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Bloomberg and the Budget: A Story in Three Parts


Mayor Michael Bloomberg's eight-year city budget story can be broken into two chapters and an unfinished epilogue. In the first chapter, the mayor, having inherited economic and political circumstances beyond his control, masters fiscal turmoil by filling a nearly $8 billion budget gap with bold spending reductions and tax increases -- and puts the city back on a firm fiscal foundation.

In the second chapter, blessed with a robust economy and unanticipated new revenues, the mayor introduces new spending, including a major increase in capital spending. He also reduces taxes for high earners and property owners, and, not incidentally, expands his fiscal powers by building huge budget surpluses and creating a new reserve fund.

In the epilogue, the mayor in June 2009, facing a major recession and plunging tax revenues, patches together the 2010 budget, the last budget of his second term, filling yet another $8 billion budget gap with big expense and capital budget cuts, tapping into his reserve fund, and new tax increases.

The epilogue is unfinished, however as the patching fails to fill the cracks in the city's fiscal foundation. The story comes full circle as the June 2009 Bloomberg financial plan paints a fiscal future as gloomy as that of former Mayor Rudolph Giuliani's June 2001, last financial plan for fiscal years 2002-2005.

Who Wins, Who Loses?

The roller-coaster changes in the Bloomberg fiscal narrative make it hard to determine the overall impact of the eight years. Certainly, on the spending side, there has been a rapid increase in so-called non-discretionary areas: Medicaid, debt service, pensions and health insurance costs. Those mandated costs, coupled with two periods of agency downsizing and tax cuts during chapter two, have squeezed the budgets in essential city services.

On the tax side, the story is simpler. City tax burdens have shifted over the past eight years. The bold tax increases in the crisis of chapter one were not only ambitious, they were equitable, raising not personal income tax rates in a progressive way and increasing average property tax rates by 18.5 percent after a decade of frozen average rates.

But during chapter two and the epilogue, the tax system seems to be more about politics than policy. Progressive income tax increases were phased out and property taxes were cut back -- then raised again. And the last patch job -- the June 2009 financial plan -- was a 12.5 percent increase in the city’s most regressive tax, the sales tax, while the personal income tax remained at historically low levels.

In addition, the mayor never addressed the inequities and bizarre complexities of the city's property tax system, the city's biggest tax source. The current system plays favorites, giving preference to especially homeowners over renters, who pay a portion of their landlord’s tax, in spite of the fact that renters represent two thirds of New Yorkers.

Chapter One: Fiscal Crisis

When he took office, Bloomberg inherited a host of economic and fiscal crises: an unbalanced financial plan and a national recession that began in 2001 and deepened with the local economic consequences of the Sept. 11, 2001 terrorist attack. Former Mayor Rudy Giuliani's last financial plan, adopted in June 2001, had projected $2.8 billion and $2.6 billion deficits for fiscal 2003 and 2004, respectively. The New York State Financial Control Board warned in July 2001, "The city's fiscal fortunes are about to enter a period of turbulence."

Turbulence indeed. Bloomberg and the City Council, in June 2002, balanced his first budget, with the help of $1.5 billion in state-approved borrowing, but by November 2002, prospects for the 2003 budget were dark, and the projected 2004 budget deficit ultimately reached nearly $8 billion.

Here began the mayor's finest fiscal hour. Not only did he begin a series of agency budget reductions, but in a matter of weeks he convinced the City Council to agree to an 18.5 percent increase in the city's property tax rate, as of January 2003, a bold political move given that the average rate had been frozen for 10 years.

The second major step was the mayor's larger gap-reduction strategy in the fiscal 2004 budget. Again, in addition to big expense cuts, the mayor and council agreed on two new and temporary personal income tax rates for higher income households (4.25 percent for singles earning over $100,000 and 4.45 percent for those with incomes over $500,000) and a temporary (two years) sales tax rate increase (0.125 percent).

Thus the mayor resolved the fiscal crisis with a balanced use of new tax revenues and agency reductions. The tax burden was spread equitably, the bulk of it falling on commercial and residential property owners and higher-income households.

Chapter Two: The Boom Years

Once the fiscal 2003 and 2004 budget crisis was resolved, the city benefited from a robust economy and the new tax revenues that poured in. City-funded spending increased rapidly, as spelled out in the July report of the state deputy comptroller for New York City, averaging nearly 10 percent in fiscal 2004 and 2005 and 8.6 percent during 2006 and 2007.

