New York State is facing its most serious budget crisis since the Depression of the 1930s – a deficit of over $12.5 billion for the fiscal year beginning April 1, 2009 – mostly because state taxes will bring in much less than in 2008. And the MTA has another $1.2 billion budget gap. What does it mean for our community? Why is it happening? How should we deal with it?
What does it mean for our community?
The total budget the Legislature adopted in April 2008 was $121.6 billion. $56.3 billion of that is state tax dollars. The rest is from Federal aid and other sources.
New York’s budget pays for vitally important things. About 38% of state tax dollars goes for school aid. Another 27% pays for Medicaid - mostly for health care for the elderly and disabled. Every state dollar for Medicaid is matched by a dollar from Washington. Medicaid helps support the health care system we all depend on. Add mental health and higher education, and you have 76% of state tax dollars. And the deficit equals over 20% of state tax dollars.
So if we close the budget deficit by cutting spending, that inevitably means doing serious damage to health, mental health, education and higher education. That’s where the money is.
The rest of the state budget is relatively small items. Even radically slashing those items would not save much money.
Why is it happening?
The national recession is causing state budget deficits all across the country. A declining economy means less revenue from state taxes. And as people lose jobs and income, enrollment in programs for low-income people goes up.
The Wall Street crash hits New York especially hard because the companies and people who work on Wall Street pay taxes here. In 2007, the financial services industry generated $12 billion in state taxes, which is 20% of all New York State tax collections. About 15% of all income in New York State was generated on Manhattan Island below 14th Street! But State Comptroller Thomas DiNapoli estimates tax collections from Wall Street in the coming fiscal year will be down 38%, or $4.5 billion.
The MTA receives much of its income from a special "sales tax" on real estate transactions, and those sales are declining.
What should New York do?
I do not believe New York should try to deal with the budget crisis only by cutting spending. That would do serious damage to health care, education for our children, and a long list of other important programs. Many budget cuts would soon cost us much more in increased spending. It’s like a jewelry store trying to save money by not fixing the lock on the front door. For example, if we cut primary and preventive health care, we very quickly have increased hospital bills. Cutting state aid for the arts hurts tourism and other economic activity, apart from its human effect.
Of course, there are savings that would make sense. For example, state health coverage for public employees, Medicaid, and EPIC could squeeze higher discounts from drug companies and promote the use of drugs that are cheaper but just as safe and effective. So far, drug company lobbying has blocked us from doing more of this.
We also need to look at how we can raise more revenue. Over the last thirty years, New York has dramatically cut the state income tax rates paid by high-income taxpayers. The top tax rate is less than half what it was, costing us about $8 billion a year in lost revenue. During this crisis, we should roll back a portion of those tax cuts on the wealthiest taxpayers. We have successfully done that in the past. The tax would not be a significant reduction in their income, but would make a big difference for the state budget and the essential programs it supports.
It would be much fairer than raising the subway fare paid by riders (regardless of ability to pay), or cutting the education of our children, and have less impact on the economy than cutting health care spending or laying off state employees.
Additional revenue could also come from collecting tobacco taxes when stores on Indian reservations sell to non-reservation customers, raising tobacco and alcohol taxes, and expanding the scope of the Bottle Law.
The Ravitch Commission on the MTA’s finances has called for a payroll tax in the MTA service area and tolls on the East River bridges. Others have called for a gasoline surcharge in the MTA region instead of the tolls. A package along these lines must be adopted for the MTA.
Let me know what you think we should do about New York’s budget crisis
I would like to hear from you. Write or email me at: 242 West 27th Street, New York, NY 10001, GottfrR@assembly.state.ny.us. Please be sure to include your name and residence address clearly printed so I can respond.