View all Articles
Commentary By E. J. McMahon

Awaiting Spitzer's Budget

Cities, Economics New York City

Looking ahead to the first budget of his administration, Governor Spitzer pledged earlier this month to "make hard choices and begin to fundamentally reform and restructure programs that have become needlessly expensive" and to "say ‘no' to budget requests we simply cannot afford."

We will begin to see how those words translate into action on Wednesday, when Mr. Spitzer presents the Executive Budget for state fiscal year 2007-08, which starts April 1. In the meantime, here are five areas to watch:

Medicaid and Health Care: In a speech last Friday, the governor said he intends to freeze Medicaid payments to hospitals and nursing homes. This should help him meet a reported goal of trimming $1 billion from next year's $1.5 billion projected growth in the program. He also attacked the January 2002 agreement in which Governor Pataki and the Legislature used the Health Care Reform Act as a conduit for pumping $3 billion into hospitals to fund wage increases for health care workers. The natural next step would be for Mr. Spitzer's budget message simply to allow HCRA to expire on schedule in June and redirect essential public health spending through the regular departmental budget.

School Aid: Mr. Spitzer caught a huge break when the state's highest court ruled in December that $1.9 billion in added spending on New York City schools would be enough to satisfy its earlier decision in the Campaign for Fiscal Equity case. Nonetheless, the governor has said he will "dramatically" increase the state's already huge education "investment" over the next four years.

Some form of cumulative accounting will no doubt play into the spin on Mr. Spitzer's education finance proposal. Beyond that, notwithstanding Mayor Bloomberg's objections, the governor probably will ask New York City to fund a sizable chunk of any new Campaign for Fiscal Equityrelated spending. Mr. Spitzer can also be expected to try to shift more state aid from "wealthy" to "poor" districts — inviting a battle with suburban legislators, who now include many Assembly Democrats as well as Senate Republicans.

Debt: New York's state debt doubled to $49 billion in the last 12 years and is projected to reach $54 billion in 2007-08. Yet Mr. Spitzer has called for even more borrowing — a $2 billion "Stem Cell and Innovation Fund" bond issue. Meanwhile, the state's over-leveraged transportation capital plans will need a fresh infusion of cash within a few years. The best way to raise it would be in partnership with private investors, who are increasingly involved in leasing and building highways in other states. But Assembly Democrats blocked the "public-private partnerships" half-heartedly proposed by Mr. Pataki in his last transportation budget.

Taxes: Mr. Spitzer's proposal for what is invariably described in the press as a "$6 billion property tax cut" is actually an expansion of Mr. Pataki's School Tax Relief program, known as STAR, which would add $2.5 billion in new expenditures when fully implemented in 2009-10. STAR is state school aid used to subsidize property tax breaks for homeowners —except in New York City, where the lion's share is used to finance a slight incometax rate cut.

In his most memorable campaign commercial, Mr. Spitzer promised, "we're not going to raise your taxes — and you can take that to the bank." Whether his budget can be viewed as keeping that promise probably will depend on one's definition of "tax increase" — and, for that matter, "you." Assuming he sticks with his campaign blueprint, the governor will seek to raise at least $300 million from closing "corporate loopholes" — a euphemism that could cover a lot of ground. He also is likely to propose raising $180 million by extending the 5-cent bottle deposit to noncarbonated beverages and by requiring bottlers to return unclaimed deposits to the state.

Overall Spending: Mr. Spitzer said in his State of the State address that he would "significantly reduce our rate of spending growth, which has increased at three times the rate of inflation over the last four years." Since the Legislature has a history of adding several percentage points of its own to gubernatorial spending proposals, if Mr. Spitzer wants a budget that grows no faster than inflation, he'll need to ratchet down expectations by proposing no spending increase at all.

In 1995, Mr. Pataki inherited a $5 billion budget gap in a state still struggling to emerge from its worst recession since the 1930s. Mr. Spitzer faces a very different challenge. Although economic growth in much of New York — especially upstate — continues to trail the national average, the city's booming real estate and finance sectors are generating revenue at a pace that could add $1 billion or more to this year's fat budget surplus. As the new governor warned in his State of the State address, this "momentary cash infusion" is needed to close projected future deficits. He'll need to heed his own warning.

Mr. Spitzer campaigned as a fiscal reformer and budget hawk, often sounding more conservative in this respect than his fellow Democrats or, for that matter, Republicans, in the Legislature. Yet, he also made, or at least implied, some costly campaign promises that were solidly in the liberal tradition.

This week, he needs to start making it all add up.

This piece originally appeared in The New York Sun

This piece originally appeared in The New York Sun