But the spending had a unique pattern. It included the crafting of huge annual budget surpluses, the creation of a new reserve fund, the use of surpluses to pre-pay future expenses and substantial salary increases for city workers. Uniformed workers, for example, got annual increases of 4.5 percent and 5.0 percent in 2005 and 2006, and 4.0 percent annually from 2007 to 2010. As long as the surpluses continued, the surplus rollovers made budgeting for the next year rather easy.

The scale of these surpluses was impressive. According to the state deputy comptroller, revenues exceeded expenditures by $3.3 billion in fiscal 2005, $6 billion in 2006, $6.6 billion in 2007 and $4.1 billion in 2008. But the high rate of city-funded spending in that period masks the fact that relatively little of the growth went into new services.

Most of the growth was in so-called non-discretionary and employee fringe benefits (pensions and health insurance costs primarily) or went to pre-pay expenses. During 2006 and 2007, for instance, the city contributed $2.5 billion to its new reserve fund, the Retiree Health Benefits Trust. In 2007, it retired $1.3 billion in outstanding debt due in fiscal years 2009 and 2010. Excluding those discretionary trust-fund contributions and the pre-paid debt, city-funded spending would have grown more slowly, 2.5 percent in fiscal 2006 and 7.4 percent in 2007.

In what would turn out to be the last year of the economic and budget good times, city-funded expenditures increased by 5.1 percent in 2008 -- including another big pre-payment, of $2 billion in debt service otherwise due in 2010. During this period the mayor started reducing his earlier property tax increase, introducing in fiscal 2005 an annual $400 property tax rebate for residential owners and in fiscal 2008 a 7 percent reduction in the property tax rate.

The other big budget initiative during these years was in the capital budget. A 10-year capital plan that totaled $49.3 billion in fiscal 2004 increased to $83.7 billion in fiscal 2008, according to the July financial control board report. The city made capital commitments of $12 billion in 2008 and $13 billion in 2009.

Epilogue

The mayor recognized halfway through the 2008 fiscal year that the economy was slowing, tax revenues were about to fall, and several years of city budget surpluses were about to end. So in the January 2008 financial plan modification, the mayor began a series of agency reductions and new taxes that continues to play out in the current 2010-2013 financial plan. Total gap-filling actions for fiscal 2010 alone total $8.4 billion, according to the state deputy comptroller.

The same report notes the result: Spending over fiscal 2009 and 2010 is projected to decline by 2.8 percent. The 10-year capital budget plan was cut back by $22 billion, or 27 percent.

So what has been the cumulative effect of several years of discretionary spending increases, tax shifts, rollovers of budgetsurpluses, steady increases in non-discretionary areas and recent discretionary cuts? There are at least four different ways of answering the question.

Conservative or Expedient

One views the Bloomberg administration as doing the prudent thing: preparing for a rainy day, keeping discretionary spending down, paying future bills early, putting money in a reserve fund for future retiree health costs, keeping taxes lower than they had been -- in other words, fulfilling a solid conservative agenda.

But another way of looking at these years sees short-range budget-patching trumping long-range planning and politics winning out over policy. In this view, the focus should be on the fact that Bloomberg's June 2009 long-term financial plan is structurally unbalanced. The financial control board says future deficits could reach $6.3 billion in 2012 and $7.1 billion in 2013.

One reason is that the budget surpluses have finally run out. The state deputy comptroller points out that some $6.6 billion of the current $60 billion 2010 budget is composed of "nonrecurring revenues," often called "one-shots," a no-no for fiscal conservatives. Some $5.7 billion of those one-shots in 2010 represent the pre-payments from earlier surpluses.

As a result of using one-shots like the surpluses, budgeting for next year -- fiscal year 2011 -- starts with a $6.6 billion hole to be filled. In fact, the prospects for the 2010-2013 financial plan look worse than for Giuliani’s last financial plan, in June 2001.

The state financial control board in 2001 projected that Giuliani's plan would leave as much as a $3.6 billion budget hole for the next mayor’s first full-year budget -- an amount equal to 8.3 percent of the projected $43 billion 2003 budget. Bloomberg learned how prescient the board was a little more than a year later when the November 2002 fiscal crisis erupted.

