Gov. George E. Pataki set just the right tone for this year’s New York state budget battle when he opened the legislative session in January with a plea to avoid “job killing” tax increases. Assembly Speaker Sheldon Silver replied: “On the subject of taxes, let me be very clear, the Assembly is not advocating tax hikes.”
True to his word, Silver hasn’t been literally advocating tax hikes. But the Legislature’s top Democrat is doing the next worst thing – egging on every interest group in Albany and supporting massive spending hikes that couldn’t possibly be paid for without raising taxes.
Taking his overheated rhetoric at face value, Silver apparently wants to add at least $2.5 billion to Pataki’s no-growth budget. At a time of war and in a severe economic slowdown, that would boost state funds spending at twice the rate of inflation.
As a first step toward his goal, the speaker is blocking the linchpin of the governor’s plan: the proposed issuance of $4.2 billion in bonds backed by revenues from the state’s share of the national tobacco settlement.
Technically, the proposed tobacco bonds wouldn’t amount to normal state government borrowing but to the “securitizing” (i.e., selling to private investors) of payments that tobacco companies would otherwise make to New York over the next 12 or 13 years. At least a dozen other states, plus New York City, already have done similar deals. Several more are pending.
To be sure, the tobacco-bond issue would be a lot more attractive if it was smaller and linked to deeper long-term spending reductions than the governor has proposed for the “out years” beyond 2003-04. It’s also troubling that Pataki wants to squeeze more money out of the deal by ultimately backing the bonds with a revenue pledge from the State of New York Mortgage Agency.
But, under the circumstances, some level of tobacco securitization is arguably a least-worst alternative to imposing broad-based state personal or corporate income tax increases on an already struggling economy.
Silver, however, prefers to continue diverting the tobacco revenue stream to health-care programs. As an alternative to the governor’s plan, the speaker would drain the entire remaining $710 million from the state’s rainy-day reserves and issue $3.5 billion in 10-year bonds backed by personal-income-tax revenues.
While he claims to be offering a “more responsible, less expensive” alternative to tobacco bonds, Silver’s plan actually is a prescription for spending at least $360 million a year more on debt service alone. His plan also would exceed the state’s self-imposed debt cap, which could in turn lead to a credit rating downgrade ultimately making all borrowing more expensive.
Pataki had been counting on the tobacco deal to help close a $2.2 billion deficit in the current year and a $9.3 billion gap in 2003-04. Even if Silver relented and the tobacco bonds were somehow approved in time to make a difference this year, the state would come perilously close to running out of cash by the end of May. Without tobacco securitization, Pataki has been forced to delay payments to vendors and local governments ensuring that Albany’s cash-flow pain is spread throughout the state.
Senate Majority Leader Joseph Bruno shares Pataki’s aversion to broad-based tax hikes, but his fellow Republicans also have their own excessive spending appetites. In any event, it only takes one of Albany’s “big three” to slow the budget process to a halt and the Assembly speaker is apparently more than happy to oblige.
It’s easy to dismiss the ongoing Pataki-Silver contretemps as just the latest wrinkle in Albany’s famously dysfunctional budget process. This year, however, the stakes are higher than ever.
Time is not on the governor’s side. With cash running short and revenues declining, Pataki needs to get a new budget passed as early as possible. Otherwise, each month of delay will cost him over $120 million in planned Medicaid savings alone.
If Silver persists long enough in his game of budgetary brinkmanship – and there’s little on the horizon to stop him – New York’s finances and economy will be in a shambles for years to come.