Gov. Paterson has found a powerful new tool to force his fiscal priorities through the Legislature while the state plods along on the way to a completed budget. But it’s going to take a lot more than that to deal with mid-year cash shortfalls — not just in 2010 and 2011, but for years thereafter.
By attaching key elements of his budget to emergency-spending bills necessary to keep government running, Paterson is managing to push lawmakers into a corner, leaving them little choice but to go along. His unprecedented approach to the use of executive power may produce a final budget sooner than anyone in Albany thought was possible this year.
Still, keeping spending and revenues aligned throughout the year is another matter entirely — and here, the governor’s legal authority comes up short.
At this time a year ago, revenues were falling sharply below projections. Paterson asked the Legislature for major changes in the budget they had adopted just weeks earlier. Lawmakers ultimately approved only some of the changes he requested, leaving a big budget hole unresolved.
Under longstanding Albany practice, the governor can reduce expenditures at state agencies on his own authority. But Medicaid, aid to public schools and other payments to local governments — almost half of state spending — are off limits.
So the steps that Paterson took on his own to reduce last year’s imbalance — cuts at agencies of more than $500 million — weren’t nearly enough to solve the problem. New York ended the old fiscal year on March 31 with its finances so out of whack that it had to roll more than $2 billion in liabilities into the current year. That made this year’s gap much worse.
In other states, the picture likely would be different:
* In Massachusetts, Gov. Deval Patrick can withhold appropriated funds for local governments and schools, along with agency expenses. Patrick did exactly that in 2009 — reducing budget allotments by $887 million, including $120 million in aid to cities and towns.
* In Maryland, the governor can limit Medicaid appropriations along with those for state agencies by up to 25 percent, on agreement of the state comptroller and/or treasurer. With no action by the state’s legislature needed, post-budget reductions last year totaled a record $957 million. That’s the equivalent of roughly $3.5 billion in a budget the size of New York’s.
* In Minnesota, Ohio and Oregon, governors also have the power to cut far more of their budgets than in New York to address sudden imbalances.
Mid-year fiscal gaps are likely to appear often in coming years throughout the country, as baseline spending outpaces revenue. Here in New York, tax collections are increasingly volatile and unpredictable. The governor’s Budget Division reports that its errors in revenue projections rose from an annual average of 2.4 percent in the late 90s to 4.2 percent in 2002 through 2007.
Why are fiscal experts finding it harder to predict Albany’s revenues accurately? The top reason is the state’s growing reliance on personal-income taxes — especially those on higher-income earners whose bonuses and capital gains rise and fall sharply. While most states rely on income taxes for a third of revenue, here the figure is closer to 60 percent. Recent tax-rate hikes for high-income earners make the volatility risk even worse, the Budget Division reports.
One way to strengthen Albany’s response to future budget gaps would be to give New York’s governor the same broad impoundment powers as executives in states like Massachusetts, Maryland and others. Both Lieutenant Gov. Richard Ravitch and Assembly Speaker Sheldon Silver have proposed doing just that.
Such states as Massachusetts, Ohio, Oregon and Maryland can serve as models for gubernatorial budget authority. These states aren’t especially conservative. But, unlike New York, they possess political cultures that value careful budgeting. They recognize that budget balance is a means of assuring that vital public services aren’t suddenly disrupted — or taxes raised — because the treasury runs dry.
Sudden, unplanned fiscal crisis clearly takes a toll. In New York, parks have been closed and reopened, tax refunds delayed, nonprofit-service providers forced to scramble to meet payrolls, taxes and state-sponsored gambling activity increased because budget gaps were ignored for too long. Thoughtful planning to improve the quality and cost-effectiveness of services suffers as elected leaders and state agencies lurch from one crisis to another.
More than 80 years ago, NY Gov. Al Smith expanded the chief executive’s ability to deal with the complicated problems then facing state government. The 21st century brings even bigger challenges. It may be time to build on Smith’s legacy.
Robert B. Ward is deputy director of the Nelson A. Rockefeller Institute of Govern ment, at the state University at Albany.