Era of Austerity Is Expected From Paterson

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The New York Sun

Albany’s responses to past fiscal crises suggest that Governor Paterson’s sounding of the alarm bells on the state’s finances foreshadows a rise in taxes.

This evening, when Mr. Paterson is scheduled to speak on statewide television to draw attention to New York’s budgetary turmoil, he will be following the paths of other state leaders, such as Governors Pataki and Cuomo, who at times aired their own warnings of fiscal calamity.

Mr. Paterson, who in his address is expected to announce plans for more serious belt-tightening measures to close a budget gap for next year of more than $5 billion, is seeking to brace lawmakers for a new era of austerity.

Past declarations of emergencies by Mr. Paterson’s predecessors, however, have been followed by more aggressive efforts on the part of legislators to enact tax increases. With Democratic lawmakers already urging Mr. Paterson to balance the budget by raising taxes on the rich, this latest crisis is unlikely to be an exception.

In the early 1990s, when Albany was saddled with even wider deficits, Mr. Cuomo, on top of raising fees on numerous goods and services, deferred hundreds of millions of dollars in tax cuts and imposed a flat rate on higher-income filers that forced millions of residents to pay higher rates.

When Albany faced plummeting revenues in 2003, lawmakers, over Mr. Pataki’s veto, imposed a three-year tax hike on residents earning more than $150,000.

Compared to previous troubling eras for New York’s finances, the fiscal hand that Mr. Paterson has been dealt does not appear, at the moment, to be quite as alarming.

In the early 1990s, Mr. Cuomo contended with deficits that were much larger in proportion to state spending at the time. Mr. Pataki, after the attacks of September 11, 2001, and the burst of the dot-com bubble, grappled with the largest two-year decline in state revenue since the Great Depression.

While revenues are expected to increase next year, despite a sharp loss in Wall Street support, planned state spending is advancing five times as fast.

Mr. Paterson has limited his cuts to the operations of state agencies, whose spending increases contribute to less than 10% of the budget gap.

The problem for Mr. Paterson is that most of the gap, or about $3.7 billion, is the result of growth in Medicaid and education aid, two areas that are most protected by powerful interest groups and which historically have been immune to budget slashing.

The governor is unlikely to squeeze substantial money from those two areas without provoking a furious response from the Legislature.

That leaves Mr. Paterson with the option of closing the gap by raising taxes, a move that already has broad support within the Democratic-led Assembly, some of whose members have suggested that New York more than double the personal income rate to 13.85% for those earning more than $10 million a year.

“The Assembly’s position is that the wealthiest citizens can afford to get us through this crisis, and we’re hoping the governor comes our way,” a Democratic assemblyman of Westchester, Richard Brodsky, said.

Advocates of a tax increase on the state’s wealthiest earners say sentiment in favor of such a move will only grow if Mr. Paterson proposes cuts to state services, public sector layoffs, or other austere measures.

“People like libraries, roads, museums, hospitals, sports teams,” the executive director of an influential labor-backed political organization, the Working Families Party, Daniel Cantor, said. “It’s time to ask that the 1% give back a little bit.”

The severity of New York’s budget problems is uncertain. The state comptroller’s office reported this month that revenue receipts are $644 million higher in the months of April, May, and June than what the governor’s office had forecasted in May. Total receipts for the first quarter of the fiscal year are 7.4% higher than the same period a year ago. Still, a steep decline in business tax collections is threatening to erase those gains.

“Despite this apparent strong start, an analysis of key revenue components indicates that New York may not sustain this level of revenue growth and that receipts could decline below projections throughout the remainder of the fiscal year,” a report by the comptroller’s office stated.

In his speech today, the governor is likely to revise the state’s deficit projections upward and order his state agencies, which already trimmed their budgets by 3.3%, to make another round of cuts.

Mr. Paterson is certainly not the first governor to press the panic button in times of fiscal trouble. Governor Carey in 1975 famously chastised Albany for its “lavish” ways and proclaimed before the Legislature that “the times of plenty, the days of wine and roses, are over.”

For governors, declaring an emergency is a way to soften the road ahead by preparing the Legislature for painful budgetary measures that it would otherwise resist.

As one aide to Mr. Pataki said, raising the stakes helps to “create an environment where you can put things on the table and get the kind of consideration they don’t normally get.”

Mr. Paterson himself noted yesterday at a meeting of the Financial Control Board with Mayor Bloomberg that his dire warnings are pointed at state lawmakers.

“My concern is that people sitting in their homes already know what the pain is. I want to make sure that people in Albany understand as well,” he said.


The New York Sun

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