Shutdown Avoided For Now

The state legislature punted the state's fiscal situation down the road for another week.

They passed a budget extender, avoiding the shutdown of government operations.

New York's Senate voted to avert an unprecedented shutdown of state government Monday night, ending the latest scare in a two-year-old fiscal crisis and with a state budget now more than 10 weeks overdue.

The Democrat-led Assembly was expected to pass the emergency spending bill easily.

But the Democrat-led Senate required help from the Republican minority that had been voting as a bloc against the bill.

Republican Sens. Hugh Farley of Schenectady County, Roy McDonald of Saratoga County and Charles Fuschillo Jr. of Long Island voted for the bills. Democratic Sen. Ruben Diaz of the Bronx voted against the bill.

This was the 11th time that they've gone through this charade.

The annual budget remains undone, and Comptroller DiNapoli is finally putting his foot down over the nonsensical approach that the legislature was hoping to pass muster - using a pension fund loan to cover pension fund obligations that were to come due to the tune of $6 billion. He'd come under political fire from folks like Andrew Cuomo who's looking to become governor in November.

One of the reasons that New York is in such bad shape is that they engaged in rampant use of one-off's and all manner of gimmicks. The pension self-dealing loan would have been just the latest, and it would have combined the two common awful practices - debt financing to balance the budget and one-off gimmicks.

The state has got to get the spending under control, and the extenders do nothing to fix things. It only punts them down the road and increases the debt load for the state.

A full fiscal year budget must be passed, and the sooner the better, because these delays continue costing New York taxpayers money with each passing day.

Another Reason Why New York Is Toast

New York is bankrupt - politically and fiscally. The state can't make its payments and a shutdown is possible as early as Monday if a budget extender isn't passed or a full year budget is adopted.

Part of the problem is that the state doesn't have the requisite payment for the already grossly underfunded state pension.

What have state leaders including Democrats Gov. Paterson, Speaker Shelly Silver, and Senate Majority Leader John Sampson agreed to do?

They've agreed to have the state pension fund loan itself the $6 billion it needs to meet its obligations.

Gov. David A. Paterson and legislative leaders have tentatively agreed to allow the state and municipalities to borrow nearly $6 billion to help them make their required annual payments to the state pension fund.

And, in classic budgetary sleight-of-hand, they will borrow the money to make the payments to the pension fund — from the same pension fund.

Yes, read that again. The pension is paying itself the shortfall and calling it a balance. Where's Comptroller Tom DiNapoli to call them out on this and demand an actual payment rather than an accounting trick that doesn't actually provide funding for the pension funds?

New York has to cut spending sharply and make its actual pension payment obligations without the use of accounting gimmicks such as the one they're using in this instance. That's how the state got into the mess it is in.

This is yet another reason that New York is in such dire fiscal shape.

NY Still Has No Budget In Place; Gov. Paterson Still Clueless

New York was supposed to have a budget in place April 1, but the state has managed that feat only six times since the 1970s. Yet, Gov. David Paterson has time to get snippy with Comptroller Tom DiNapoli when DiNapoli issued a report pointing out that the state is set to once again use all kinds of gimmicks to mask structural deficits.

A report the State Comptroller Thomas DiNapoli Monday said that New York has been using financial gimmicks to mask the state's huge budget deficit, and "state lawmakers constantly move money around like a shell game," NBC-Channel 4 reported.

"Tell us something we don't know," was the governor's snide remark after reading the report.

"Rather than saying, 'Oh look there's a fire!' what we need is advice for how to put the fire out," Paterson said during a radio appearance early Tuesday.

Here's the advice: stop spending money that the state simply does not have and cannot reasonably expect to take in with tax revenues. Overly optimistic tax revenue projections have repeatedly fallen short, exacerbating the deficits.

The state needs to curb its spending, and last year was a prime opportunity to do so, yet the state increased spending using federal stimulus money to supplement the increase. This year, the state has less money at its disposal and there's no stimulus money either.

So, this year we must see a significant cut in state spending, or else the budget will remain out of balance.

Yet, this fundamental concept is so difficult for Albany to understand that they'll go ahead and pass a flawed budget that increases spending based on money that simply isn't there and then throw up their arms when the deficits reappear and require even more dire cuts.

