Facing NY’s Budget Monster

GOV. Paterson has pledged the state will “learn to do more with less” in closing a projected $6.4 billion gap in the 2009-10 fiscal year.

But the governor doesn’t have to do even that much. New York could balance its budget if it could simply do the same without needing so much imore.

Consider the chart at right. While the state’s revenues from Wall Street are plummeting, its total general-fund receipts are still set to rise nearly 4 percent this year. The problem is that spending is going up even faster, at 5.2 percent.

The state has kept the budget “balanced” by drawing down reserves and crediting prior-year tax settlements to 2008, which is kosher under cash-accounting rules. If the state were subject to the same budgeting guidelines as New York City, Paterson would already be struggling to climb out of a $3.8 billion hole for this year.

Wait: It gets worse. Paterson estimates that general-fund receipts will slow to 2 percent growth next year – which, if it actually happens, will be remarkable, under the circumstances. But spending is set to rise at an incredible 11 percent clip. And spending planned in the current budget continues to grow much faster than receipts in the two following years.

Put it all together, and you get a cumulative three-year shortfall of $26 billion – an estimate that, as Paterson points out, has grown $4.5 billion in just three months.

The momentum behind these numbers has been building for years. Over the past decade, total state-funds spending has shot up 79 percent. In the past five years (including a slight slowdown after 9/11), it’s up 45 percent.

Those kind of spending levels simply couldn’t be sustained in anything but a superheated economy. And now the economy has cooled.

But, again, the slowdown in revenues simply makes the acceleration of spending more obvious. Next year’s projected spending growth of $6.1 billion is the big problem here.

So far, Paterson has focused on reducing costs in state operations, which is the one area of the budget he most directly controls. There’s certainly plenty of room for improvement there. Reversing ex-Gov. Eliot Spitzer’s increase in the state workforce – and, better yet, allowing attrition to reduce the headcount by another 5 percent – could save three-quarters of a billion or more.

And Paterson’s intriguing interest in “public-private partnerships” could yield substantial dividends, especially if applied to the challenge of meeting the state’s high- way and bridge infrastructure needs in years ahead.

But state operations make up less than 10 percent of the spending bulge in next year’s budget. Sooner or later – and sooner is better – the governor will need to show he’s also determined to tackle the two top sources of spending growth: Medicaid, which is projected to grow $1.7 billion in 2009-10, and school aid, which (on the heels of record hikes the last two years) is projected to jump another $2 billion.

Beyond those challenges, he needs to start weighing in on long-overdue reforms that will benefit governments downstream of Albany – New York City, in particular. Pension reform should be first on the list – but so far, Paterson has been absolutely silent on the issue.

So far, at least, his budgetary rhetoric is closer to the right place, especially when compared to his two immediate Democratic predecessors. Ex-Gov. Mario Cuomo was fond of portraying the state as a victim of economic forces beyond its control; Spitzer devoted his brief tenure to explaining why it was perfectly OK for the state budget to continue growing at twice the inflation rate.

Paterson, by contrast, has been willing to recognize that the state’s own spending habits are the root of the problem. Talk is still cheap at this stage, but it’s better than nothing.