Thursday, April 01, 2010

Deadline Passes, No Lifeline Seen

April Fools' Day

Still No Budget,

It's No Surprise

By Henry J. Stern
April 1, 2010

The March 31st Constitutional deadline for the adoption of the New York State budget has come and gone. To no one's surprise, the Legislature and the Governor have not decided on a budget, and there is no prospect of early agreement between the two houses and the governor on how to deal with a $9 billion state deficit.

BTW, The executive chamber is known informally in Albany as 'the second floor', because the governor's offices and staff are located on the second floor of the State Capitol, which is an enormous five-story building, 400 feet long and 300 feet wide, 220 feet tall at its highest point, and designed in a mixture of architectural styles.

The Capitol took 32 years to construct (1867-99) and cost $25 million, which the Assembly estimates is one twentieth of what it would cost to build today. In 1867, William H. Seward, then Secretary of State, purchased Alaska from Czar Alexander II of Russia for $7.2 million, a purchase derided at the time as "Seward's folly," "Seward's icebox" and "Johnson's polar bear garden." Andrew Johnson, president of the United States at the time, approved the purchase, which is to his credit.

Seward, a native of upstate Auburn, had been Governor of New York State from 1839 to 1842. He was subsequently elected to the United States Senate, where he served two terms. He sought the Republican presidential nomination in 1860, and was an early favorite. At the convention, held in Chicago, he was defeated by a former Congressman, Abraham Lincoln, who had served just one term in the House. After Lincoln was elected President, he appointed Seward as Secretary of State.

Do you think our leaders 150 years ago were abler than they are today, or do you believe that by 2160, today's public figures will be regarded more highly? Although no one can predict the way time will judge public officials, and I have seen Presidential reputations rise and fall over the years long after the Presidents have left office, it still seems highly unlikely that Lincoln's greatness will be approached by any contemporary politician.

We digressed into history because the present is so unappealing. The Times described the budget impasse today in a seven-paragraph article on p22 of the New York edition by Nicholas Confessore, ALBANY MISSES ITS DEADLINE ON THE BUDGET. The story begins:

"The state budget is officially late. Again.

"The fiscal year came to a close on Wednesday night with no budget deal between the Legislature and Gov. David A. Paterson, leaving New York State running on the physical equivalent of fumes.

"The government will stay in business thanks to emergency legislation that the governor signed on Wednesday providing for about two weeks of necessary expenses.
Mr. Paterson also moved to delay some $2.1 billion in aid to schools, a step he said was necessary to insure that the state had enough cash to keep operating.

"State lawmakers have passed an on-time budget six times since 1975. The last on-time budget was in 2006."

Although the failure to meet the deadline is obviously nothing new, the gap between expenses and revenues this year is far larger than in the past. The longer the budget is delayed, the sharper the impending cuts will have to be, because if Albany continues under last year's budget, it will overspend every day. Mr. Paterson has made symbolic gestures by stopping capital projects in mid-construction, but this is not an efficient way to reduce expenditures, since the projects will cost more to complete. He has also delayed school aid checks to localities. The governor is playing the necessary role of budget watchdog, but he would have been far more credible if he had done this a year ago instead of yielding to the Senate and to Speaker Sheldon Silver, who has traditionally represented tax-receivers to a greater extent than taxpayers. In that role, the speaker may be voting his district, but it does not help the state. The latter is approaching insolvency (inability to pay its bills).

So far the unions have rejected out of hand various proposals by legislators and civic groups for wage freezes. Classically, unions prefer layoffs, which strike their youngest members, to wage freezes, which affect all their remaining members. Of course, unions denounce layoffs as hurting the children, the sick, etc., but when it comes to saving money, they have been most unwilling to postpone raises due their members under previous collective bargaining agreements.

The Ravitch proposals -- borrow now, in exchange for imposing financial restrictions -- is facing tough sledding. The governor is said to believe that Ravitch is in collusion with Speaker Silver in supporting more spending. Others dont trust the legislature to follow any fiscal restraints. If they are imposed by law, the legislature will simply change the law. Ravitch speaks of bond covenants, which was a tool used by Robert Moses to prevent actions by public officials two generations ago. There is not much trust today in Albany, neither by the members for each other, nor by the public for the legislature. The mistrust is clearly justified.

We will watch the pressures that will rise, as the budget remains impassable. In our judgment, it will take a while for the parties to reach agreement. The New York City budget must be adopted by June 30, the last day of the city's fiscal year. The city financial plan has for many years been approved on time, with agreement between the Mayor and the City Council. But the city budget depends on state funding, and if the amount of state aid is unresolved, that will impact on the city's budget-making process. If the state reduces aid to the city that will lead to the layoffs of city employees, which to some degree would adversely affect service delivery. Such a prospect may lead to pressure on the state to spend more. The state doesnt have the money to maintain its aid to localities (which is really only giving cities and counties part of their tax money back, rather than an act of state generosity).

At this point, we think that the most likely escape route is further irresponsible borrowing, possibly against receipts from the tobacco legislation, which will mean that money borrowed today will not be available to the state in the future. Will New York have the nerve to try to collect sales taxes on cigarettes sold by Indians by mail order and off the reservation? Or to tax sugary soft drinks, which lead to childhood and adult obesity? Not likely.

So far we have not seen strong leadership or responsible followership. The one-party Assembly wants to spend even more than the narrowly divided Senate. Speaker Silver can afford to lose a dozen or more members on a budget vote. Conference leader John Sampson cannot afford to lose one. Look for a drawn-out struggle between the spenders and the superspenders. The outcome is likely to be compromise, but the reference points are agley.

StarQuest #658 04.01.2010 1160wds

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