That NY Ticking Fiscal Time Bomb Grows Louder By $750 Million

State Comptroller Tom DiNapoli announced that the state is going to be even deeper in red ink than just a few days ago because more than $750 million in revenues that the state was expecting simply haven't materialized.

Mr. DiNapoli said the state could no longer count on two large infusions of cash that were expected by the end of the month: a $300 million fee from the winning bidder on the Aqueduct video-lottery franchise and $200 million from the coffers of the Battery Park City Authority.

The Aqueduct franchise was delayed last week when Mr. Paterson announced he was withdrawing support for the winning bidder, Aqueduct Entertainment Group, because the state’s Lottery Division determined that it could not license some of the company’s investors. Money from the Battery Park authority, which is controlled by the city and the state, have been held up by a dispute over the share of revenue each government is entitled to.

Moreover, a tax amnesty program that was projected to take in $250 million by the end of the year has fallen far behind, bringing in just $2.1 million through the end of January.

“This year’s budget was seriously flawed,” Mr. DiNapoli said in a statement. “It was based on overly optimistic revenue assumptions and temporary revenue sources that pushed the problem into the future.”

The Times actually downplays the shortfall amount, but we're looking at nearly $750 million in money that the state simply doesn't have.

The amnesty failed to bring in expected revenues that the state counted on.

The Aqueduct deal fell through and wont bring in expected revenues.

A deal on revenue from a Battery Park City transaction hasn't been completed so that money is being held up.

So, with that as a backdrop, the state is looking to delay taxpayer refund checks to have enough money on hand to pay its own bills to the tune of $500 million. Taxpayers who were counting on their own money back in refund checks are left to their own devices to balance their own books because the state is screwing them over.

At the same time, the state is preparing to delay another $1.5 billion in expenditures that it lacks the money to pay for.

Every time the state delays payment, it simply shifts when the bill comes due - and it will come due. The state has to deal with a $9 billion deficit, including the $2 billion that is being shifted into the new fiscal year.

The only way to solve this mess is to start seriously cutting the spending and getting expenditures in line with revenues. It means that the unions will cry poverty and will claim that the poor, hospitals, medical care, and education will all suffer.

New York's Tax Troubles Reflect Wall Street's Woes

Tax the rich. Make them pay their fair share.

Those are the incessant refrains coming from the Democrats these days (and most days). Well, the reason that New York is facing a multibillion dollar deficit is that all those taxes piled on the rich simply aren't bringing in the revenues that they did when Wall Street was roaring ahead.

New York State officials staring at holes in the budget this time of year generally have had a trusty cushion to fall back on: a mattress stuffed full of Wall Street bonus money.

But this year is what is known in business schools as an outlier. The tide of negative sentiment toward the big banks has thrown the normal flow and structure of pay on Wall Street out of whack. The taxes on those bonuses, in turn, are falling well short of expectations, widening the state’s budget deficit by the day.

On Wednesday, the state’s Budget Division said that the deficit for the next fiscal year, which will start April 1, was already $750 million larger than it appeared when Gov. David A. Paterson laid out his proposed budget two weeks ago.

The state had expected to collect $1 billion to $1.5 billion in taxes on Wall Street pay in the last two weeks of January, said Robert L. Megna, the budget director. But at the end of the month, tax revenue was about $1 billion shy of what had been projected, Mr. Megna said.

“We know that big guys typically pay us at the end of January,” Mr. Megna said, referring to large banks like Goldman Sachs and JPMorgan Chase. “Last week, after the budget came out, they didn’t pay us.”

One reason for the shortfall is that the banks have been cowed by public outrage and political rhetoric into cutting back sharply on the amount of cash they pay as bonuses. Citigroup, for example, capped cash payouts at $100,000 this year, a fraction of the millions some top producers and senior executives have taken home in the past.

When you have a tax scheme that is disproportionately reliant on any one sector of the economy, you're going to run into serious trouble when that sector enters a recession. New York has known for years that the Wall Street cash cow was susceptible to recessions, that further taxes and fees might drive business out of the state, and that consolidation in the financial sector would reduce tax revenues to the city and state.

