gardner, kent

Something’s Gotta Give

Kent Gardner

President & Chief Economist

Center for Governmental Research

Center for Governmental Research

� Founded in 1915 by Kodak’s George Eastman

� Project-oriented nonprofit serving state & local government primarily in NYS


in NYS

� 20 staff members in Rochester & Albany

� Public sector management consulting, economics & public finance, human services restructuring, education reform, health care

“If something can’t go on forever, it will stop”

�Confronting potentially infinite need, spending continues to rise

�Taxes increase apace as more spending requires new revenue


�New budget gimmicks are introduced each year, stealing from the future to balance the budget today

�Operating deficits are hidden and the gap is plugged by debt

�THE RECKONING: Recession lays the economy low and revenue plummets

The year is 1975 and the budget is New York City’s

�The music stopped when the bonds went unsold

� In the early 1970s, New York City paid its bills with debt


� $8 billion annually in short term debt by 1974

� 5% of operating budget ($600m) financed through long term debt

�When the economy went into recession, New York’s ability to repay the debt was in doubt and the banks said “no more”

Parental Supervision: Enter the State of NY

� Spring 1975: Created the Municipal Assistance Corporation (MAC) to borrow on behalf of the City

� Backed by sales tax revenue


� Last bonds retired in 2008

� Established the Office of the Special Deputy State Comptroller for NYC (OSDC)

� Fall 1975: Financial Accountability Act (FEA): Created the Financial Control Board (FCB) to approve all budgets, contracts & borrowing from 1975 through 1986

FEA Establishes Responsible Budget Culture

� Enshrined in 2005 City Charter Revision� Must END the year with GAAP balanced budget;

no provision for operating deficit� Four year financial plan, updated quarterly� RANs & TANs restricted to 90% of estimated

revenue


revenue� Short term debt must be retired in same year it is

issued

� NYC’s financial problems TODAY are much less than those of NYS

� Although sound financial practice can only delay the coming crisis

Political gridlock: California style

�California votes today on a series of propositions that will raise $6 billion

�Gubernator announced last week that deficit has grown since February budget deal—Even if the propositions pass


deal—Even if the propositions pass (unlikely), cuts of $15.4 billion will be required

�Wanna buy a prison?�2/3 majority required for budget passage

confers power on individual state senators

New York State confronts worst of both�Budget balance is built on illusion

� Spending in previous decades has exceeded inflation nearly every year

� State’s capacity to spend based on astonishing (and, as it turns out, illusory) prosperity of Wall Street’s financial services


astonishing (and, as it turns out, illusory) prosperity of Wall Street’s financial services sector

� As economy shrinks, state’s capacity to spend shrinks with it

�Toxic politics: Narrow Democratic majority confers veto power on individual state senators

NYS Legislature ��09-10

spending by 8.5%� Total spending up by $10.4 billion to 131.9 billion

(IF you believe Comptroller estimates)� $3.5B Medicaid� $1.5B K-12 school aid� $1.2B other education

$0.9B economic development


� $0.9B economic development� $0.6B debt service

� Yet the NYS economy confronts a structural change that is likely permanent: 62% of budget actions non-recurring

� OSC estimates General Fund spending up 31% by 2012-13 (THREE years)

State Spending Outpaces Inflation

6.0%

8.0%

NYS Spending Growth minus

Inflation


-4.0%

-2.0%

0.0%

2.0%

4.0%

97 98 99 00 01 02 03 04 05 06 07 08SFY Ending

Source: Office of NYS Comptroller

State Spending Outpaces Inflation

$100

$110

$120 NYS Spending Growth v. Inflation

All Funds Spending

96 Trended by CPI


$50

$60

$70

$80

$90

96 97 98 99 00 01 02 03 04 05 06 07 08

Billio

ns

SFY Ending

Source: Office of NYS Comptroller

What’s New York’s future?

�Questions we are tempted to ask:

� When do taxes become unaffordable?

� What’s the “tipping point”?

�Perhaps the crisis never comes


�Perhaps the crisis never comes

. . . or no one is left to notice

When do we know that the frog is dead?


Delaying Hard Choices

$80

$100

$120

$140

$160

Bil

lio

ns

What can we afford?

Spending

Fiscal Capacity


$-

$20

$40

$60

$80

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Bil

lio

ns

Year

Delaying Hard Choices

$80

$100

$120

$140

$160

Bil

lio

ns

What can we afford?

Spending

Fiscal Capacity


$-

$20

$40

$60

$80

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Bil

lio

ns

Year

Is there a tipping point? Or only slow decline?

Top tax burden on residents

VirginiaMassachusetts

CaliforniaNew Jersey

New York

State & Local Taxes Paid to Home State 2008 (per capita)

Rate of growth since 2000:#3 in the nation

Something’s Gotta Give$0 $1,000 $2,000 $3,000 $4,000 $5,000

TexasArizonaFlorida

MichiganGeorgia

North CarolinaOhio

IllinoisWashington

PennsylvaniaVirginia

Source: Tax Foundation

15 Largest States

#3 in the nation

How much more debt can we support?

WashingtonMichigan

IllinoisNew York

New JerseyMassachusetts

Debt per Capita FY2007

Something’s Gotta Give$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000

TexasGeorgiaArizonaFlorida

North CarolinaOhio

VirginiaPennsylvania

CaliforniaWashington

Source: Tax Foundation

15 Largest States

Comptroller estimates 50% increase in rate of debt

issuance through 2013-14; Will reach 5% of total budget

State policy drives local government cost

GeneseeCortland

WayneMonroe

MontgomeryAlleganyNiagaraOrleans

Property Taxes as % of Home Value 05-07 avg

20 highest taxed countiesas % of home value

Something’s Gotta Give1.0% 1.5% 2.0% 2.5% 3.0% 3.5%

SchenectadyChemung

CayugaFulton

WyomingOswegoSeneca

OnondagaErie

Fort Bend TXLivingston

ChautauquaGenesee

Source: Census Bureau &Tax Foundation

Average tax per dwelling: Top 2 in nation in NYS

Voting with their feet

TexasWashington

GeorgiaNorth Carolina

FloridaArizona

Net Migration to Other States 2000-08as share of 2000 population

15 Largest States


NYS: Ranked LAST among the states

-10% -5% 0% 5% 10% 15%

New YorkNew Jersey

MichiganMassachusetts

IllinoisCalifornia

OhioPennsylvania

VirginiaTexas

Source: US Census

Isn’t this conference about LOCAL government?

� The cost problem for localities can be addressed locally

� But only solved in Albany� Public benefit/pension reform� Revise Taylor Law & repeal Triborough

Amendment


� Revise Taylor Law & repeal Triborough Amendment

� Force service consolidations: Assessment, fire, police, special districts

� Empower cost control in public education

� Substantive reform cannot happen without political reform—it is time to declare that “we’re mad as hell and we’re not going to take it anymore!”

Jump, frog, while you still have a chance!

gardner, kent

Business

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