No FMAP, No Stimulus, No New Revenue—Preparations For Next Year’s Budget Begin
Experts preview the trauma ahead for Paterson’s successor and the 2011 Legislature
Wed, 28 Jul 2010 11:13:00
As difficult as this year’s state budget process has been, next year’s seems likely to be even bleaker. The state’s budget division is already projecting a $7.5 billion gap. And if the last few years of budget-gap predicting offer any clue, that number is almost certain to grow.
Practically no one is anticipating a statewide fiscal turnaround that can fill the hole, which means the Legislature and the governor’s office is in for another year of budget crunching.
Even after the current budget is finally passed—fast approaching the latest in modern history—the situation next year is bad, in part, because of revenue that has or will shortly disappear. First and foremost are federal stimulus funds, approximately $8 billion of which went to closing the gap in 2009. Then there is the $1.1 billion in federal Medicaid funds that the state has already written off, as well as the sun setting on a temporary income tax surcharge that was to bring $12.5 billion in funding last year but fell significantly short.
“The $7 billion to $7.5 billion is still a reasonable estimate for the projected 2011-12 state budget deficit,” said Erik Kriss, a spokesperson for the state’s Budget Division, in an e-mail.
Cue the collective hand wringing.
“Terrible,” the Empire Center’s E.J. McMahon said, describing the state’s fiscal prospects next year. “We’re in the third year of the most serious financial downturn in the postwar era and the state is still increasing spending.”
“It’s not going to be a good situation,” said Carl McCall, a former Democratic State Comptroller.
Everyone agrees next year’s budget situation will be bad. How to handle the situation depends less on a left-versus-right debate, and more between those who see the crisis in economic terms and those that see it as a failure of policy.
“The state has a lot of money, a lot of resources. It’s a question of how you want to use those resources,” said Ron Deutsch, executive director of New Yorkers for Fiscal Fairness.
When looking at next year’s budget situation, Deutsch said he took his cue from the economic debate happening at the federal level. Both raising taxes and cutting services hurt the economy—either way you are taking something away from someone. Raising taxes would be the better bet, he said.
Mauro pointed to a recently released New York Federal Reserve report that analyzed New York and New Jersey’s budget crises. Both states, it said, are overly reliant on personal income tax, with the top one and a half of 1 percent paying 30 percent of the total New York State income taxes in 2009. Among the suggestions for bridging the coming budget gap, the Fed advises enacting a temporary hike on top earners.
Deutsch acknowledges that taxing the wealthy alone will not bail out the state. But deep cuts to programs like Medicaid and education—the two combined make up far more than half of the state’s budget—would do more harm than good, according to Deutsch. He said reevaluating tax giveaways for individuals and businesses, such as the now-defunct Empire Zone program, is a better place to start.
Jerry Kremer, former chair of the Assembly Ways and Means Committee, sees a day of reckoning coming for Albany.
“There’s no possibility right now that next year’s going to be any better,” said Kremer, who is now the founder and chairman of the lobbying group Empire Government Strategies.
Kremer, like many others, sees the state’s only solution as a significant reduction in spending on the holy trinity of state expenditures: Medicaid, education and public employees.
“There’s got to be some sharing of the pain,” he said. “I just think the Legislature has gotten into this thought process of preserving each and every special interest.”
Even with major cuts in services and significant labor concessions, Kremer believes the state faces an uphill budget situation for the next five years, putting legislators in an unenviable position.
“They’re living according to the rules of 1990, not 2010,” Kremer said. “It’s the way the state’s been running for years.”
This behavior has routinely produced overly ambitious revenue estimates. This year’s budget counts on, among other things, the taxing of cigarette sales on Indian reservations—$150 million—and revenue from the Aqueduct race track—another $300 million. Both revenue streams were included by the governor, though, and neither represents concrete funding, placing them among the $4.8 billion in questionable funds the state comptroller’s office says it is monitoring.
