Our Bankrupt State

Governor Cuomo's budget reflects the horrible reality that New York State is in terrible financial condition, but it is painful for New York City and cuts education and healthcare significantly.

Painful Spending Cuts

With a $10 billion deficit staring him in the face, Governor Cuomo has proposed a budget with enormous spending cuts and almost no tax increases. Governor Cuomo is more responsible than Mayor Bloomberg, who has sought to fill his budget gaps with regressive taxes. But, Cuomo's reliance on budget cuts also has the potential to be highly regressive and to undermine the economic future of our state.

In addition to significant cuts to healthcare and education, Cuomo's budget brings us 10% cuts to each state agency without regard to which agencies currently use our tax payer dollars most effectively and without regard to which agencies' activities serve the most vulnerable populations in our state. Across the board cuts are rarely the best approach to improving a budget's quality, but Governor Cuomo's focus is on reducing our state's deficit. Across the board cuts are an excellent solution to reducing a deficit.

A large portion of New York State spending goes to help pay the bills of municipalities in our state. The cuts will put pressure on many cities and towns in New York State, and New York City will be one of the municipalities facing exacerbated budget problems as a result of our state's need to cut its deficit.

Automatic Government

In the 1988 book Automatic Government, its author Kent Weaver demonstrates the growth at the federal level in indexing government spending to the inflation rate. Because nearly half of the US federal budget is indexed to inflation, it is essentially on auto-pilot. Elected officials who do nothing are essentially voting for indexed programs to represent a larger portion of the budget each year as non-indexed programs face squeezes and cuts as deficit reduction is attempted.

In New York, the "automatic government" is far more unmanageable in a deficit reduction era. Governor Cuomo revealed as part of his budget address that both healthcare spending and education spending are scheduled to increase by 13% in the next fiscal year if nothing is done by the New York State Legislature to change the auto-pilot trajectory. In an environment where overall spending must be reduced, automatic 13% increases are an unwelcome challenge, and even if those automatic increases are not implemented in the upcoming year, they will return in the following year to ruin a future budget in the absence of major cuts in the rest of the budget. Neither education nor healthcare are services that New York State residents can easily do without, and the size of the cuts may require real sacrifices that are likely to be borne by those with the least resources in our society.

What's Next?

Now, the fight begins. There are no clear heroes and few clear villains in this fight. Budgets cuts will hurt vulnerable people, and some opposition to budget cuts comes from self-interested groups seeking to profit from the state and not to protect vulnerable constituencies. Let us pledge to pay close attention to this budget fight and support efforts to reduce the deficit in ways that do not target poor people and other vulnerable groups. Let us also recognize that the process of getting our house in order will require most of us to sacrifice. We do not have to like it, but we do have to endure it in order to give our state the type of future our children and their children deserve.

Another Bloomberg Blunder - And - Albany Reloaded

Three days ago, Mayor Bloomberg announced retroactive raises for his senior staff members, demonstrating once again his unlimited arrogance.

Separately, New York State Senator Pedro Espada came full circle in his turncoat / traitor odyssey and rejoined the Democratic Party to give the Democrats a 32 to 30 majority in the New York State Senate. As part of his double-cross of the Republicans, Espada will be elevated to the role of Majority Leader in the New York State Senate. So, it seems that crime does pay after all.

Bloomberg's Retroactive Raises

Mayor Bloomberg has surpassed his previous demonstrations of arrogance with his granting of retroactive raises to nearly 7,000 members of his staff. In essence, the Mayor's team will receive bonuses representing the additional earnings they would have received if the raises had begun 16 months ago. They get a 4% raise for all of last year and a 4.16% raise for all of this year.

As absurd as the bonuses and raises appear on their face, a broader context illuminates how unacceptable this latest mayoral maneuver really is.

1) The Mayor demanded that City Council change the City Charter to allow him to seek a third consecutive term, despite two referenda in which the people of New York City voted overwhelmingly to disallow Mayors to serve for three consecutive terms. In arguing for the third term, Bloomberg has suggested that the intense economic and fiscal crisis facing New York City requires keeping Bloomberg in power (ignoring the fact that Bloomberg got us into this mess). Bloomberg's answer to the economic and fiscal crisis is to give huge bonuses and raises to his staff. Now, at least one of the Deputy Mayors will have a higher salary than the salary provided to the Mayor's office by law. The third term seems unwise.

2) At Manhattan Viewpoint, we have been highly critical of the Mayor's decision to use sales taxes to balance the city's budget. The Mayor's obsession with protecting high earners from taxation has resulted in a painfully regressive budgetary approach that relies on poor people to pay more taxes to fill in the budget gaps created by the economic downturn and by the Mayor's unfortunate reliance on Wall Street revenues during his first 1.5 terms. It is ultra-shameful that a mayor who so thoroughly believes in regressive taxation would be so generous to his own senior staff during a fiscal crisis. He is demanding that poor people pay more so that he can pay his top advisers more.

3) Bloomberg is setting a record pace for stopping and frisking people of color. He has given the crime of "walking while black" the official City Hall stamp of approval, and his administration is retaining all of the personal information of those that are stopped. 90% of those stopped are non-white even though whites who are stopped are 2.5 times more likely to have illegal substances or weapons in their possession. Yet, Bloomberg will stop and frisk more people of color this year than any mayor has ever stopped in New York City.

4) The Mayor chose to reject federal aid from the Obama administration because it would have expanded the availability of food stamps to more poor people.

Bloomberg is demonstrating the type of leadership that suggests he should have had only one term and should certainly not attempt to impose a third term on our great city.

