State budget nears halfway point with no permanent solution to deficit
New York’s fiscal year is nearly half over, and the state budget remains billions of dollars out of balance, largely due to the effects of the COVID-19 pandemic-related economic shutdown.
So far, Gov. Andrew Cuomo has been relying on temporary measures to keep the state afloat, but fiscal experts say it’s time to make some hard decisions.
E.J. McMahon with the conservative-leaning fiscal watchdog group the Empire Center, and Ron Deutsch with the liberal-leaning Fiscal Policy Institute, do agree on some things.
One: The amount of the state deficit is huge. Cuomo’s budget office estimates it has grown to $14.5 billion.
And two: It’s time to be worried.
“I think alarm bells should be going off all over the place right now,” Deutsch said.
McMahon concurs that the fiscal picture is grim.
“This has become now the most severe midyear mess the state has had at least since 2008, in the Great Recession,” said McMahon, who added the shortfalls are likely to continue for several more years.
McMahon said Cuomo was waiting for a fifth federal stimulus package from Washington that would include aid for cash-strapped state and local governments, but that still hasn’t happened.
“This was a high-stakes gamble, and it’s coming up snake eyes,” McMahon said.
Deutsch said state budget makers can no longer wait for Congress to act.
“Waiting for Washington to act is just not a strategy,” Deutsch said. “And it’s certainly not a viable strategy at this point, because we have no idea if and when they are going to act.”
The governor has temporarily held back 20% in aid payments to schools, local governments and others, under emergency powers granted to him by the State Legislature. Deutsch said that is having an adverse impact. Some poorer school districts that are more dependent on state aid are offering remote learning only this fall to save money. Some nonprofits that contract with the state are coping with delayed payments.
McMahon said it’s inevitable that those temporary actions will become permanent.
“He’s going to have to eventually pull the trigger,” said McMahon.
Both said permanent, across-the-board cuts are not the best solution, but they differ on a better alternative.
Deutsch said he believes that higher taxes on New York’s wealthiest can go a long way toward closing the gap.
“New York is home to some 118 billionaires, who since the pandemic began have actually seen their wealth increase by about $77 billion,” Deutsch said.
He said reinstating a stock transfer tax that is currently rebated back to brokers could immediately bring in billions of dollars in revenue.
McMahon said higher taxes won’t work because the wealthy will just change their permanent residence to another state.
“You’re going to be really in a situation where the pressure is overwhelming on those people to get to lower-taxed jurisdictions,” McMahon said.
Cuomo for months has agreed with McMahon, saying even the state’s richest can’t bail out New York.
The governor said any hope of federal aid is likely on hold until at least after the November elections. And in recent days, for the first time, he’s begun to talk about alternatives, saying without the funds, the state will have a “deficit of historic proportions” that will be impossible to fill.
“What would we do to try to fill it?” Cuomo asked on Sept. 10. “Taxes, cuts, borrowing, early retirement, all of the above.”
And he said all that still won’t be enough.
A spokesman for the governor’s budget office, Freeman Klopott, said in a statement that a number of steps have already been taken in addition to the temporary withholdings, including lowering state spending by $4 billion and freezing hiring, new contracts and pay raises.
“We have been very clear that we are not waiting for the federal government to act and offset the state’s pandemic-driven revenue loss, amounting to $62 billion over four years,” Klopott said. “If the federal government does not act and provide flexible funding, then permanent cuts will be made, which will be devastating long-term to schools, hospitals, police and fire departments, along with other critical services."
He said it will also “weaken New York state’s ability to lead the national economic recovery.” He said the state is the producer of nearly 10% of the national gross domestic product.