State officials are hoping for a better-than-expected economic turnaround, and the subsequent increase in tax revenues and fall-off of service requests like Medicaid that would accompany it. State financial planners, however, are taking a more pessimistic approach.
“Next year’s budget is going to be just as hard as this year’s,” a spokesperson for the comptroller’s office said, “if not harder.”
Practically no one is anticipating a statewide fiscal turnaround that can fill the hole, which means the Legislature and the governor’s office is in for another year of budget crunching.
Even after the current budget is finally passed—fast approaching the latest in modern history—the situation next year is bad, in part, because of revenue that has or will shortly disappear. First and foremost are federal stimulus funds, approximately $8 billion of which went to closing the gap in 2009. Then there is the $1.1 billion in federal Medicaid funds that the state has already written off, as well as the sun setting on a temporary income tax surcharge that was to bring $12.5 billion in funding last year but fell significantly short.
“The $7 billion to $7.5 billion is still a reasonable estimate for the projected 2011-12 state budget deficit,” said Erik Kriss, a spokesperson for the state’s Budget Division, in an e-mail.
Cue the collective hand wringing.
“Terrible,” the Empire Center’s E.J. McMahon said, describing the state’s fiscal prospects next year. “We’re in the third year of the most serious financial downturn in the postwar era and the state is still increasing spending.”
“It’s not going to be a good situation,” said Carl McCall, a former Democratic State Comptroller.
Everyone agrees next year’s budget situation will be bad. How to handle the situation depends less on a left-versus-right debate, and more between those who see the crisis in economic terms and those that see it as a failure of policy.
“The state has a lot of money, a lot of resources. It’s a question of how you want to use those resources,” said Ron Deutsch, executive director of New Yorkers for Fiscal Fairness.
When looking at next year’s budget situation, Deutsch said he took his cue from the economic debate happening at the federal level. Both raising taxes and cutting services hurt the economy—either way you are taking something away from someone. Raising taxes would be the better bet, he said.
Mauro pointed to a recently released New York Federal Reserve report that analyzed New York and New Jersey’s budget crises. Both states, it said, are overly reliant on personal income tax, with the top one and a half of 1 percent paying 30 percent of the total New York State income taxes in 2009. Among the suggestions for bridging the coming budget gap, the Fed advises enacting a temporary hike on top earners.
Deutsch acknowledges that taxing the wealthy alone will not bail out the state. But deep cuts to programs like Medicaid and education—the two combined make up far more than half of the state’s budget—would do more harm than good, according to Deutsch. He said reevaluating tax giveaways for individuals and businesses, such as the now-defunct Empire Zone program, is a better place to start.
Jerry Kremer, former chair of the Assembly Ways and Means Committee, sees a day of reckoning coming for Albany.
“There’s no possibility right now that next year’s going to be any better,” said Kremer, who is now the founder and chairman of the lobbying group Empire Government Strategies.
Kremer, like many others, sees the state’s only solution as a significant reduction in spending on the holy trinity of state expenditures: Medicaid, education and public employees.
“There’s got to be some sharing of the pain,” he said. “I just think the Legislature has gotten into this thought process of preserving each and every special interest.”
Even with major cuts in services and significant labor concessions, Kremer believes the state faces an uphill budget situation for the next five years, putting legislators in an unenviable position.
“They’re living according to the rules of 1990, not 2010,” Kremer said. “It’s the way the state’s been running for years.”
This behavior has routinely produced overly ambitious revenue estimates. This year’s budget counts on, among other things, the taxing of cigarette sales on Indian reservations—$150 million—and revenue from the Aqueduct race track—another $300 million. Both revenue streams were included by the governor, though, and neither represents concrete funding, placing them among the $4.8 billion in questionable funds the state comptroller’s office says it is monitoring.
State officials are hoping for a better-than-expected economic turnaround, and the subsequent increase in tax revenues and fall-off of service requests like Medicaid that would accompany it. State financial planners, however, are taking a more pessimistic approach.
“Next year’s budget is going to be just as hard as this year’s,” a spokesperson for the comptroller’s office said, “if not harder.”
