State Debt Deserves Expert Attention

A Legislative Column by Assemblyman Dave Townsend (R,WF-Sylvan Beach)

There is a specter haunting New York State’s finances. It is a faceless intruder with no clear motive other than to disrupt. It attacks not by the killing stroke but through attrition, gradually reducing our ability to meet obligations and damaging the state credit rating. It is debt, and though we can’t agree what caused it – revenue or spending – it is here, it remains a problem, and we will have debt in New York State for the foreseeable future.

My goal, and the goal of like-minded colleagues, is to start taking public debt seriously. Our current year deficit, $2.1 billion, is the subject of a legislative leaders’ meeting on September 23. I agree with Governor Paterson that this red ink needs to be erased as quickly as possible. But what is not being addressed at the state level is the future solvency of New York itself. This is not only a topic for a meeting; it ought to be nothing less than a sustained statewide effort to reduce the average New York family’s share of Albany’s unfunded liabilities. My proposal is simple: use the bully pulpit of the governor’s office to issue an executive order calling for the creation of a Future Fiscal Commission to study the growth of outlays versus revenue in New York and work on bipartisan solutions to the omnipresent specter of rising state debt.

According to the U.S. Census Bureau’s archive of state government finances, New York’s total debt between fiscal years 2006 and 2007 jumped by $4.8 billion. The increase was driven mainly by higher spending outpacing tax receipts. This trend is becoming common. For example, according to the office of the state comptroller, August tax revenues were down 4 percent from the same time in 2008, or $83 million. The paltry receipts also represented a 12 percent drop from their August 2007 level. This despite a much-ballyhooed “Cash for Clunkers” program, which was supposed to gin up consumer activity and sales-tax revenues as well as a whopping 31 percent tax hike for high-income workers in a state budget, I voted against.

For 2008 New York’s public debt as a percentage of gross state product (our equivalent of GDP) stood at 4.54 percent. That was the highest ratio of debt to GSP in over a decade. Clearly this is not the kind of cash flow a cash-strapped state needs going forward. Unfortunately, the years ahead look just as bleak if something is not done to turn around our looming insolvency.

For example, the governor’s Division of the Budget projects that the gap between outlays and revenues nearly triples in size between fiscal years 2011 and 2012. Most of this discrepancy can be attributed to the sunsetting of the $24 billion federal stimulus payments, but even accounting for this eventuality does nothing to alleviate the mandatory outlays of school aid, Medicaid, and public pension contributions. New York State will continue to fall behind in these areas if something is not done to balance the books, fast. As formidable as our current debt projections are they do not fully address our long-term obligations. That’s because traditional scorekeepers like the DOB and the comptroller do not trace their models beyond ten years. Without a Future Fiscal Commission to keep policy-makers honest, the “mandatory” cuts that they will call for simply get pushed off till another day, to be brushed aside as inconvenient and unrealistic by future administrations and legislatures. Consider that even the conservative revenue estimates and employment figures from the DOB did little to prepare us for the huge shock of the 2008 financial crisis’ economic slump. New Yorkers pay in the form of higher taxes and hastily reduced services when our priorities are held hostage to a politicized budget and fiscal-management process.

The severe consequences of our fiscal inaction have already been demonstrated by the dramas playing out in states like California, Pennsylvania, and Rhode Island. A Future Fiscal Commission, a deficit-reduction panel free of the party politics that have come to define our budgetary priorities, is the correct fix for a state in crisis. What we gain is the expertise of a nonpartisan group of experts tasked with reducing our fiscal imbalance. What we risk with inaction is disruption to the state’s operations, ever-rising taxes to cover deep deficits, falling credit ratings, and delayed payments to our outstanding obligations. A Future Fiscal Commission is one investment New York can’t afford to ignore.

State Debt Deserves Expert Attention

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