Wednesday, December 09, 2009

It's Official: New York Is Now Out Of Money

Gov. Paterson has said that the state is now officially out of money, as the Legislature's plan to close the budget deficit came up $500 million short.
"We have a ‘lack of cash’ crisis in this state. We are in a very deep quagmire. New York is now at the breaking point. We are about to cross the financial Rubicon into fiscal disaster." To bail water, Paterson promised to begin delaying payments for services in order to keep the state solvent. And he's ready to defend the stop-payments in court.
It's nice to see that Paterson realizes the seriousness of the situation, but he is to blame for proposing a bloated budget far larger than revenues could have been expected to bear given the recession. Even then, the Legislature continues to ignore its fiscal responsibilities and ignores the ballooning deficit. The financial Rubicon was crossed the moment that the state proposed a budget bigger than last year and relied on hopes and wishful thinking for revenue projections on new taxes and fees.

Moreover, Paterson's estimates are low balling the true scope of the financial disaster in New York as State Comptroller Tom DiNapoli said that the budget deficit was actually closer to $4 billion, not the $3.2 billion stated by the Governor (or the $2.7 billion budget gap closed by the Legislature).

The state's financial picture is grim, and the suggestion of more taxes isn't exactly going to fix things either; the payroll tax to fund the MTA fell well short of its projections, meaning that the MTA budget has to come up with the money from somewhere else (look to more fare hikes in the near future).

All of this comes with a backdrop that the state can't rely on a federal stimulus check next year. It is going to have to come to grips with a need to cut billions from its budget and to finally bring spending in line with reasonable expectations for tax revenues.

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