Post on 27-Jun-2015
description
Something’s Gotta Give
Kent Gardner
President & Chief Economist
Center for Governmental Research
Center for Governmental Research
� Founded in 1915 by Kodak’s George Eastman
� Project-oriented nonprofit serving state & local government primarily in NYS
Something’s Gotta Give
in NYS
� 20 staff members in Rochester & Albany
� Public sector management consulting, economics & public finance, human services restructuring, education reform, health care
“If something can’t go on forever, it will stop”
�Confronting potentially infinite need, spending continues to rise
�Taxes increase apace as more spending requires new revenue
Something’s Gotta Give
�New budget gimmicks are introduced each year, stealing from the future to balance the budget today
�Operating deficits are hidden and the gap is plugged by debt
�THE RECKONING: Recession lays the economy low and revenue plummets
The year is 1975 and the budget is New York City’s
�The music stopped when the bonds went unsold
� In the early 1970s, New York City paid its bills with debt
Something’s Gotta Give
� $8 billion annually in short term debt by 1974
� 5% of operating budget ($600m) financed through long term debt
�When the economy went into recession, New York’s ability to repay the debt was in doubt and the banks said “no more”
Parental Supervision: Enter the State of NY
� Spring 1975: Created the Municipal Assistance Corporation (MAC) to borrow on behalf of the City
� Backed by sales tax revenue
Something’s Gotta Give
� Last bonds retired in 2008
� Established the Office of the Special Deputy State Comptroller for NYC (OSDC)
� Fall 1975: Financial Accountability Act (FEA): Created the Financial Control Board (FCB) to approve all budgets, contracts & borrowing from 1975 through 1986
FEA Establishes Responsible Budget Culture
� Enshrined in 2005 City Charter Revision� Must END the year with GAAP balanced budget;
no provision for operating deficit� Four year financial plan, updated quarterly� RANs & TANs restricted to 90% of estimated
revenue
Something’s Gotta Give
revenue� Short term debt must be retired in same year it is
issued
� NYC’s financial problems TODAY are much less than those of NYS
� Although sound financial practice can only delay the coming crisis
Political gridlock: California style
�California votes today on a series of propositions that will raise $6 billion
�Gubernator announced last week that deficit has grown since February budget deal—Even if the propositions pass
Something’s Gotta Give
deal—Even if the propositions pass (unlikely), cuts of $15.4 billion will be required
�Wanna buy a prison?�2/3 majority required for budget passage
confers power on individual state senators
New York State confronts worst of both�Budget balance is built on illusion
� Spending in previous decades has exceeded inflation nearly every year
� State’s capacity to spend based on astonishing (and, as it turns out, illusory) prosperity of Wall Street’s financial services
Something’s Gotta Give
astonishing (and, as it turns out, illusory) prosperity of Wall Street’s financial services sector
� As economy shrinks, state’s capacity to spend shrinks with it
�Toxic politics: Narrow Democratic majority confers veto power on individual state senators
NYS Legislature ����09-10
spending by 8.5%� Total spending up by $10.4 billion to 131.9 billion
(IF you believe Comptroller estimates)� $3.5B Medicaid� $1.5B K-12 school aid� $1.2B other education
$0.9B economic development
Something’s Gotta Give
� $0.9B economic development� $0.6B debt service
� Yet the NYS economy confronts a structural change that is likely permanent: 62% of budget actions non-recurring
� OSC estimates General Fund spending up 31% by 2012-13 (THREE years)
State Spending Outpaces Inflation
6.0%
8.0%
NYS Spending Growth minus
Inflation
Something’s Gotta Give
-4.0%
-2.0%
0.0%
2.0%
4.0%
97 98 99 00 01 02 03 04 05 06 07 08SFY Ending
Source: Office of NYS Comptroller
State Spending Outpaces Inflation
$100
$110
$120 NYS Spending Growth v. Inflation
All Funds Spending
96 Trended by CPI
Something’s Gotta Give
$50
$60
$70
$80
$90
96 97 98 99 00 01 02 03 04 05 06 07 08
Billio
ns
SFY Ending
Source: Office of NYS Comptroller
What’s New York’s future?
