Published: July 18, 2010
Last spring, Lt. Gov. Richard Ravitch reacted indignantly to my skepticism about his plan to allow up to $6 billion in borrowing to help close the state's budget gaps this year and the next two.
He said that governors and legislators regularly found ways to borrow for operating purposes. His plan, he asserted, would get something valuable for taxpayers in return. The state would have to adopt strict accounting rules, balance its budget using these rules within five years, and allow the governor to impose cuts if the budget got out of kilter. Bond covenants would enforce the new procedures.
His remarks were prophetic.
The state budget is likely to include $3.5 billion in borrowing—$2 billion results from deferring tax credits owed to businesses this year and the following two. The credits would be repaid to businesses without interest over three years starting in 2013-2014.
Over the next three years, $1.5 billion will be borrowed by stretching out required contributions to the state pension fund for 10 years. The deferred payments must be repaid with interest over 10 years.
These borrowing gimmicks will exacerbate future problems. And, of course, there are no fiscal reforms associated with them.
The budget is also likely to include more than $1 billion from an array of new or increased taxes and fees on top of the $8 billion enacted last year. There's no across-the-board hike in broad-based taxes, but hits that will be painful for groups such as smokers, wealthy philanthropists and low-income families outfitting their children.
The governor's spending vetoes will be painful for school districts and social service organizations across the state. But there's no heroism in the legislators' response to our budget crisis. They have fulminated, stuck their heads in the sand and carried on business as usual.
Gaining steam in Albany are bills to reward the usual suspects—including trial lawyers, public employee unions and local 32BJ SEIU—for their support. Despite recent reports on the outrageous use of overtime to bulk up pensions, there is no groundswell to pass legislation excluding overtime from pension calculations. Instead, there is the usual panoply of bills to further liberalize public pensions. There was no serious discussion of rolling back the 4% wage increase for state employees or changing lavish health insurance for active and retired employees.
The budget isn't balanced and won't be this year. So there will be juggling of some year-end bills that will make the following years' gaps worse. After all the new taxes and fees, borrowing, and spending cuts, huge deficits loom: more than $7 billion next year, and more than $12 billion for the succeeding two years.
Legislators won't plan for the future. They prevaricate until after the next election, then the one after that. They will blather and borrow and tax until everyone with means who can leave the state has done so. Gov. David Paterson's strategic use of funding extenders and vetoes staved off the worst and could help strengthen governors' hands in the future.
But fundamentally, Mr. Ravitch was right: The rules must be changed.
