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Better Late Than Larger


Better Late Than Larger

March 8, 2004
Urban PolicyNYC

NEW York state legislative leaders reportedly are still optimistic that they can produce an on-time budget for the first time in two decades. This, says state Comptroller Alan Hevesi, "would be a tremendous achievement."

A political achievement, maybe. But even if a new state budget is adopted by the April 1 start of the 2004-05 fiscal year, New Yorkers should hold their applause: Gridlock might be better.

To a great extent, the record budget-adoption delays of the late 1990s reflected the degree of Gov. Pataki's resistance to a spendthrift Legislature. Conversely, a timely budget this year is likely to be one that spends, borrows and taxes too much, avoiding tough decisions and laying the foundation for more fiscal headaches in the future.

The current state budget was adopted quite early by Albany standards (at the start of last May) - because the state was then about to run out of cash. The Republican-led Senate and Democrat-dominated Assembly joined forces to add billions of dollars in spending over Pataki's vetoes. They also overrode the governor by enacting a record three-year tax increase cumulatively worth more than $5 billion.

Pataki warned that the higher taxes would "hurt families, seniors and small businesses" and "drive jobs out of New York, both upstate and down." He also said the Legislature's spending increase "will not be able to be sustained this year, let alone over the course of the next two years."

Given the tough rhetoric he aimed at the 2003-04 budget, you might expect Pataki to at least try to undo some of the damage in 2004-05. Uh-uh: Instead, the governor's nearly $100 billion Executive Budget proposal for the coming fiscal year signaled his desire for a quick and early deal: Rather than seeking even partial repeal of the Legislature's spending and the tax hikes, it fully incorporated them.

And while Pataki promised to stick with the current schedule for "sun-setting" those higher income and sales tax rates at the end of 2005, he is seeking $1 billion in new taxes and nuisance fees: The money is needed to help finance his proposed spending increase of more than 5 percent.

All in all, even after adjusting downward for some timing and bookkeeping anomalies, this is one of the fastest-growing budgets Pataki has proposed since taking office in 1995.

To his credit, the governor has belatedly revived a more aggressive agenda for reducing New York's massively bloated, out of control Medicaid program. But the Legislature is likely to reject most of these cuts, despite the loud complaints of Mayor Bloomberg and county executives whose budgets are badly strained by the local Medicaid share.

Between its Medicaid restorations and inevitable additions for school aid and pork barrel projects, the Legislature is likely to boost Pataki's already swollen budget total by a half billion dollars or so in 2004-05 - inevitably adding to a projected budget gap of $3 billion for the following year.

That's not even counting the potential impact of Pataki's just-announced tentative contract agreement with the state government's largest union. The cost of the pay raise could range from $100 million in the next budget to nearly $1 billion by 2007, if it ends up setting the pattern for all state employees.

Much depends, of course, on the strength of the state and national economic recoveries. President Bush's 2003 tax cuts were especially favorable to high-income, investor-intensive New York, largely offsetting the negative economic impact of higher state and local levies. But that positive effect will diminish over time, making it all the more important to quickly reverse last year's hikes.

For now, employment growth in New York state is close to keeping pace with the sluggish national rate. The weak spot in the statewide picture remains New York City, whose residents and businesses are now subject to the nation's highest-income tax rates.

Legislators are treating the resurgence of stock indexes and Wall Street bonuses as evidence that happy days are here again. But, as Hevesi noted, the market tends to dip after presidential elections. In any event, moderate growth in Wall Street revenues alone won't be enough to float the state's boat out of the budget holes projected for the next few years - especially if a court-ordered change in the school-finance formula results in even larger spending hikes.

Despite the economic and fiscal damage wrought by the World Trade Center attack, the New York state budget has grown nearly twice as fast as inflation over the last three years, and it's on a pace to grow even faster over the next three years. If the governor and legislative leaders shake hands on March 31, taxpayers will probably have little to celebrate but April's Fool Day.