Albany Reloaded

Pedro Espada came roaring back into the Democratic Party late last week. Given his weaknesses and challenges, no one should be pleased that he is now the New York State Senate Majority Leader. While the Democrats have waited about 70 years for the opportunity to set the public agenda for New York State, relying on the loyalty and leadership of Pedro Espada is not at all consistent with the progress we must make in our state. He is more likely to be indicted or declared ineligible to hold the office to which he was elected than to turn out to be a leader that we should admire. For now, Espada's latest move puts the Democrats in charge of the New York State Senate. Given the Democratic control over the State Assembly and the Governor's Mansion, the Democrats are now responsible for making tangible improvements and have no excuses and no one to blame but themselves if they fail.

Lt. Governor Controversy

Governor Paterson appointed a Lt. Governor last week despite guidance of the New York State Attorney General and from decades of precedent that suggested that he did not have that power. While we are not qualified at Manhattan Viewpoint to challenge the Governor or the Attorney General on the proper interpretation of the New York State Constitution, we certainly are qualified to state the obvious: a Lt. Governor chosen under circumstances that many credible people see as unconstitutional will be bogged down in litigation and will not be legitimized until all legal challenges to his appointment have been defeated.

The Governor's choice, Richard Ravitch is an excellent choice in terms of a person whose intellect and integrity are unquestioned. We just may not get the opportunity to benefit from the services of this superb public servant for weeks and months while we wait for the legal process to come to some conclusions about the legality of the appointment.

Balancing the Budget in Albany During a Recession

Leadership in Albany is often criticized, and none of us have forgotten the study that showed the the New York State legislature was the most dysfunctional in the United States. The events of the last two days might be a sign that Albany is changing in ways that are healthy for New York State, New York City, and our borough of Manhattan.

Democratic Control Means Democratic Responsibility

The State Senate is in the control of the Democrats for the first time in many decades, and the Democrats now control the entire legislature and the Governor's mansion. It is far too early to give the elected leaders in Albany an overall grade, but they deserve extra credit points for the compromise they have reached regarding increasing tax revenues  to bring the New York State budget into balance in the coming fiscal year and those to follow immediately thereafter. During a recession, taking steps aimed at generating economic growth or avoiding steps likely to deepen the recession are paramount. The tax compromise reached in Albany late last week has all of the appearances of an honest attempt to solve two incompatible problems, increasing state government revenues and avoiding further harm to our state's economy.

The Democratic Party must continue to make these good-faith attempts to do what is right in these complex and controversial areas. It will not be easy, but it will be necessary. If the Democrats cannot develop a record of good-faith hard work and compromise in Albany, there won't be anyone willing to see the blame for those failures as shared with the Republicans. The Democrats must deliver or find themselves back to the structure of the past several decades, where Republican control of the State Senate made success on nearly all controversial issues impossible.

As we said the night of the November 2008 elections: 

With control of the Executive Branch and both houses of the legislature in both our nation's capitol and in Albany, the time has come for Democrats to deliver for the people. No excuses, and no blaming the Republicans . . . This election is the beginning of our journey rather than the end.

Economic Growth and Government Budgets

During economic downturns, the United States federal government should increase spending (and perhaps reduce taxes) in order to spur economic growth. The reduction in tax revenues from the reduced economic activity (coupled with lower taxes, potentially) and the increased government spending combine to result in deficits (or lower surpluses). The goal of ending recessions creates the environment in which deficits increase.

At the state level in the United States, budgets are less flexible. New York, like all fifty states, is required to have its revenues match its expenditures in each year's budget. It would not be wise to allow states to create deficits unless the sizes of those deficits were strictly limited. The capital markets would find it difficult to absorb the financing of large and growing deficits from fifty states, and only the Federal Reserve can create new cash. States would not be able to provide adequate certainty of repayment without strict limitations. The requirement of a balanced budget can promote longer recessions and slower recoveries by forcing state governments to reduce spending and raise taxes when the economy is in need of the opposite.

Here in the New York State, the government in Albany is in just that dilemma, and they are making the best of a bad situation.

Higher Taxes That Could Have Been Worse

Higher taxes, especially in a state like New York that is already at the top of the list of the states who impose the largest tax burden on their residents, are unwelcome and counterproductive. They are also often necessary during difficult economic times, and we are in such times.

The budget that is very close to becoming law in Albany could have been much worse on the taxation question. Many groups pushed for permanent or long term levels of much higher taxes. Others pushed for increases in sales taxes. Because both ideas were rejected in favor of a small increase in income taxes (a one percent increase for those earning over $250,000 per year and another approximately one percent for those earning over $500,000) for only 3 years, we should take a moment to appreciate the wisdom of the Governor, the State Senate, and the State Assembly in compromising amongst each other in what must appear to each of them to be a "no-win" situation.

New York State already relies heavily on regressive sales taxes, and because of that reliance, New York State's overall tax scheme is regressive (meaning that it imposes the greatest tax burden, as a percentage of income, on New Yorkers with the least income). Adding large new sales taxes to the New York State tax scheme would have made that bad situation worse.

A long term increase in income taxes would likely result in reduced economic activity as the workers subject to the higher tax rates move to other states or otherwise alter their economic behavior to reduce their tax burden. At least as important is that New Yorkers would reduce their spending to account for the reduced take-home pay resulting from the higher taxes.

With a short-term tax increase, New Yorkers are far less likely to reduce spending, leave New York State, or take other counterproductive actions that could have resulted from a longer term tax increase. The potential negative consequences are also mitigated by the small size of the tax increase. 

In the end, the leadership in Albany deserves credit for a job well done on taxes, and they are unlikely to be praised for it. Let's hope that they continue to pursue responsible compromises and earn praise in the months ahead.