Gov. Paterson’s second Executive Budget is not nearly as tough as his rhetoric (or the headlines) would imply. But in dollars and cents terms alone, it is relatively restrained and almost fiscally conservative — by Albany’s low standards, that is.
The problem is that Paterson has shifted some of the state’s fiscal problem to the local level without seeking fundamental, long-overdue reforms to reduce the impact on heavily burdened local taxpayers.
The risk now is that we’ll see a repeat of last year’s budget process — resulting in a bloated and unbalanced spending plan that digs a deeper hole while raising taxes and fees by even more than the governor has already proposed.
Paterson’s plan for 2010-11 would add $745 million to the nearly $80 billion state operating budget. This would keep spending growth below the projected 2 percent inflation rate, which is a minor achievement. However, it’s still a perilously high starting point for negotiations with his fellow Democrats in the Legislature, who were reluctant to cut spending even when he warned them the state was running out of cash last month.
Paterson now says the deficit for this fiscal year (which ends March 31) has grown by another half-billion dollars. He intends to push this problem into the following year — by delaying some tax refunds, if necessary. Including that red ink, Paterson’s budget is designed to avert a shortfall of $7.3 billion for the 2010-11 fiscal year — which would still leave nearly $30 billion in cumulative budget gaps over the following three years.
Nearly three-quarters of his gap-closing plan, or about $5.3 billion in savings, could fairly be described as fiscal restraint — mainly avoidance of spending hikes now set to occur. Close to a billion more would be generated by higher tax audit targets, one-shots and a troubling plan to delay paying a portion of the state’s pension-fund bill every year for up to 10 years.
The rest would come from the revenue side. The good news is that the governor relies far less on “revenue raisers” here than in his initial proposal last year. That plan included dozens of tax and fee hikes — and ultimately morphed into a record increase of $6.1 billion, including a $4 billion “millionaire tax” hitting filers with incomes as low as $200,000.
This year, Paterson proposes another $1 billion in new taxes and fees, mainly from three sources: a $465 million “syrup tax” on sugared sodas, a $210 million ($1 per pack) hike in cigarette taxes and $216 million in added assessments on health-care providers.
Paterson could have avoided proposing any tax and fee hikes if he’d been willing to make bigger changes and deeper cuts in his own state agencies and a number of areas — including public-health programs, which he targets for a relatively modest $1 billion in savings. In fact, his budget calls for a net 8.3 percent increase in state-funded Medicaid spending.
But the big flashpoint is his proposal to cut school aid by $1.1 billion, including a $469 million reduction for New York City.
A cut is certainly justified: The last decade has seen phenomenal growth in K-12 school spending; school aid now accounts for a third of the state operating budget and a large share of projected budget gaps.
There’s precedent, too. Under similar circumstances in 1991, then-Gov. Mario Cuomo proposed a 10 percent cut in school aid. Paterson’s cut, by contrast, would be just 5 percent — which, he notes, translates into a 2 percent reduction in overall K-12 school revenues.
But Paterson is offering the city and school districts almost nothing in the way of relief from state spending mandates to help them offset the aid cuts — and he has abandoned the school-tax cap he once championed to protect suburban homeowners from the threat of untrammeled tax hikes.
For all his inconsistency, Paterson — like his recent predecessors in both parties — remains a paragon of fiscal responsibility compared to the Legislature. His wise insistence on maintaining a reserve cushion of just over $1 billion may be the only thing that stands between New York and a credit-rating downgrade — although it may happen anyway, if the 2010-11 budget becomes a blowout.
The governor complains a lot about how “painful” it is for him to reduce spending, but balancing an Executive Budget is not all that difficult compared to what lies ahead. Now comes the hard part.
E.J. McMahon directs the Manhattan Institute’s Empire Center for New York State Policy.