Yet, the state has done nothing to address this by reducing spending. They've maintained or grown their state spending above the rate of inflation, and put New York on the precipice of a gaping budget deficit, which depending on who you talk to is anywhere from $8.2 billion (up from $7.4 billion estimated a few weeks ago - precisely because of the falloff from the tax revenues) to levels far in excess of that. State Comptroller Tom DiNapoli says that the Governor is underestimating the problem and basing its figures on wishful thinking of increased revenues coming in over the next two months to make up for a massive shortfall to date.

At least Paterson is astute enough to note that Wall Street isn't going to be able to bail the state out of the mess this time; they've milked it for all it's worth and there's nothing left to give without destroying the financial markets and forcing them to look for somewhere that has a lower tax burden (and New Jersey will gladly offer up tax breaks to lure Wall Street firms to Jersey City and Newark - within shouting distance of Lower Manhattan just as they've been doing for their back-office functions for years).

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.

States Waited Until After Election Day To Deal With Budget Mess

If you want an example of how feckless and irresponsible the so-called fiscal wizard Jon Corzine was, all you need to know is that the state is now going to deal with its budget disaster by contemplating cuts to attempt to balance the budget.

Any reasonable observer could have told you that the state's budget was a disaster despite protestations that Corzine cut the budget this year to reflect the economic woes facing the state.

It was a lie; he and the Democrats used stimulus money to maintain the state budget at the rates from last year, and there was no way that tax revenues would match projections given the recession and declining revenues that were expected.

Corzine couldn't address these cuts before the election because it would have been politically disastrous, but it shows just how the poisonous political environment trumps fiscal responsibility. The need to be reelected trumps doing the right thing.

A similar situation awaits in New York, where Gov. Paterson has been warning of a dire budget deficit that now exceeds $3 billion and the state's emergency reserve fund is pretty much tapped out. And as bad as Paterson says things are, Comptroller Tom DiNapoli says that they're even worse. The one thing that the state must do, Democrats will fight every step of the way. They will not cut state spending, even though that is the root of the problem. Tax revenues simply are not supporting this level of spending - and they haven't for years.

In fact, the high taxes in New York chases away the tax base, leaving fewer people around to support the state spending, increaseing the tax burden on those who remain.

Instead of keeping spending at reasonable levels, New York increased this year's budget significantly over last year's budget, creating a huge budget hole that can't easily be plugged because Albany made too many promises to too many people and now have to axe programs all over the place.

New York's Precipitous Pension Plunge

New York's pension mess just got a whole lot messier according to State Comptroller Tom DiNapoli.

The fund lost $44 billion over the course of the fiscal year that ended in March, DiNapoli told reporters in a teleconference from New York City.

He agreed that the fund's nearly 29 percent drop from $153.9 billion last year to its current level of $109.9 billion was "startling," but insisted the plunge was inextricably linked to last year's stock market crash.

"It's certainly the worst year in anybody's memory," DiNapoli said.

The fund currently pays out pensions to approximately 350,000 retired public employees. The drop in value could have significant implications for local governments, who are required to make up any shortfall between what the pension fund is able to pay out and what their retirees are by law able to collect.

For that reason, DiNapoli said municipalities may have to increase from 7.5. percent to 11 percent the portion of payroll they set aside for pension costs starting in 2011.

The state's pension fund dropped in value by $44 billion over the past year. It's a 29% drop, and the obligations to 350,000 pensioners in the system have to be made up somewhere. That obligation is going to fall to the localities, which means more taxes are in the offing.

Amortizing the costs delays the inevitable and doesn't address the structural deficits resulting from an unsustainable pension system in the state.

NYS Budget Already In Red

It's just about a month since New York passed its state budget, and the news is grim. There's already a significant shortfall, and it can be traced to one thing - increased spending on education.

DiNapoli said state revenues in April were down by $239.1 million, or nearly 5 percent, from the $5 billion projected by Gov. Paterson and state lawmakers when they prepared the budget at the end of March.

"This was a poor start to the fiscal year," said DiNapoli.

"It's been less than a month since the state's financial plan was released and General Fund revenues are already off nearly a quarter of a billion dollars," added DiNapoli, who last week blasted the new fiscal plan as a "buy time budget" that "postponed tough decisions on spending."

DiNapoli blamed the revenue drop on a shaky economy caused by the national recession and he warned that things could get worse.

"We've already tapped nearly all of our unreserved funds so there is very little cushion if revenues continue to fall," he said.

