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Drunken Sailors


Drunken Sailors

July 5, 2006

In a budget " cleanup bill" they adopted before adjourning two weeks ago, state legislators effectively plunked about $1 billion worth of rum soaked cherries on what was already a massive New York style cheesecake of fiscal excess.

Excluding federal aid but including bonded capital projects that the Legislature insisted on shifting "off budget" - state spending in the current fiscal year is now on track to reach $80 billion.

As the chart shows, this portion of the state budget financed solely by taxes, fees and borrowing controlled in Albany will be up 40 percent in George Pataki's final four year term as governor. The 2006 07 state funds growth rate of 15 percent will be larger than any comparable spending hike adopted under Mario Cuomo. And the budget is on track to grow by at least 10 percent more in the first two years of the next governor's term.

Pataki surely will be blamed by his successor for the coming hangover, but the costly wrap-up to his 12 year tenure isn't all the fault of the lame duck governor. In April, he vetoed $2.1 billion in line item additions to his budget proposal, which had called for a generous 7 percent spending hike.

But legislators in both parties promptly thumbed their noses at him, restoring $600 million through veto overrides. That left Pataki contesting $1.5 billion in spending on "constitutional" grounds. Then, in the legislative session's final days, Pataki was simply outmaneuvered on one big ticket issue (state funded property tax rebates) and caved on another (Medicaid cost containment).

The result is not a pretty picture for whoever succeeds Pataki.

New York state's population has begun to decline again, and its economy is creating new jobs at well below the national pace. Yet, even after adjusting for inflation, the state's budget is now growing at the fastest rate since the heyday of Gov. Nelson Rockefeller in the early 1970s.

The remarkable surge in state spending of the past few years is clearly unsustainable in the long run. It's only been made possible by three factors:

* The Bush tax cuts, which pumped at least $40 billion into New York's economy over the last three years.

* Wall Street' s resurgence encouraged in part by those same federal tax cuts.

* The real estate boom fed by a combination of both preceding factors, plus low interest rates.

The resulting flood of revenues from income and real estate transfer taxes led to a 2005 06 surplus that Pataki pegged at $2 billion.

Legislative leaders claimed the total was actually more than twice as large; whatever the true amount may have been, it has all now been spoken for. A portion has been saved but not nearly enough to close the budget shortfalls projected for the next two fiscal years.

And lawmakers used not a penny of the overflowing treasury to boost the underperforming New York economy with new broad based tax rate cuts this year.

Yes, there's some tax "relief", in the budget but only in the form of property tax rebates, child credits and other "targeted" tax handouts, Nothing to boost business or create jobs.

Out of all that new money they had available, legislators opted to spend $4 for every dollar returned to New Yorkers in tax relief. The lion's share of the new spending will be sucked up by New York's already well funded education sector, including $1.8 billion for various forms of school aid, a other $1.8 billion for state-bonded school construction in New York City and $1.2 billion for colleges and universities.

Added wages and benefits for state workers including retroactive contract awards, will cost $750 million. Spending on Medicaid will be up $1.5 billion (nearly half of which reflects the cost of capping Medicaid outlays paid by counties and New York City).

While official figures won't be released until the end of this month, it looks like the new governor will inherit a budget $4 of between $3 billion and billion for fiscal 2007 08.

On the surface, this pear to be less severe than the $5 billion problem Pataki inherited from Cuomo thanks to the leftover surplus and to some real financial improvements during the current governor's tenure. But the official gap won't include a combined shortfall of at least $2 billion in the "out years" of the Health Care Reform Act.

Short of proposing a huge tax hike which all the gubernatorial candidates are pledged to avoid the next governor simply can't avoid taking on New York's powerful lobby of health care unions, hospitals and other providers, to whom the Capitol now seems virtually mortgaged. And he simply must find a way to win.

"A crisis is a terrible thing to waste," Eliot Spitzer has observed, referring to the state's looming, budget problems. Putting their other differences aside, his Democratic opponent Thomas Suozzi and Republican candidate John Faso would surely agree.

One way or another, the next governor will need to make the Most Of this mess. Whoever wins the next election should start as Hugh Carey did in 1975 by declaring "the days of wine and roses are over."