In this view, we have come full circle. The June Bloomberg financial plan for 2010-2013 projects a budget gap for fiscal 2011 (the next administration’s first full-year budget) that the financial control board says could be as high as $6.2 billion, or 9.2 percent of a projected $67 billion budget.

Missed Opportunities?

A third view of the Bloomberg record posits that using budget surpluses as rollovers and parking money in a reserve fund meant missing a chance to improve essential services.

Discretionary spending ihas become a much smaller part of the total budget. The deputy state comptroller notes, for instance, that non-discretionary spending is projected to represent 54.2 percent of city-fund revenues by fiscal 2013, up from 39.9 percent in fiscal 2002.

Since the January 2008 gap-filling began, agencies have seen their funding squeezed. The total cuts reduced 2010 spending by over $3 billion. The most severe of these reductions came in June’s adopted financial plan. They will average about $2.1 billion each year from 2010 through 2013. Nearly $1.2 billion of those annual cuts -- or 62 percent -- will come out of five major service agencies: public education, police, fire, social services and children’s services. Nearly $700 million a year, 34 percent of the cuts, will come from education alone.

The mayor's strategy of service cuts the past two years has generally called for across-the-board reductions: no priorities, no exceptions for any service, such as education, seniors or children services. On the tax front, however, the changes have been more selective, adding a new burden for the average New Yorker while protecting higher income residents.

For instance, the $2.4 billion in new taxes in the 2010 budget have two major parts. About $1.5 billion comes from eliminating the 7 percent property tax cut in January 2009 and the $400 property tax rebate for homeowners as of July 2009. The beneficiaries of those cuts will then pay the same rates that went into effect in January 2003.

On the other hand, the big city sales tax rate increase (from 4.0 to 4.5 percent) and repealing the sales tax exemption for clothing over $110 together add over $600 million in new revenues, but use the most regressive tax available, inequitably burdening lower-income New Yorkers.

At the same time, the top rate of the city's mildly progressive personal income tax remains at 3.65 percent, well below the 4.45 percent top rate used to help resolve the fiscal 2003 and 2004 crisis, as well as a similar crisis in the early 1990s. The mayor has claimed that restoring the higher income tax rates for higher earners could be counterproductive, forcing the richest New Yorkers to leave the city.

Expanding Mayoral Power

A fourth reading of the Bloomberg budget narrative would challenge the mayor's increased power over fiscal matters. New York City mayors have enormous power over city budgets under the city charter. The City Council does formally approve each executive budget and the mid-year modifications but rarely challenges the mayor. The council restored or added only $364 million to the $60 billion budget adopted in June -- less than 1 percent.

Mayors of New York have always had this power but Bloomberg has taken it further. For one, he made major changes in mid-year modifications, which are normally uneventful, technical updates. The November 2002 and January 2008 financial plans were pushed through in a matter of weeks; the City Council -- and the public -- had little chance to comment on either modification. Bold actions, yes, but they short-circuited thedemocratic give-and-take of the January-June budget process.

The most controversial example of enhanced mayoral power is the creation of the Retiree Health Benefits Trust fund in fiscal 2006. That fundwas sold as a set-aside for the city’s growing liability for health benefits for retired city workers. Liability will reach nearly $100 billion by fiscal 2013, according to the financial control board's July 2009 report.

The board in another report, little more than two years ago, said, "The trust fund money, once committed, will only be used to pay the costs of healthcare benefits in future years and will not be used for any other purpose."

Well, the board got that wrong. The June financial plan for 2010-2013 draws down $1.1 billion of the fund's $2.5 billion to help fill the big deficits ahead. The board in its most recent report calls this, "a significant step back" in addressing the healthcare liability. The city comptroller's July report calls the drawdown "unfortunate." The deputy state comptroller adds that it "shifts the burden to future taxpayers."

Bloomberg deserves credit for balancing eight budgets, two of them under very difficult circumstances. But any judgment about the substance of the budgets themselves must note the city's uncertain fiscal future, the expansion of mayoral discretionary power, and the lack of any sustained and substantial budget policy priority, either on the spending or the tax side.

Glenn Pasanen, who teaches political science at Lehman College, has been in charge of Gotham Gazette's finance topic page since 2001.

