Wednesday, December 02, 2009

NY Budget Crisis Continues; Spending Cuts Planned

New York's budget situation is a such a mess that no one can even agree on the size and scope of the problem. Profligate spending tends to do that. The legislature is setting up to pass a $2.8 billion deficit reduction package, but Gov. Paterson says the deficit is $3.2 billion. State Comptroller Tom DiNapoli says the deficit is actually $4 billion.

Experts are warning that the deficit is likely to be $6-8 billion in just a few months time.
Legislative leaders say the plan they'll vote on avoids cuts that would force public worker layoffs, hurting school children and patient care or slowing an economic recovery.

Major elements of the plan include:

--$1.6 billion in cuts and temporary cash transfers from agencies to the general fund, already ordered by Paterson on Sunday. The cuts include 11 percent cuts to most state agencies, which are supposed to avoid layoffs.

--$391 million in federal stimulus funds for education that was supposed to be used in the 2010-11 fiscal year.

--$250 million projected to be collected under a new tax amnesty program.

--Over $600 million in cuts in several programs including health care that don't reduce jobs.

The plan includes several tentative revenue raisers, including $200 million anticipated in upfront payments for the vendor yet to be chosen to build and operate video slot machines at Aqueduct race track in a long overdue project and $200 million from the Battery Park City Authority, which requires approval from Mayor Michael Bloomberg.

Paterson criticized the Legislature for rejecting the toughest measures of his $3.2 billion proposal made Oct. 15, but will accept them in bills expected to be passed Wednesday. He complained lawmakers were "afraid'' of the powerful public employee unions protecting school aid and health care.
In other words, much of these cuts aren't really cuts, but one-shot deals to attempt and close the deficit. It also doesn't address the structural deficit caused by having a too large workforce.

The fact that the state is now considering shifting federal stimulus dollars from 2011 to this year should send red flags that everyone is playing with funny money. The state doesn't have money; the feds printed up more money to throw around in the stimulus package, and it is now going to fill structural deficits accrued by states that spent more than revenue projections would have allowed for.

It also once again highlights the fact that had New York simply kept their spending at last year's level (let alone the FY2007-2008 levels), the state would not be in this dire a position. In FY2007-2008, the state budget was $118.3 billion. FY2008-2009 increased that to $124.3 billion. That's a 5% increase at a time when the state economy was contracting sharply. There are shenanigans with the budget figures as well, as the Governor's budget figures for FY 2010 when looking back at FY 2009 suggest that the state budget was merely $119.7 billion while the FY 2010 budget will come in at $121 billion. That compares with the legislative approval of a state budget that was $131 billion.

Still, even with the jury rigged figures proposed by the Governor's office, the structural deficits will hit hard in just a few years time. In fact, the Governor projects $11 billion in structural deficits accruing in five years as a best case scenario; the worst case - $70 billion.

There are also operational problems with the Legislative option, including the fact that the weak economy will not generate the kinds of revenues expected from the Aqueduct project. The state is betting (literally and figuratively) on a long shot to balance the budget, and there's little evidence that the economy is improving to justify the revenue targets.

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