NY on road to IOU-land, too

If David Paterson truly is determined to remain governor of New York, it might help if he started acting like one.

The state’s worsening financial picture has been in plain view since July, when Paterson’s Division of the Budget issued a financial-plan update revealing that a deficit of at least $2.1 billion had opened up in the current fiscal year. The same report featured this promise:

“The governor will propose a Program to Eliminate the Gap (the ’PEG’) in the current year without the use of existing reserves. It is expected that the PEG will propose substantial reductions in local assistance and state operations spending, as well as other measures to achieve a balanced budget in the current year. The Executive expects to have the PEG ready for legislative consideration in the early fall of 2009.”

It’s early fall — so where’s the PEG?

How much, specifically, should the Legislature reduce school aid? How about forcing action, for once, on Medicaid? And what’s happened to the promised cost-saving reforms to New York’s unaffordably generous public pensions?

Paterson keeps talking about the need for reductions, but has yet to publicly propose any. Instead, he’s been squandering precious time, claiming he would prefer to reach some budgetary consensus with the nation’s most discredited and dysfunctional Legislature.

The resulting leadership vacuum all but sucked the air out of the Red Room during last week’s “leaders’ meeting” at the state Capitol.

“I am asking that the Legislature find ways to address this structural [budget] defect before we get into very, very serious trouble,” Paterson said.

But it’s obvious that New York is already in “very, very serious trouble.” And Paterson by now should have done much more to start addressing it.

After all, in the absence of a specific gubernatorial proposal for balancing the budget, the Assembly and Senate have had nothing to react to — and no reason to convene the special session that the governor says is essential.

The stage for this looming disaster was set by the April deal on the 2009-10 budget. Paterson and his fellow Democrats in the Legislature agreed to a noxious stew of tax and fee increases, temporary federal aid and increased spending — all in the face of a severe economic downturn whose full impact had yet to be felt in New York.

Surprise, surprise: The tax hikes have brought in lower-than-projected revenues as the economy continued to weaken. Passage of a federal health-care-reform bill could make matters worse — either by raising federal tax rates on New York’s high-income households, or by increasing the state’s Medicaid spending or some combination of both.

Meanwhile, Paterson disclosed last week that the estimate of this year’s deficit has risen from $2.1 billion to $3 billion. His budget-crunchers were already projecting some cash-flow problems under the lower number; at this rate, New York will be stiffing vendors and inviting a credit-rating downgrade by spring.

California, here we come.

Closing the deficit for this fiscal year, which ends March 31, grows exponentially more difficult with each passing month of inaction by the governor and the Legislature. They could muddle through and balance the current budget by emptying their reserves, delaying some payments and borrowing in one form or another. But if they adopt no recurring savings to mop up this year’s red ink, the 2010-11 gap will exceed $4 billion — and projected gaps for the two following years will grow to more than $13 billion and $18 billion.

Paterson is plainly looking for help from Lt. Gov. Richard Ravitch, whose appointment was surprisingly upheld by the Court of Appeals last week. Unfortunately, Ravitch didn’t get off to an inspiring start in last week’s budget meeting. His main contribution was to suggest that all sides needed to share up-to-date information on revenue projections.

But a focus on revenues will simply feed the Legislature’s propensity for delay and denial. As shown in the nearby chart, the main problem here is spending, not revenues: Revenues are projected to rise 7 percent over the next three years — but general-fund expenditures are to jump 35 percent, or $19 billion.

Indeed, legislative leaders clearly are content to wait until they have the September tax-collection numbers. Yet they don’t need more revenue numbers to know that they need to start cutting spending right now.

Given his track record, Ravitch will probably be more effective behind the scenes. But first he needs to convince his boss that hand-wringing is no substitute for real leadership.