Ravitch’s plan could save NY – By George J. Marlin
The following appears in the September 7-13, 2012 issue of the Long Island Business News:
Back in March 2010, then-New York Lt. Gov. Richard Ravitch unveiled his plan to save the deficit-ridden state budget, which called for borrowing $6 billion to pay operating expenses. The money was to come from the proceeds of personal income tax or PIT bonds issued by an off-balance-sheet state agency.
This mega-one-shot approach, which would have stuck taxpayers with 30 years of interest payments for current expenses, was universally jeered. The plan was quietly shelved by Gov. David Paterson.
After leaving office in January 2011, Ravitch went back to the drawing board and began analyzing the fiscal challenges facing state governments. He put together a task force that included former Fed Chairman Paul Volker; Bush 41’s treasury secretary, Nicholas Brady; Reagan’s secretary of state, George Schultz; and Clinton’s top economic adviser, Alice Rivlin.
The final product, “The Report of the State Budget Crisis Task Force” released in July, is a thorough, thoughtful and frightening analysis of the fiscal problems the states in this nation are facing. In my judgment, its authors achieved their goal “to inform the public of the gravity of the issues and the consequences of continuing to postpone actions to achieve structural balances.”
The task force examined in depth six large states, including New York, and concluded:
- Medicaid costs are growing at unsustainable rates and crowding out other needs
- Pension funds for state and local government workers are underfunded to the tune of $3 trillion and create risks for future budgets
- Unfunded liabilities for retired government workers’ health care is $1 trillion
- Tax revenues have been eroding because states “now rely on highly economically sensitive taxes for 70 percent of their tax revenue.”
The report noted that although state constitutions require balanced budgets, “revenue and expenditures are not defined terms.” This has led to excessive use of one shots (i.e., long-term borrowing and assets sales) and other gimmicks that “render balanced budgets illusory.”
In recent years, New York has used an assortment of nonrecurring actions to fill budget holes, including temporary federal stimulus money, borrowing, payment deferrals, transfers of balances from independent dedicated funds to the general operating fund and rosy economic scenarios to boost revenue projections.
An egregious example of a New York one shot was the 2002 securitization of tobacco settlement revenue. That transaction generated $4.2 billion that was utilized in one fiscal year. All tobacco settlement revenue that is received over the next 30 years will be used to pay off the $4.2 billion in securitization debt.
Albany has also raided during the past decade to fill budget holes balances from these dedicated funds: environmental protection programs, $26.4 million; wireless network improvements, $50 million; state lottery, $76 million; home care, $82 million; welfare, $261 million.
To avoid fiscal calamities, the Ravitch task force recommends:
- Generally Accepted Accounting Principles replacing cash-based budgeting. This will improve “the quality of planning, budgeting and reporting.”
- Enactment of multiyear fiscal plans that extend several years past the present fiscal year. State governments should be legally bound to adhere to these plans “so that the long-term consequences of budgetary decisions become apparent.”
- Automatically funded rainy- day funds to better manage counter- cyclical policies.
- Establishment of reserves to fund retiree health care obligations.
- Development of procedures that enable state officials to monitor the fiscal health of local municipalities in order to take “early action to help local governments resolve their fiscal problems before they threaten insolvency or bankruptcy.”
If New York State and its municipalities are to get their budgets in order and avoid fiscal Armageddon, implementing these suggestions should be a priority. All New Yorkers owe Dick Ravitch and his colleagues a debt of gratitude for their efforts.Explore posts in the same categories: Articles/Essays/Op-Ed