�Questions we are tempted to ask:
� When do taxes become unaffordable?
� What’s the “tipping point”?
�Perhaps the crisis never comes
Something’s Gotta Give
�Perhaps the crisis never comes
. . . or no one is left to notice
When do we know that the frog is dead?
Something’s Gotta Give
Delaying Hard Choices
$80
$100
$120
$140
$160
Bil
lio
ns
What can we afford?
Spending
Fiscal Capacity
Something’s Gotta Give
$-
$20
$40
$60
$80
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Bil
lio
ns
Year
Delaying Hard Choices
$80
$100
$120
$140
$160
Bil
lio
ns
What can we afford?
Spending
Fiscal Capacity
Something’s Gotta Give
$-
$20
$40
$60
$80
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Bil
lio
ns
Year
Delaying Hard Choices
$80
$100
$120
$140
$160
Bil
lio
ns
What can we afford?
Spending
Fiscal Capacity
Something’s Gotta Give
$-
$20
$40
$60
$80
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Bil
lio
ns
Year
Delaying Hard Choices
$80
$100
$120
$140
$160
Bil
lio
ns
What can we afford?
Spending
Fiscal Capacity
Something’s Gotta Give
$-
$20
$40
$60
$80
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Bil
lio
ns
Year
Is there a tipping point? Or only slow decline?
Top tax burden on residents
VirginiaMassachusetts
CaliforniaNew Jersey
New York
State & Local Taxes Paid to Home State 2008 (per capita)
Rate of growth since 2000:#3 in the nation
Something’s Gotta Give$0 $1,000 $2,000 $3,000 $4,000 $5,000
TexasArizonaFlorida
MichiganGeorgia
North CarolinaOhio
IllinoisWashington
PennsylvaniaVirginia
Source: Tax Foundation
15 Largest States
#3 in the nation
How much more debt can we support?
WashingtonMichigan
IllinoisNew York
New JerseyMassachusetts
Debt per Capita FY2007
Something’s Gotta Give$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000
TexasGeorgiaArizonaFlorida
North CarolinaOhio
VirginiaPennsylvania
CaliforniaWashington
Source: Tax Foundation
15 Largest States
Comptroller estimates 50% increase in rate of debt
issuance through 2013-14; Will reach 5% of total budget
State policy drives local government cost
GeneseeCortland
WayneMonroe
MontgomeryAlleganyNiagaraOrleans
Property Taxes as % of Home Value 05-07 avg
20 highest taxed countiesas % of home value
Something’s Gotta Give1.0% 1.5% 2.0% 2.5% 3.0% 3.5%
SchenectadyChemung
CayugaFulton
WyomingOswegoSeneca
OnondagaErie
Fort Bend TXLivingston
ChautauquaGenesee
Source: Census Bureau &Tax Foundation
Average tax per dwelling: Top 2 in nation in NYS
Voting with their feet
TexasWashington
GeorgiaNorth Carolina
FloridaArizona
Net Migration to Other States 2000-08as share of 2000 population
15 Largest States
Something’s Gotta Give
NYS: Ranked LAST among the states
-10% -5% 0% 5% 10% 15%
New YorkNew Jersey
MichiganMassachusetts
IllinoisCalifornia
OhioPennsylvania
VirginiaTexas
Source: US Census
Isn’t this conference about LOCAL government?
� The cost problem for localities can be addressed locally
� But only solved in Albany� Public benefit/pension reform� Revise Taylor Law & repeal Triborough
Amendment
Something’s Gotta Give
� Revise Taylor Law & repeal Triborough Amendment
� Force service consolidations: Assessment, fire, police, special districts
� Empower cost control in public education
� Substantive reform cannot happen without political reform—it is time to declare that “we’re mad as hell and we’re not going to take it anymore!”
Jump, frog, while you still have a chance!