Backdoor Borrowing Balances Big Budget
HENRY J. STERN
Corporate America lives by the quarterly report, and reputations have been made and lost by gyrations in the figures, and the legerdemain that goes into their preparation.
In government, there are no rigid time frames for reporting results, whether they are achievements or disappointments. There are timelines governing the process of the executive submitting a proposed budget and the legislature modifying and then adopting it. This happened in Albany on Friday, March 31. It is the second consecutive on-time budget after two decades of missing the April l deadline, sometimes by months.
All Fools Day is an appropriate moment to adopt a budget which is at best an outline of spending and borrowing plans for the year. It is too early in the legislative session for the full consideration any budget deserves. There is, however, one conclusion that leaps to mind from the document and the commentaries provided by the press, upstate and downstate.
The budget is the highest in state history. The percentage increase is twice the rate of inflation. It is funded by borrowing
$11 billion or more. The public debt in New York State is higher than that of any other state but California, where Governor Schwarzenegger recently borrowed $27 billion. The per capita debt of New York State is higher than that of any other state except Alaska, which had approximately 663,661 people in 2005, about three and a half percent of New York’s population. BTW, Alaska receives 55 percent of its revenues from an oil severance tax.
New York State’s adopted budget is either $112.4 or $113.25 billion, depending on whether you take the Senate or Assembly figures. The governor said the true cost is $115.5 billion. The truth lies somewhere in between.
The budget now goes to Pataki to sign or veto. His decision will test his fiscal responsibility. He may also think about how his action will play in Iowa in 2008. He will have to consider whether the likelihood of having his vetoes overridden again is more damaging than his signing off on a bloated budget which he had little influence in shaping.
The greatest hazard in politics today is being labeled as a flip-flopper, that is, one who changes his position on an issue. Senator Kerry’s problems in this area, amplified by Republican spin-masters, helped transform a change of heart into a failure of character. Since people do, and should, sometimes change their minds because of additional evidence, new developments, or fresh thinking, the label, although widely applied, can be unfair.
Since “flip flopper” is such a pejorative characterization and the governor prefers to be seen as a fiscal conservative, it seems likely that he will veto the mega budget, unless he is able to negotiate some reductions with the Senate, in which case he would have a fig leaf for signing it. If there is a veto the next move would be up to Senator Bruno. Unlike the governor, who dreams of the White House, Bruno, who is 76, wants very much to stay in his current job, majority leader. His decision on how to deal with the budget will be informed by that desire.
We ask: Is there a shred of principle among these players?
We answer: Yes, there are many shreds. Principle, to the extent that it can be found in Albany, has been thoroughly shredded. Pragmatism triumphed long ago, even if the results are impractical and unsustainable over the long term.
We ask: What does the future hold?
We answer: Probably more of the same. Both Bruno and Silver were first elected to the legislature in 1976, 30 years ago. They are unlikely to learn new tricks or change their spots. With the aid of Ponce de Leon and pliant voters they could remain in office till the cows come home (if you can manage a third mammalian metaphor).
We ask: Is the situation hopeless?
We answer: No. All we are asking is for the adoption of a budget balanced according to generally accepted accounting principles (GAAP) and an end to the use of off-budget agencies to borrow money for recurring expenditures.
The New York State constitution places limits on state debt and public referendum on issuing bonds. These rules have been circumvented by the employment of what we call Enronian entities or off-budget instrumentalities. These satellite agencies do what their corporate parents are forbidden to do, much as banks in the Cayman Islands may engage in undisclosed transactions prohibited in the United States.
Truth and disclosure in budgeting are prerequisite to substantive discussion of the state’s priorities. That should not be too much to ask.