"We need to watch revenues and spending very closely, because the state may be forced to readjust priorities," he continued.

While state revenues were declining, state spending was up considerably from last year.

DiNapoli said the huge increase in overall state spending for April resulted from jumps in education (up 24.4 percent from last year) and Medicaid (up 18 percent).

Total state spending is up $885.8 million, or 12.1 percent more than during the same period last year, according to DiNapoli.

Tax receipts are down (and the one area in which they're up is because of new additional taxes imposed). Spending is up. Deficits occur in such situations, and it gives lie to the notion that the state budget was ever going to be in order.

The state budget was a disaster from the start and it denies reality. The state increased its spending over last year, despite the recession and called on additional taxes to carry the day.

They aren't.

The deficits are only going to get worse. Taxing their way out of the problem is not going to fix things either.

Cutting spending is. New spending on education is simply unwarranted when you can't even afford existing levels of spending.

UPDATE:
This doesn't make the situation any better. If you keep taxing people at ever higher rates, they're going to flee. Tom Golisano makes that point quite explicit. Golisano previously ran for Governor and has run a successful payroll business in New York, but decided to move to Florida where he can save millions in taxes. That's revenue the state will never get back. He's not alone as others ponder move to lower tax-burdened states, leaving an ever higher burden on those who remain. The budget is unsupportable, and yet the politicians keep pushing the spending higher.

Check the Numbers

This is a mantra that should be repeated at all levels of government.

The New York State legislative leaders and Governor David Paterson say that they've fixed the MTA's budget problems, which includes raising payroll taxes, hiking fares, fees on vehicle registrations, and imposing surcharges on taxi usage.

The numbers don't add up, especially if the rosy projections do not come to pass. That means that even with the expectation of further fare increases, the MTA will be running structural deficits for years to come.

New York State Comptroller Thomas DiNapoli must examine the deal and see whether it's all just smoke and mirrors.

Meanwhile, President Obama is supposedly going to cut $17 billion from his just announced budget. How exactly is that a fiscally responsible thing to do? He proposed a multi-trillion dollar spending package that was all deficit spending and back-loaded so that the public might possibly see construction just before his reelection campaign gets underway, but which was larded with tons of pork to the tune of tens of billions of dollars. His latest fiscal year spending package is $3.4 trillion, far in excess of anything ever proposed by the US government, and he's calling for $17 billion in cuts?

President Obama has said for weeks that his staff is scouring the federal budget, "line by line," for savings. Today, they will release the results: a plan to trim 121 programs by $17 billion, a tiny fraction of next year's $3.4 trillion budget.

The plan is less ambitious than the hit list former president George W. Bush produced last year, targeting 151 programs for $34 billion in savings. And like most of the cuts Bush sought, congressional sources and independent budget analysts yesterday predicted that Obama's, too, would be a tough sell.

"Even if you got all of those things, it would be saving pennies, not dollars. And you're not going to begin to get all of them," said Isabel Sawhill, a Brookings Institution economist who waged her own battles with Congress as a senior official in the Clinton White House budget office. "This is a good government exercise without much prospect of putting a significant dent in spending."

It's a fraction of a percentage, and even worse, it's half of what President Bush called for in cuts during Bush's last year in office. Proportionally, it makes Obama's budget cuts look even more paltry.

There is no one in politics that appears to be willing to be the taxpayers' advocates and protect taxpayers from profligate spending and irresponsible budget proposals that do nothing to impose fiscal responsibility on anyone at any level of government.

It has to start somewhere, and in New York, that means the comptrollers offices at the state and local level. They must stand up and demand accountability and audit the books of all the relevant parties to insure that the taxpayers aren't being taken for a ride. It's their obligation and fiduciary responsibility to do so.

UPDATE:
DrewM at Ace points out that most of the $17 billion comes from one area of the budget, national defense. It's specifically relating to the Defense Department cessation of the F-22 project and choosing not to update/replace the Presidential helicopter fleet. Also, much of the rest of the cuts will be restored by Congress, which does this stuff as a matter of policy.

Instead of focusing on the dollar value of his bloated budget, he's touting the number of programs supposedly touched by his cuts. It's smoke and mirrors, much in the same way that the Administration now classifies successfully defeating the recession and unemployment figures by the nonsensical "created or saved jobs".