State revenues could drop $3.5 billion over the next fiscal year as a result of the continuing financial crisis, according to a just-issued report from state Comptroller Thomas DiNapoli. DiNapoli ends his report on what apparently is intended to be an upbeat note:
The situation remains fluid and serious. Nevertheless, it should be remembered that New Yorkers have navigated through difficult situations in the past.
Well, at least he didn’t claim those “difficult situations” had been successfully navigated. In fact, past precedents for the aftermath of fiscal meltdowns in New York are not encouraging.
In the wake of Wall Street’s downturn in the late 1980s, then-Gov. Mario Cuomo and Mayor David Dinkins nearly ran the state and city into the ground with ill-advised tax hikes, not to mention costly debt. A decade later, over then-Gov. Pataki’s veto, the Legislature and Mayor Bloomberg responded to the 2001-02 market downturn by avoiding significant spending cuts. Instead, on the assumption that the downturn was temporary, they significantly increased income and sales taxes for three years.
As documented in this Empire Center report, the negative impact of those temporary tax increases was overwhelmed by the positive effects of federal fiscal policy, including the accelerated Bush tax cuts of 2003 — which took effect the same day as the state and city tax hikes. We’re not about to get that lucky again. This is not a short-term problem.