The New York state budget crisis aggravated by the Great Recession has had a greater economic extent than any other fiscal crisis E.J. McMahon has seen in 30 years.
“State debt grew by 25 percent in the last five years and the state has $60 billion in outstanding debt supported by the state”™s own revenues,” said the director of the Manhattan Institute”™s Empire Center for New York State Policy, as he addressed guests at the Business Council of Westchester”™s KeyBank Speaker Series at Tappan Hill Mansion in Tarrytown last week. “$10 billion of that $60 billion is two different waves of past deficit borrowing to bail out deficits ”¦ we will be paying to refinance the bonds first floated to lift New York City out of its fiscal crisis in the ”™70s for 15 more years. The great-grandchildren of people that dealt with that crisis are going to be paying for that crisis.”
McMahon outlined particular budget problem areas, including the reliance on high-income taxpayers to generate state revenue.
“The highest-earning 1 percent in 2007, at the peak of the last boom generated 43 percent of our income tax receipts,” he said. “Fast forward, they now generate more of the income tax receipts because our response to the problem caused by the dip in their income was to double down on them and raise their taxes by 31 percent.”
McMahon said 20 percent of the state”™s tax receipts “came from the red hot bubble induced growth in the financial sector” but inevitably, “when the bubble goes pop, the budget goes crash.”
Out-of-control spending, he said, is another issue, as well as a dependence on debt.
Another major issue disabling the state arose from utilizing temporary federal aid on services normally paid for by state spending.
“Right when you have a hole in the budget, you need to do something about it,” McMahon said. “The feds write in and say, ”˜Here”™s $5 billion.”™ Well what do you do? You continue spending at the level you were spending at and plug the hole with the $5 billion. That”™s what happened. This is basically like picking up a crack addict off the street, sequestering him in an apartment and giving him more crack.”
What can be done to tame spending and dig New York out of its fiscal hole?
The governor-elect proposed a property tax cap, which McMahon said requires accompanying action from local governments and school districts.
Benefit pension systems need to be closed and defined, he said. They should be switched to a 401(k) style retirement plan for public sector employees, he added.
Growth-oriented tax policy and collective action are needed.
“The legislature can”™t be dealing with the state alone and they can”™t be pushing cost down to the local level.”
