New York faces a $174 million hole, and that doesn't count the more than $1 billion in obligations that need to be paid in the next few weeks.
After months of plunging revenues and weeks of budget battles, New York had a negative balance of $174 million in its general fund on Wednesday, with nearly $1 billion in bills owed by day’s end. Every sign pointed to the account’s still being in the hole when 2010 begins. To fill the gap, New York will be forced to rely on its own version of overdraft protection by raiding its short-term investment pool — a kind of statewide checking account. But that account itself is dangerously low, with only about $800 million on hand, compared with a balance in more flush years of as much as $16 billion.Where to begin in highlighting this insanity starts at the top. Governor Paterson's briefing book on the executive budget shows he called for an increase in state spending by billions at a time when the state could ill afford any increase in spending precisely because revenues were falling across the board. Despite the fact that any spending increases were ill-advised, the Democrat controlled Legislature larded on still more spending to the point that the state's budget was more than 10% greater than in 2008-2009. The state increased spending by 8.5%, at a time when the recession was hitting the cash cow of Wall Street hardest.
And the lower the short-term balance falls, the harder it is for the state to cover its day-to-day bills and the closer New York moves toward a previously unimaginable eventuality: A government check that bounces.
“New York State is officially living paycheck to paycheck,” said Thomas P. DiNapoli, the state comptroller, whose responsibilities include managing New York’s finances. “The state is starting the new year by scrambling to make payments and juggle money.”
While New York’s fiscal year does not end until March 31, its cash shortage could force it to borrow more money to pay for its daily operations, adding to the interest on loans that already costs $1 billion a year. And the financial problems will raise alarms among rating agencies that are already keeping a close eye on New York’s credit-worthiness, with the risk of a lower credit rating — and higher interest payments to future bondholders — already looming.
Emily Raimes, an analyst at Moody’s Investors Service, said, “We will be closely monitoring the following things: actions the state takes to preserve cash; actions the state takes to close budget gaps and their effect on structural balance; and whether personal income tax receipts come in above or below state forecasts.”
Unpaid bills are already piling up. In September, the shrinking general fund balance forced Gov. David A. Paterson to delay a billion-dollar payment into the state’s pension system. This month, he delayed $750 million in payments to school districts and local governments in the hopes that revenues start rebounding enough in January, when Wall Street bonuses start arriving, to restore the payments.
Yet, despite the responsibility of the state's politicians in creating this mess, the fix will be up to taxpayers who will shoulder the burden of higher taxes and fees and crumbling infrastructure while the politicians continue to go unpunished and get reelected despite the horrific job done in managing the state's financial situation.