Is the State in Crisis?
August 4th, 2008
So how bad is the state’s fiscal situation. It depends on who you ask?
“Few budget analysts, though, consider the current shortfall to be a crisis, though they are concerned that the long-gathering global economic gloom could cause the state’s outlook to worsen considerably,” Danny Hakim writes in today’s Times. Hakim goes on to explain that, when viewed as a percentage of the overall budget, the state’s projected shortfall for the next three years, $26.2 billion, is not nearly as great a percentage of the overall budget as the gap the state
confronted during the recession of five years ago. And while the one-year shortfall of $6.4 billion sounds like a lot it has to be put in the context of a budget of almost $130 billion.
But the Daily News disagrees. Slamming the state legislature for not taking any action, the paper’s editorial says, “New York is in full-blown financial crisis. The national economic downturn – especially the layoffs and plunging profits on Wall Street – are decimating the state Treasury.”
Even if it’s a false alarm, Felix Rohatyn, an architect of the plan that saved the city during the 1970s fiscal crisis, applaud Gov. David Paterson for sounding it. He “has no choice but to try to act. He’s right to try to do something,” Rohatyn told the Times. “I’ve always felt you manage for the worst and hope it gets better, but you don’t manage on the hope it gets better.’
By Gail Robinson on August 4, 2008, 5:44 pmIn category: Albany, Gotham City, Public Finance | 2 Comments »



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August 5th, 2008 at 10:02 am
NYC’s economy is much healthier than the 1970s, or even the early 1990s, relative to the rest of the country.
But public debt and pension obligations are much greater, and the rest of the country is in much worse off. And our state government is a disaster.
I expect much of the economic harm of the next few years will be transmitted to New Yorkers via government service and benefit cuts and tax increases, not job loss. That is where the threat will come from. Worst case, the consequences could be 1970s-like.
Let me give you just one example. What would happen if the interest payments on all of New York’s state and local debts that weren’t fixed rate (and they’ve gone with lots of floating rate, especially at the MTA) were to increase by 300 basis points? Those budget experts quoted by the Times would probably say I am a crank for asking the question.
But in 1990 or so, I put my savings in a two-year Treasury note at 9.5%. That’s right, 9.5%. Not so long ago, eh, and with a lower federal deficit and stronger dollar than we are going to have — not to mention no municipal defaults in recent memory.
So why did the city and state go with floating rate debt back when fixed rates were at all-time lows. To save a few nickels they could hand out then, and worry about the risks later. Every decision has been like that, for nearly 20 years.
August 7th, 2008 at 9:47 am
Read again what I wrote two days ago, and read this article:
http://www.bloomberg.com/apps/news?pid=20601109&sid=aAjM9j4K4v4U&refer=home
“The Oakland, California, agency that runs toll bridges across the San Francisco Bay is proving that the era of cheap money for municipal borrowers is over. This week the Bay Area Toll Authority sold more than $700 million of bonds at rates as high as 5.34 percent to refinance debt that cost 4 percent last year. That leaves less money to finance projects, such as bridge improvements. ‘The cost of money just went way up,’ said Brian Mayhew, the agency’s chief financial officer. ‘You may have projects on the cusp that are going to be difficult to do.’”
Again, the MTA and other NY state and local borrowers have floating rate debt. So when the rates reset, we’re dead. And forget borrowing even more money that won’t be paid back. There are no lenders, because there are no savers.
Those bastards in Albany don’t care because they don’t have to.