Tuesday, April 27, 2010

State Treasury Emptying

Legislature Paralyzed

As State Slides Down

Road to Fiscal Ruin

By Henry J. Stern
April 27, 2010

Most New Yorkers know by now that their state government is rolling downhill, and there does not appear to be a back-up plan for its rescue.

The situation is eloquently described this morning in Bill Hammond's column on p21 of the Daily News: IN ALBANY, COWARDS ON PARADE. It is well worth reading in full. (The link may not be up yet, but we are told it will be soon.) Here are Hammond's lede six sentences:

"One of the bleakest statements ever uttered about Albany came from former State Controller Carl McCall, who said: 'We have found a way to bring about change in New York, and it?s called utter failure.'

"McCall was speaking to a Citizens Budget Commission conference in 2003, but his words are coming true with a vengeance in this year's meltdown of a legislative session.

"A state government that barely functions in the best of circumstances has completely broken down in the face of its worst fiscal crisis in decades. With a deficit approaching $10 billion in the current fiscal year and far worse to come, the state will soon go broke unless Gov. Paterson and the Legislature take swift, dramatic steps to control spending.

"Yet here we are, four weeks beyond the March 31 budget deadline, and there's zero sign of progress at the Capitol. The pols are barely speaking to one another, let alone engaging in serious negotiations about where to cut and how much."

In prior years, budgets were sometimes not agreed upon until months after the fiscal year began April 1. According to Hammond, in 2004, the budget was not agreed upon until August 11. This year, 2010, we are told that unless a budget is adopted, at some point New York State will run out of cash. When bills are not paid and payrolls are missed, people will wake up to the fiscal problem. A cash crisis for New York has been predicted for June, although we cannot be certain of it. There may be an attempt to borrow money, which could be subject to legal challenge if it is not authorized by the legislature. The moment of truth arrived last July in California, when the state paid its employees in scrip until cash became available from tax receipts.

In addition to the massive budget shortfall, estimated at over $9 billion for this year, the state is suffering from a massive shortfall in political leadership. For years, we have derided the fact that fiscal matters were decided, not only behind closed doors, but by three men in a room. This year the three men, Governor Paterson, Speaker Silver, and Senate de facto leader John Sampson, are unable to transact public business because of their deep personal and political differences. The result is a kind of legislative anarchy, with the parties only able to agree on temporary extensions of last year's budget in order to keep the state operating. The problem is that revenues are not sufficient to cover existing spending levels, which contain mandatory increases for unionized state employees.

Closing the budget gap will require political decisions which are likely to antagonize voters, many of whom already hold legislators in contempt. The Senate Democrats would even worsen the situation by granting a billion dollar rebate of property taxes, the gap to be made up by additional borrowing. They want to posture to suburban voters that they tried to be helpful to them. It is more posturing than pandering because such a tax cut is highly unlikely to be enacted, and the governor has promised not to sign it. Then again, Private Slovik was executed.

It is widely believed that major layoffs lie ahead, both for the state and the city, which will be hit by sharp reductions in state aid. Lest you think that state aid is some kind of Marshall Plan for the poor cities, let us tell you that state aid consists of returning a fraction of the tax dollars paid by residents and businesses in the city, after deducting aid for localities upstate and the cost of administering the system. Yet the state now proposes a far greater decrease in aid to New York City than it proposes for other regions of the state. In the past, it is the Assembly that has stood up for the city in similar situations.

These reductions, proposed by the governor, would have a significant negative impact on city employees and service levels. We do not know at this time what the eventual state budget will be. Nor do we know when, or even if, agreement will be reached in Albany. It will probably be some time before the necessary sense of urgency sets in. The latest excuse is likely to be that more time is needed to assay the revenues received by the state in April. Time, as you know, marches on.

NOTE: On March 3rd, I wrote that the question of how to close the state budget gap was "above my pay grade." After using the phrase, which is a well-known colloquialism, I asked whether any of you remembered how that phrase came to be part of a Presidential campaign.

Answer: On August 17, 2008, when Rick Warren, the evangelical minister of Saddleback Church in California, who later gave an invocation at the Presidential inaugural, asked candidate Barack Obama when life begins, the response by Obama was that such a question was ?above [his] pay grade.? He ran into some flak over his remark, which was considered to be rather flippant, considering the seriousness of the question on the origin of life. Others realized that the meaning of his answer was that the question was unanswerable, although it was expressed lightly.

Those readers who e-mailed us with the answer to the question (when it was said, not when life begins) are hereby publicly acknowledged and thanked. There are 29 of you, namely

Francis Angelino, Arthur Castle, Ken Curtin, Marvin Davis, Avi Duvdevani, Linda Goldsmith, Fr. Richard Gorman, Carl T. Grasso, Jeff Grieb, C Van Guilder, Dash Henley, John Ingram, Reed Malloy, Vince McGowan, Ivan D. Mossop Jr, Martin Oesterreich, Rev. Joseph A O'Hare, S.J., Michael Oliva, Charles O'Shea, H. Richard Penn, Steven Price, Eldon H. Reiley, Carol Ann Rinzler, Chris Scheck, Jonathan Silverman, John H. Steinberg, Ed Stevens, Ken Williams, and Michael Zummo.

StarQuest #663 04.27.2010 1060wds

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