's chief fiscal watchdog said on Friday.
Of the huge pot of funds that has streamed in since 2014, mostly from banks accused of wrongdoing in the recession, Governor Andrew Cuomo's administration has spent just $3.15 billion so far.
But more than $1.5 billion of that amount has been used for various forms of budget relief, State Comptroller Thomas DiNapoli said in his fiscal plan analysis.
Those measures include $850 million to offset Medicaid expenditures that the federal government disputed and disallowed, as well as $627 million in "general budget support" during the last three fiscal years, the analysis said.
"These billions of dollars are non-recurring, 'one-time' resources that should be used for one-time purposes, including essential capital investments," DiNapoli said in the report.
Morris Peters, a spokesman for New York's budget division, disputed DiNapoli's report, saying the "vast majority" of settlement funds were destined for just such purposes.
"Settlement resources will go towards new infrastructure projects which will create jobs and position every region of the state for unprecedented economic growth," Peters said.
DiNapoli also said actual state spending rose 4 percent, rather than the 2 percent touted by Cuomo, if certain fund shifting and other measures are included.
For example, the state is using tobacco settlement payments to pay certain Medicaid costs "off-budget" and converting a New York City school tax relief benefit from a state expenditure to a state tax credit.
That finding is in line with a May report from the non-profit Citizens Budget Commission. Actual growth in state operating fund spending for the current fiscal year is 3.7 percent, when pre-paid debt service and deferred loan payments are included, it found.
Peters said spending growth was lower than during any other administration in modern history.
"The enacted budget holds spending growth to historically low levels for the seventh consecutive year while lowering taxes for all New Yorkers," he said.
Uncertain funding out of Washington and lower than expected revenues - challenges currently faced by many states - are also pressuring New York's budget picture, DiNapoli said.
State tax collections were 6.l percent lower during the first quarter of New York's fiscal year, which began April 1. (Reporting by Hilary Russ; Editing by Daniel Bases and Chris Reese)