The City Grades Itself on Schools, Homelessness


photo (cc) superk8nyc

The Mayor’s Management Report for fiscal year 2009 is a 236-page jumble of data that tells us a lot about social conditions and agency activities in the city. But an analysis of data on two priority departments -– education and homeless services –- shows how limited the report is in determining actual management performance. In fact, contrary to the requirement set out in the City Charter, the Mayor's Management Report released Sept. 29 -- 12 days after the due date set out in the charter -- says very little about management.

In education, for instance, some data seem to show substantial progress, much as the mayor has claimed. And in homeless services, some data seem to show the reverse: how badly the mayor has failed in his promise to reduce homelessness by two thirds.

But with both agencies the design of the report makes it difficult, if not impossible, to determine success or failure. Indicators are changed constantly; few trace performance over long periods of time. Some numbers are self-serving; other more useful indicators are simply ignored.

What little management review the report provides is either cryptic or opaque. The result is not so much a management report as a fact book. The fact that the book is designed, produced and advertised by those whose accountability the Mayor's Management Report is meant to document limits its readability and credibility.

High Marks for Education

The 2009 management report is packed with good news about a school system now under direct mayoral control. In fact, the section of the mayoral press release that reviews the eight years of the Bloomberg administration said that 27 of 27 public education indicators show a "positive or stable trend." In human services, by way of contrast, it's 22 of 34.

Among the highlights: Using city data, the percent of students who graduated high school in four years rose from 51.0 percent in the 2000-01 school year to 65.5 percent in school year 2008-09. .

The 2009 Mayor's Management Report adds a new indicator that uses state, not city, data. Under this method, the graduation rate rose from 46.5 percent in school year 2004-05 (no data available able for 2000-01) to 60.7 percent in 2007-08. The difference stems from the fact that the state doesn’t count graduation-equivalent diplomas or special education diplomas in measuring graduation rates.

A more amazing highlight is that the number of students in grades three through eight meeting or exceeding standards in English Language Arts rose from 39.0 percent in the 2000-01 school year to 68.8 percent in 2008-09; in math the rate rose from 34.0 to 81.8 percent in the same period.

Equally astounding was the success announced in early September in an indicator included in previous management reports: 97 percent of schools scored A's or B's on their school progress report cards -– an indicator introduced in the 2007 report, when 62 percent of schools received A's and B's.

The press greeted this year's report cards more as a joke than a triumph: A Times reporter commented, "Suddenly, New York City looks like Lake Wobegon, where all the children are above average." This may explain why neither the mayor’s Mayor's Management Report press release nor the report itself includes those new school grades.

Budget Size, Class Size

The school budget for the 2008-09 school year was $17.7 billion according to the report, over 50 percent more than in 2000-01. The reduction in class size, however, is quite modest as measured by the nine indicators in the press release show changes in class size in grades kindergarten through eight.

In grades kindergarten through three, class size declined, on average, by less than one student per class (to 21.3 in 2008-09 from 22.1 in 2000-01). In grades four through eight, class size fell by an average of 2.2 students per class (from 27.5 to 25.3).

The department has reduced overcrowding in schools. The number of elementary schools exceeding capacity fallen from 48.5 percent in 2000-2001 to 26.0 percent in 2007-08. The number of overcrowded high schools is down from 58.3 percent to 40 percent in the same seven-year period (the 2008-09 data are unavailable).

Questioning the Numbers

This mix of modest-to-amazing progress is tempered by a number of critics who have questioned the department’s test results. More than a year ago, a team of New York Daily News reporters raised serious questions about the sudden explosion in New York State reading and math scores, including those from New York City scores. Robert Tobias, an NYU professor and a former top test official for the city Board of Education, suggested, "The test is probably easier than in the past."

More recently, the Times in September reported that seventh graders who correctly answered only 44 percent of math questions got passing grades. On some tests, a student could randomly guess and still stand a good chance of receiving a passing grade.

NYU research professor Diane Ravitch has pointed out that Mayor Michael Bloomberg's claims for dramatic improvements in student achievement have not been verified by any independent source. She noted that on the federal National Assessment of Educational Progress, New York City "showed almost no academic improvement between 2003, when the mayor’s reforms were introduced, and 2007."

She added, "There were no significant gains for New York City's students, black, Hispanic, white, Asian or lower-income -– in fourth-grade reading, eighth-grade reading or eighth-grade mathematics." Significant gains in fourth-grade math, she suggested, may be suspect because 25 percent of the students were given extra time and help.

In September, Ravitch called the school progress scores "bogus."

