New York State is on the edge of an economic abyss.  Citibank, which will write-off about $18 billion, has announced it will lay off over 30,000 employees – most of whom work in New York.  Merrill Lynch, anticipating losses to top $15 billion, is turning to China and the Middle East to raise the capital needed to survive.  In 2007, over 40,000 people in the securities industry were fired, bonus payouts were significantly reduced and more of the same is expected in 2008.

With twenty percent of the state’s tax revenues coming from Wall Street-related enterprises one would think this spells big trouble for New York.  But these economic woes did not appear to faze Governor Spitzer when he delivered his State of the State Address last week.

Instead of announcing “the days of wine and roses” are over; instead of declaring a fiscal state of emergency; instead of calling for across the board spending cuts and a hiring freeze; Spitzer proposed increases in state spending.

The governor’s speech, which reads like a dry brief composed by a committee of pedantic lawyers, is devoid of reality.  Let’s review the key components:

A.  Last year Governor Spitzer lied when he called the expanded School Tax Relief Program (STAR) the largest tax cut in the state’s history.  STAR does not cut or cap school district property taxes.  In 1997, Governor Pataki dropped the key component of the proposed program – school district tax increases limited to 4 percent or the regional consumer price index, whichever is lower – to get it through the legislature.  As a result, STAR merely redistributes income.  The state takes money from one taxpayer and gives it to another.

In his State of the State Address, Spitzer employed political newspeak: He dropped the “largest tax cut” claim and redefined STAR as a “rebate” program.  But instead of demanding that the legislature add a tax cap feature to the 2008 STAR program, he took the coward’s way out and announced the creation of a commission that will investigate tax relief alternatives.

The governor stuck his former primary opponent, Tom Suozzi, with the thankless task of chairing the bipartisan commission.  Suozzi, not Spitzer, will have to take the heat from the big government interest groups (i.e., the teachers union).  Expect Suozzi to issue an illusionary tax relief report that masks cap exceptions with flowery rhetoric.

B.  To fund increased spending on the State University System, Spitzer calls for “unlock[ing] some of the value of the New York lottery.”  In other words, the governor wants to borrow billions collateralized with gambling revenues.

Since most lottery tickets are purchased by senior citizens on fixed income and poor people,  Spitzer’s spending program depends on exploiting the gambling habits of these downtrodden folks.  What a cynical plan.  No wonder the Manhattan Institute’s E.J. McMahon calls it the “motherload of one shots.”

C.  Governor Spitzer wants to spend $1 billion to revitalize upstate New York.  He believes that increased government spending “for investing in business, in infrastructure needed to create shovel-ready sites and in agribusiness” will turn the tide in the economically depressed region.

Spitzer, like his predecessor George Pataki, fails to grasp that until upstate’s inequitable property tax levies are reduced, huge infusions of state dollars will have little impact.  Albany’s unfunded state mandates, which consume up to 80 percent of property tax revenues in many counties, must be eliminated if that region is to be economically viable.

D.  Spitzer also wants to spend more on education, health care for children, housing and infrastructure.  And he believes all these programs can be funded without raising taxes.

The United States is in a recession.  It is likely that New York will be hit harder and take longer to recover from the economic downturn than the rest of the nation.

Governor Spitzer must adjust his budget to cope with this reality.  If he does not, his only alternative will be to raise taxes to finance his spending schemes.  If that happens, expect even greater job losses and the accompanying decline in population and tax revenues.

This entry was posted on January 13, 2008 at 3:47 pm and is filed under NY State Finances-SCC. You can subscribe via RSS 2.0 feed to this post's comments. You can skip to the end and leave a response. Pinging is currently not allowed.