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Fiscal Fantasy


Fiscal Fantasy

December 1, 2004
Urban PolicyNYC

And so the three wise men came down from the mountain, carrying a stone tablet, and they handed the tablet to the high priest in his black robe. And there was a number inscribed on the tablet, and the number had a dollar sign followed by 11 digits, and the first two digits were "14" and the plaintiffs' lawyers saw that it was good.

The saga of the Campaign for Fiscal Equity (CFE) court challenge to New York state school-financing formula continues to unfold in depressingly predictable fashion.

The latest chapter came yesterday, when thee court-appointed referees recommended a whopping $14 billion jump in operational funding for the city's public schools over the next four years. The total new funding would reach: $5.6 billion a year by 2008-09, plus $9 billion for capital construction. The first $1.4 billion installment would be due next year--when the state and city already face huge budget gaps.

So what now?

Barring a settlement, justice Leland DeGrasse is expected to issue a ruling in January based on the referees' report. And if it gets that far, Gov. George Pataki will have no choice but to appeal. That will mean more years of litigation in a case that as already consumed a decade.

More litigation would also spell more gridlock on a wider range of issues in Albany.

Assembly Speaker Sheldon Silver has already used the lack of agreement on a CFE solution as a pretext for holding up passage of the state budget this year until a record late date in August. Armed with a detailed court order--albeit a specious one--he's clearly ready to do it again.

"It's no longer a question of whether we can afford it or not. It's now a mandate," Silver I asserted Tuesday.

In fact, affordability is precisely the question--for neither the state nor the city can finance the remedy, suggested by judge DeGrasse's referees.

Consider: Under one scenario, the state and city would agree to evenly divide the cost of a court ruling modeled on, the referees report. Including the debt service on new capital borrowing, that would require Albany and City Hall to each somehow come up with an extra $3.2 billion a year (in 2004-05 dollars) by 2008-09.

Pataki thinks he can raise $2 billion from expanded authorization of video lottery terminals, which the Legislature has yet to approve. But that would still leave the state $1.2 billion a year short--the equivalent of a permanent 5 percent hike in the income tax.

The city, for its part, would need to raise taxes by a record amount--far beyond what Bloomberg has already imposed in the last three years--to come up with its own share of a 50-50 split.

But the real impact, if such a ruling were ever implemented, would probably be much larger. That's because the Legislature has embraced, the notion that any CFE-induced hike in aid to New York City must be accompanied by a jump in aid for districts across the state. Using Albany's math, three will get you five in a hurry.

In truth, the referees' recommendation in the CFE case is a fiscal fantasy. And like all fantasies, it is based on myth.

The first myth: More money is all that's needed to fix New York City's schools.

The second myth: Billions of dollars in new state aid can somehow be raised without ultimately raising taxes on New York City residents.

The next two months--before the judge issues a ruling based on the referees report--represent a shrinking window of opportunity for Pataki to hammer out a more fiscally sane settlement.

There may still be a glimmer of hope here because the outcome of the case also has a beating on the city's stalled negotiations with the United Federation of Teachers.

The teachers, of course, want a raise--which a modicum of CFE money would help finance. Mayor Bloomberg, meanwhile, needs changes in the UFT contract to make teachers more productive and accountable, and to give good teachers bonuses to work in poor schools. This is the minimum amount of structural change needed to achieve the supposed aims of CFE.

In short, the governor isn't the only player with an incentive to arrive at a remedy that actually does improve public schools (although it will still fall short of providing the wider range of educational choices poor kids really need).

If all else fails, New York will move a step closer to having Leland DeGrasse as its defacto schools czar. That's when the fantasy will threaten to become a living nightmare.