Amid the generally sunny reviews surrounding this year’s session of the New York state Legislature, there was little for taxpayers to applaud–and plenty to be concerned about for the future.

The fiscal centerpiece of the session was a $78-billion state budget that combines a troubling acceleration of spending with a continuing expansion of state debt, countered only in part by a thin fig leaf of “debt reform” and a series of new tax cuts that won’t take full effect for five more years–two presidential elections from now.

Excluding federal grants, the new state budget increases spending by nearly 7 percent–more than double the inflation rate and a full percentage point ahead of projected state personal income growth. State government is once again growing faster than New Yorkers’ ability to pay for it–a bad omen, given Albany’s historic resistance to living within its means.

In his January fiscal plan, the governor projected that the state funds budget was on track to grow another 11 percent in 2002 and 2003. At this rate, the state must continue to rely on a strong economy to generate stronger-than-expected revenues.

Taxpayers can only hope that their promised tax cuts aren’t lost in the shuffle. The budget repeals part of the energy gross receipts tax and sales tax on energy distribution, and adds some targeted cuts in the income tax, including elimination of the marriage penalty and a new college tuition deduction. But the $1.2 billion in cuts won’t take full effect until 2005. This year, they’re valued at a paltry $79 million–a fraction of what’s set aside for legislative porkbarrel spending alone.

Meanwhile, New York will remain among the nation’s leading public debtors. In the governor’s budget, outstanding state-supported debt – including voter-approved general obligations bonds and public-authority borrowing supported by budget appropriations–was slated to rise in the next year by $1.1 billion, to a record total of just under $38 billion. The governor and Legislature then agreed to ask voters this fall to approve a $3.8-billion transportation bond issue, divided evenly between urban mass transit and highway and bridge projects.

What of the grandly named “Debt Reform Act of 2000”? The statute will, in practice, do little or nothing to curb the state’s excessive borrowing habits. As of 1998, New York’s state-supported debt amounted to 6.4 percent of personal income–fourth highest of any state. The law would subject all new debt to a cap of 4 percent of personal income, to be phased in over 10 years. At the same time, debt service would be capped at 5 percent of budget receipts–not coincidentally, equal to the current level.

Since the new reform is statutory, the caps can be exceeded by a simple vote of the Legislature. And the cap is loose enough to permit even more borrowing than the state currently plans over the next decade. An analysis by the state comptroller’s office says the law would allow the issuance of another $38 billion in state-supported bonds by 2010, effectively doubling the current amount.

Given New York’s poor borrowing track record, Moody’s Investor Service recently called the nearly toothless debt-reform statute a “positive first step” and raised the state’s general-obligation-bond outlook from “stable” to “positive”–without actually raising the bond rating itself, which remains tied with Louisiana for lowest in the nation.

Moody’s also emphasized the importance of following through with stronger state constitutional changes–such as those proposed by Gov. Pataki and backed by Senate Republicans. Unfortunately, Assembly Democrats blocked consideration of any constitutional curbing of state debt. As a result, any chance at true debt reform has been delayed for at least three years, since constitutional amendments require approval of two consecutively elected legislatures.

Gov. Pataki points out that he has spent and borrowed at a slower rate than Gov. Mario Cuomo–which is true, but certainly nothing to boast about. As long as the state continues to evaluate fiscal progress solely by the wretched standards of its own past performance, it will fail to become truly competitive as a place to live, work, raise a family and do business.

About the Author

E.J. McMahon

Edmund J. McMahon is a senior fellow at the Empire Center.

Read more by E.J. McMahon

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