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New York Post


NY Budget Blues

November 01, 2006

By E. J. McMahon

Running for a fourth term in 1994, Gov. Mario Cuomo sat on a mid-year budget report that would have called attention to a growing hole in the state budget. It was only after losing the election that Cuomo released the report -- and George Pataki discovered he was inheriting a budget gap of at least $4 billion.

Eight years later, it was Pataki's turn to muddy the waters. Shortly before the 2002 election, the governor's Budget Division forecast the state fiscal year would end with a $716 million budget surplus. Only after Pataki had been safely returned to office did the public learn that the state actually faced a $2.2 billion deficit.

So what - if anything - are we to make of Pataki's announcement this week that the state is on track to end fiscal 2006-07 with a $1 billion surplus?

Is this "further evidence our sound economic policies are working for New York," as Pataki proclaimed? Or simply an example of "faith-based budgeting," as Eliot Spitzer's campaign was quick to assert?

The answer: a little bit of both.

Pataki can rightly claim that he has strengthened the state's finances over the past dozen years. Cuomo left the state's reserve funds virtually empty, which meant there was no margin for downside error in his budget forecasts. By contrast, Pataki estimates that the state's reserves now stand in the $3 billion range.

That fatter cushion explains why the state's bond rating is at its highest level in two decades. (It's jumped all the way from abysmal to mediocre.)

While the Pataki administration earned its reputation for stonewalling and secrecy, the governor has been much more open with budget information. In fact, with the notable exception of that 2002 pre-election report, the state's financial picture has become far more transparent under Pataki than under any previous governor.

Yet neither Spitzer nor his GOP opponent, John Faso, is turning cartwheels over Pataki's latest spin on the financial plan. Both candidates know the top task for the next governor will be to suppress spending appetites in Albany - and putting the words "billion" and "surplus" in the same sentence just makes legislators salivate.

The budget report's not-so-fine print makes it clear that the latest improvement in the state's bottom line is actually quite modest, a product largely of one-shot factors and volatile revenue sources. Excluding surplus funds rolled over from prior years, the state's current operating expenditures slightly exceed current operating revenues.

And that shortfall will soon grow much larger. State revenues are projected to keep pace with inflation over the next two years - but spending is on track to rise at fully twice that rate.

Including health-care programs, the Budget Division now projects a budget gap of $2.9 billion in fiscal 2007-08. If not closed with permanent savings next year, the gap balloons to $5.5 billion in 2008-09.

And those projections rest on a series of fairly rosy assumptions. Among the rosiest:

* In each of the next two fiscal years, local school districts will settle for less than half the increase in state aid that they saw this year (the largest jump ever).

* The Campaign for Fiscal Equity court case won't be allowed to force school spending even higher.

* State employees won't get a pay hike once their contracts expire next year.

* The Bush administration will continue to let New York shamelessly milk the federal Medicaid program.

Meanwhile, economic growth in New York is not accelerating but subsiding, as the Budget Division acknowledged in another report earlier this month. The real-estate boom is over. Statewide private-sector job growth remains below the national average. Unemployment is below average - but (especially Upstate) this probably reflects population losses as much as job creation.

Pataki's final "out year" budget gap is smaller than the one left to him by Cuomo. He's laid all his fiscal cards on the table, and there's no reason to believe the short-term situation is worse than he paints it. But for the state to be facing this much red ink after several years of strong revenue growth is nothing to boast about. Until we get a serious crackdown on state spending, New York will be one mild economic downturn away from its next fiscal crisis.

It's no surprise to see a lame-duck governor accentuating the positive as he prepares to leave office. But come Jan. 1, a more sober tone should prevail in Albany.

Original Source:



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