A Candid Talk About the State Financial Situation
State Comptroller Tom DiNapoli has warned of another fiscal emergency. He says that absent dramatic action, the state will run out of cash in June. To help make sense of this situation, NT2 sought out the best financial mind we could find, and we posed the following questions:
Q: What do you make of DiNapoli’s warning? Is this a serious situation?
A: Definitely. Nobody uses the word because it’s so scary, but the state is on the brink of insolvency.
Q: That is scary. But it’s not the same as bankruptcy, right?
A: Bankruptcy often means there’s little or no hope of getting the financial house in order. You think of a business that was making buggy whips. Along come motor cars. There’s no more market for buggy whips, so the company goes bankrupt.
That’s not the situation with New York state government. It takes in plenty of revenue. The problem is that it continually spends more than it takes in. This creates the situation of not being able to meet obligations.
Q: What’s the answer?
A: It’s simple: Cut spending.
Q: State leaders keep talking about revenues, as if that’s the real culprit.
A: Sales tax revenues are down because the economy is soft. And personal income tax revenues are down, too. The stock market has rebounded, but the bonuses paid to financial sector workers, which can account for as much as 20 percent of state tax revenues, are now being paid in stock options instead of cash. This means that taxes won’t be paid until the stock options are exercised and reported as income next year.
But make no mistake, the real problem is that New York spends too much. No matter how you cut it, we spend more than any other state on a whole range of areas — health care, education, personnel costs and on and on.
Q: Didn’t we face a similar cash shortfall a few months ago?
A: Yes. And the Governor responded by delaying school aid payments. Doing the same thing again risks creating serious problems for school districts across the state.
Q: You can’t do it again.
A: No. Not to be repetitive, but the answer is coming up with a balanced state budget – one that brings spending levels into line with recurring revenues.
Q: What do you think of Dick Ravitch?
A: He’s a fine man, but his borrowing proposal is ridiculous.
A: Borrowing to meet operating expenses is bad public policy. Borrowing to meet operating expenses without implementing meaningful structural reforms that address underlying imbalances is terrible public policy.
Q: There’s a sense that we might be asking too much of state lawmakers to make tough decisions in an election year. In fact, that might be the genesis of the Ravitch plan.
A: It really makes me angry to hear that. They have a job to do and they better do it. What are we coming to if the lawmakers can’t understand and fulfill their fundamental obligations.
Q: Isn’t it true that the state is actually better off than a lot of other states?
A: No, I don’t believe that. Our deficit as a percentage of the overall budget might be lower, but the underlying economic fundamentals in other states are better. California has significant problems, but it is a more attractive place to do business than New York. Same with Michigan and Florida and others.
Q: You’re rather pessimistic.
A: Forget about Excelsior, the new state motto is: “Muck it up and then try to muddle through.”