NY’s budget is nothing but blue smoke and mirrors – By George J. Marlin

The following appears in the July 30-August 5 issue of the Long Island Business News:

Three months after missing New York’s March 31 fiscal deadline, the state has a budget – sort of. The Legislature approved the spending legislation but the fractured Senate Democratic majority bolted Albany without ratifying the revenue bills that fund the appropriations.

The good news: Gov. Paterson proved, beyond a shadow of a doubt, that if the chief executive is willing to use his constitutional powers, he’s in the driver’s seat when it comes to controlling the budget process.

In the 12 weekly emergency-spending bills that permitted the government to operate during the budget impasse, Paterson forced the Legislature to swallow various spending cuts. And the governor’s threat to let the state close down if a budget did not reach his desk by the end of June actually worked. Legislators panicked and met his deadline.

The bad news: Despite the governor’s 6,700 line-item vetoes (which saved approximately $525 million), the $136.5 billion budget is balanced by blue smoke and mirrors with total government spending up $9.6 billion or 7.6 percent – four times the inflation rate. This budget, according to the Manhattan Institute’s E.J. McMahon, “is a house of cards that won’t stand.”

Here are some of the problems with this budget: While overtaxed New Yorkers are still reeling from the devastating impact of the Great Recession and the $8.2 billion of new state taxes and fees imposed on them last year, the Legislature raised taxes by another $1.6 billion. Compare this with spending cuts and no tax increase in Chris Christie’s New Jersey.

The hodgepodge of hikes includes a state income tax on nonresident hedge fund managers who work in New York. The tax, which is projected to bring in $50 million, was described by Mayor Bloomberg – who expects many of these financial bigwigs to flee the city – as “the best thing that ever happened to Connecticut.”

Next, about $4.8 billion in budgeted revenue may never be realized or could come in significantly lower than forecasted. This questionable revenue includes $1 billion in new federal stimulus funding, $500 million in work-force reductions, $300 million in Medicaid fraud recovery, $330 million from the reduction of the sales tax clothing exemption and a one-time $300 million franchise fee from the long-delayed, scandal-ridden Aqueduct Racetrack slot machine project.

Finally, the budget contains $14 billion of one-shot fiscal gimmicks to fund ongoing expenses. The biggest chunks of nonrecurring revenue are $5.7 billion in federal stimulus dollars and $5.5 billion from the temporary personal income tax increase enacted in last year’s fiscal budget.

All this fiscal conjuring is a textbook example of Albany’s lack of will to rein in runaway spending and to deal with the state’s ever-growing structural deficit. The members of Albany’s ruling class are more interested in lavishing money on cronies and special interest groups than reducing spending and taxes to help jump-start New York’s ailing economy.

Thanks to their dereliction of duty, Comptroller Tom DiNapoli forecasted that over the next three fiscal years revenue will increase an anemic 3.4 percent annually but expenditures will jump 8.1 percent. He also estimated that in January the new governor of New York will have to grapple with a budget gap for fiscal year 2011-2012 of at least $7 billion and that it could “be larger if the economic recovery stalls or if resources in [this year’s] budget fail to materialize fully, as has occurred in previous years.”

I do not envy the herculean tasks our next governor will have to face. Nevertheless, if he has the strength of character to boldly and justly use the vast powers of his office, I am confident he will rescue New York from the political leeches that have been sucking dry its fiscal and economic resources.

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