Blaming Wall Street

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

Blame Wall Street. That’s the message New Yorkers are now hearing from Governor Spitzer as he tries to explain why Albany is suddenly facing a $4.3 billion budget gap. “We do face an increasingly difficult budget situation,” the governor said in a recent speech. “The troubles in the financial services sector and the weakening real estate market mean that we will have less tax revenue to fund our budget needs.” It’s a convenient argument — but one that conceals a major reason why New York is awash in red ink.

No doubt the sub-prime mortgage lending losses and cutbacks in the credit markets have led to lower revenue forecasts. But New York would be dealing with a smaller deficit if Mr. Spitzer had kept spending to Pataki administration levels. Yes, that Pataki, the man who revitalized the fiscal policies of Rockefeller.

The key, as the Manhattan Institute’s E.J. McMahon has noted, is to compare the spending forecasts between the Spitzer and Pataki administrations. A year ago, the Pataki budget office projected general fund spending for the 2008-2009 fiscal year to be $57.87 billion. The Spitzer budget office is now projecting that figure to be about $1.3 billion higher. In other words, if Mr. Spitzer had simply kept pace with his predecessor, the budget gap would be 30% smaller than it’s now projected.

With the economic landscape darkening, the governor is warning New Yorkers to prepare for some belt-tightening. What he calls tough medicine is to restrict next year’s spending hike to the rate of personal income growth, or about 5.3%. The irony is that such a cap simply slows down the pace of spending to what was anticipated in Mr. Pataki’s last budget forecast. Mr. Spitzer considers this to be discipline.

Unlike Mr. Pataki, who at least paid lip service to the idea of fiscal restraint, Mr. Spitzer not only practices but evinces the opposite philosophy. He has sought to repackage the spending increase of his first year, as well as future growth that exceeds the rate of inflation, as a model of responsible government.

Take the speech he delivered in October before the Citizens Budget Commission: “The fact is that we do spend more in New York than other states on health, education, and welfare,” he said, according to a transcript. “Our needs are greater, and historically we’ve been fortunate to have been in the position that our economy can support more humane policies in almost every area than other parts of the country. It’s one of the things that make New York great, and I’m proud of it.”

New York, you see, is a “special” state with “special” needs, not unlike a small child traveling alone on an airplane. We’re not dysfunctional after all; we’re just challenged.

Moreover, Mr. Spitzer says, cutting spending will only lead to higher, yes higher, taxes. “Because 70% of our state budget is local assistance, if we hold state operating spending to the rate of inflation — as our critics say we should do — we will just be pushing the tax burden down to localities and school districts,” he said.

What the governor is saying is that Albany cannot limit spending to the rate of inflation because the cost of local government is too high. It would be like squeezing a balloon. One solution that Mr. Spitzer apparently hasn’t considered would be to release some air from the balloon.

That’s what Mr. Spitzer’s Republican challenger, John Faso, advocated. He not only wanted to enlarge a state property tax program, he wanted to put a cap on local school district spending growth to prevent the districts from wiping out the tax savings provided by Albany. His plan wasn’t simply to mandate lower spending but to relieve the burden on school districts by easing labor and construction regulations that are at the heart of New York’s fiscal woes.

The point Mr. Faso was making was driven home this year when school districts submitted budgets that raised per-student spending by an average of 6% — even after Albany handed them a record $1.7 billion in additional aid.

Few listened to him at the time, but Mr. Faso had a warning for New Yorkers. “Mr. Spitzer’s going to raise people’s taxes, despite his denials,” he told Gabe Pressman. “He’s made spending promises that are in the tens of billions of dollars. He cannot fulfill all those promises unless he raises taxes.”

Casting himself as Florence Nightingale, Mr. Spitzer, unlike his defeated opponent, is on a humanitarian mission. As a “special needs” state, New York, according to our governor, is relying on Albany to keep those dollars flowing.

Mr. Spitzer has pledged not to raise taxes, but if he ends up doing so, he’ll at least have a good excuse: It’s all Wall Street’s fault.

jacob@nysun.com


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