Hard Times Are Ahead;
When Will State, City
Let the People Know?
By Henry J. Stern
July 22, 2008
The city is headed for parlous times, according to economic experts and civic organizations who monitor the fiscal health of governments.
The financial woes of banks and investment houses have resulted in lower earnings for the firms and reduced bonuses for their employees. That is in addition to the tens of thousands of people who have lost their jobs in layoffs or the collapse of their firms.
These setbacks have aleady had a substantial effect on income tax receipts for the state and city. The drastic falloff in real property transactions will result in lower collections of mortgage recording fees and other taxes. The result will be a substantial shortfall in both city and state revenue budgets for fiscal 2009.
Such results have been predicted in past years and, somehow, by the time the budget is adopted, the governments involved have been able to minimize the gap by a combination of borrowing, deferral of expenditures, and one-shot receipts. One technique was collecting a tax in July of year 1 and June of year 2, so there would be a double payment in the fiscal year which included both months.
For fiscal 2010, with the state budget due in March 2009 and the city budget due in June 2009, it appears unlikely that the usual manipulations will succeed in creating balanced budgets. The city has consistently been more fiscally responsible than the state, and the first Paterson budget showed the governor to be somewhat more responsible than the legislature, but Paterson did yield by deferring real change until next year.
The new state comptroller was chosen in February 2007 by the legislature, guided by the Speaker of the Assembly, over vociferous objections by the former govenor. He has expressed his concerns over the impending fiscal disaster, but not in any way that has attracted public attention. There is a saying in government that the comptroller must be more fiscally responsible, but only slightly more, than the governor and mayor.
The budget as adopted is not a document that itself spends money. It is a fiscal road map for the next year. If receipts do not come in as predicted, there willl be no money to spend, whether the relevant appropriations are in the budget or not. We will learn in time whether the state and the city budgets will have to be revised downward midyear on account of falling revenues. Midyear is September 30 for the state and December 31 for the city.
The problem here is that the longer one waits to make cuts, the more extreme the cuts will have to be. Our suggestion would be that both the state and city budget offices and comptrollers begin work to implement reductions as soon as possible, to ease their inevitable effect later. In recent history, it has taken two near-bankruptcies, in 1975 and 1991, for New York City to make substantial workforce reductions. In each case, the mayor at the time, Beame and later Dinkins, lost his bid for a second term.
Only in the face of disaster can elected officials tell unions and their political allies that they are compelled to act to avoid municipal bankruptcy. The unions don't want bankruptcy because that would put payrolls under a judge. The relevant excuse by the elected is 18-X-6, "The Devil made me do it." In this case, the devil is the state law that requires a balanced budget, a law which incumbents can only twist so far.
No one wants to be the one who warns of the crisis which is approaching inexorably, a far milder version of an asteroid headed for Earth. The ones who should sound the klaxon are the officials who are already elected, since they will be held responsible for what may happen.
So far there has been relative silence in both Albany and New York City. That can be rationalized by the maxim, not a Rule: "Don't frighten the horses." On the other hand, if the barn is in danger of burning, it is better that the horses be frightened sooner than that they be left undisturbed in their stalls until the flames are upon them.
We are now in the unbearable heat of midsummer, but fall and winter are on the way. Budget making time is five months away for the state, and eight months away for the city. Will we be able to implement the budget for fiscal 2009 without interim reductions? The city could do that, although it might mean using reserves set aside in recent years by a prudent mayor. The state will find that task more difficult, but the state also has its 700 authorities, large and small, and they have powers to borrow money that the city lacks..
It will be interesting to see who will be the first public official, or candidate for office, to blow the whistle on the approaching crisis. Normally, it is the train that blows its whistle as it approaches a surface intersection. In this situation, someone on the ground must blow the whistle to warn us about the oncoming train. Since no seeker of public office sees any gain in becoming the bearer of bad tidings, the figurative whistle is likely to be blown late, if at all.
We hope that public officials of both parties, on both the state and city level, consider what lies ahead, and what they should begin to do about it. The sooner they act, the less painful the remedy will be. It is time for our leaders to take note of the situation, and give clear notice to the public about what lies ahead.
Of course, if the economy turns around tomorrow, this warning may turn out to have been unnecessary. But, even in the unlikely event that recovery will begin at once, enough revenue has already been lost to make some budget reductions necessary. The far greater likelihood is that the country's economic problems will continue, if not worsen, which means that prompt action is even more essential.
What are the authorities of New York State and New York City going to do or say about this matter, and when will the public be told about it? Hopefully that day will come soon. In this situation, however, time is not our friend.
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