Enacting A Budget That Deals With NY’s Debt
How bankrupt would you rather be: a lot or a little? If this seems like a distinction without a difference, you’re right. But New York’s political leadership could use a reminder. As we approach the April 1 state budget deadline, not enough is being done to tackle long-term debt in the Empire State. For example, according to the state comptroller’s office, we now face a cumulative budget deficit that could exceed $30 billion in three years. That’s higher than any other state except California. And 94 percent of this state-funded debt was not approved by the voters.
Structural deficits are defined in economics as budget gaps that remain across business cycles. They are not products of downturns alone, but arise when government spending outstrips expected tax revenue. Structural deficits destroy the wealth-creating sector because they gradually crowd out private economic activity and devote ever-larger chunks of a gross state product (GSP) to paying down mounting debts. Everybody should hate structural deficits: conservatives, because taxes will have to be raised to cover current expenses; liberals, because debt-servicing drains government coffers of public money otherwise directed toward social services.
Our budget process needs fundamental reform if we are to head off the approaching debt deluge. This begins with applying greater transparency to our budget-making process. It includes mandating that joint legislative conference committees meet in front of television cameras so that members of both parties have an equal say in deliberations and the public can hold its representatives accountable. Better budget documents, including those which describe cash-flow projections under new spending programs in greater detail, also would be a step in the right direction. Our state government’s rose-tinted revenue forecasting and superficial analysis risks bankrupting future generations.
So-called backdoor borrowing is a gimmick, and an undemocratic one. Past budgets have allowed public authorities to issue long-term debt without voter approval. Either taxpayers vote yes or no for these public agencies’ bonds, or the state prohibits the issuance of debt for non-capital purposes once and for all. The 2009 financial implosion of the Metropolitan Transportation Authority should serve as a backdoor-borrowing cautionary tale.
Federal bailouts don’t work. They allow state spending to float at artificial levels for months, even years. This results in deeper long-term deficits if revenues slow or decline, and threatens the fiscal viability of certain programs by opening them up to more enrollees than a state can afford to pay. New York has made a habit of using one-shot federal spending to plug budget gaps, distorting our state’s long-term planning and running the risk of higher taxes to fund recurring expenses. For example, under Governor Paterson’s proposed executive budget, federal stimulus money and other temporary funds are used to pay $11.3 billion in state bills. It’s time to take away the federal taxpayer’s credit card before New York’s “three men in a room” max us out.
On February 24, I issued a statement pointing out the faulty accounting methods used by the governor’s Division of Budget that resulted in a revenue forecast $1.35 billion short for the new fiscal year starting on April 1. Consequently, our deficit is expected to grow to a staggering $9.05 billion in the next two weeks. This imperils state cash flow and threatens payment obligations, like Medicaid and school aid to Long Island. A binding revenue forecast, one that encompasses all available sources, not simply those considered available by the governor’s appointed Division of Budget, would give a greater framework to our budget choices. Instead, we were caught flat-footed in the run-up to March 1, the mandated revenue forecast date for the executive and legislative branches. Binding budget forecasts could finally provide us with a more accurate picture as leaders work to make the tough choices necessary to balance the state budget.
Taxpayers and homeowners suffer with higher taxes and slashed services when our budget process results in structural deficits. As my colleagues and I in the legislature work to pass a balanced spending plan ahead of the deadline, we would do well to remember what is at stake for working New Yorkers past April 1, too.