The only indicators in the Mayor's Management Report with any direct relevance to management in the Department of Education are the numbers of years of teaching and principal experience. The percent of teachers with at least five years experience has remained unchanged at 64.4 percent over the past four years, and the percent of principals with more than three years experience in 2009 (53.5 percent) is almost exactly (53.7 percent) what it was three years ago.

The report makes no effort to examine the effect of major mayoral initiatives in education, including: charter schools, small high schools and the centralization of administration. Nor is there any mention of the more than $3 billion of contracts that the department manages -- in spite of recent criticisms by the state and city comptrollers.

The Bloomberg administration in 2002 moved contract information from the Mayor's Management Report into an annual report issued by the Mayor's Office of Contract Services that has extensive data but even less exposition than the management report.

Homeless Services

It is equally hard to get useful management information about the Department of Homeless Services in the Mayor's Management Report. Unlike the education department, which provides mostly direct services, homeless services is essentially a contract agency. More than 77 percent of the agency’s $865 million budget in 2009 went to189 privately run shelters under contract with the city. The city itself runs 11 more. The almost complete privatization of homeless services has been one of the major changes in city government over the past 15 years.

But the management report indicators do not include any management information about that new city/private relationship. The eighth-year review in the mayor’s press release on the management report acknowledges many more families are in the shelter system today than eight years ago: The average number of families in shelters per day rose from 5,563 in 2001 to 9,244 in 2009, almost a two thirds increase.

The number of adults in shelters, on average per day, has dropped slightly, from 7,187 in 2001 to 6,526, or by 9 percent. However, in the mayor’s second term, the number of single adults, adult families, and families with children entering the shelter services system have all increased. Some 18,480 single adults entered the system in 2009 (up by 7 percent), along with 1,278 adult families (up by 27 percent), and 12,959 families with children (up 61 percent).

Because of shifts in indicators (breaking "families" into two categories -- for instance, those with children and those without) over the past years, it is hard to find many more eight-year indicators. One indicator that was dropped during those years is the number of children in the shelter system.

The Coalition for the Homeless provides that figure and other useful social indicators missing in the management report. In November 2008 15,884 children were living in shelters -- 35 percent more than the 11,732 children sheltered in April 2006, the lowest number in any one month over the past eight years. Altogether, 36,600 men, women, and children were in shelters last November.

The coalition points out that 109,000 different homeless adults and children turned to the city’s shelter system in the previous year. It also notes that thousands more live in public places.

The management report minimizes the problem and says that the number living in public spaces has actually dropped from 4,395 in 2005 to 2,328 in 2009, or nearly by a half. The unanticipated increase in families and adults coming into the shelter system has forced the department to dramatically increase its placements in permanent housing. And the numbers are impressive. The number of families moved to permanent housing increased by from 3,349 families in 2001 to 9,244 in 2009. The number of adult placements rose from 5,532 to 9,107.

In the face of the increasing number of families entering the shelter system, the Department of Homeless Services has focused on preventive services. Three indicators look at the percent of single adults and families with and without children receiving such services who then do not enter the shelter system. The success rates in 2009 in each category are very high: 95.8 percent, 98.6 percent, and 91.3 percent respectively. However, the report does not provide either the total number of people served or any sense of who managed the services and at what cost.

Costs and Benefits

In fact, neither the education nor homeless services section tries to make any link between expenditures and results. The Coalition for the Homeless says that sheltering a homeless family costs $36,000 a year, and a homeless individual, $23,000. Some such figures in the management report might help develop new policy. For instance, the coalition suggests that the alternative of rental assistance with support services for a family costs as little as $8,900 per year.

The fact book that the Bloomberg administration has created over seven years is full of information about social conditions and bureaucratic actions. But the Mayor's Management Report is meant to be more than that -- a measure of mayoral accountability. On that score, the current version no longer serves that purpose. That could explain its lack of coverage in the mainstream press.

The next charter revision commission (or the City Council) should find a more independent, comprehensive accountability mechanism that would complement or replace the Mayor's Management Report.

Glenn Pasanen, who teaches political science at Lehman College, has been in charge of Gotham Gazette's finance topic page since 2001.

Is Anyone Willing to Cut the State Budget?


Illustration by Ya-Hsuan Huang

Gov. David Paterson fancies himself a financial doomsayer -- the man with the intestinal fortitude to stand up and shout the bad news. "The economy stinks and we have to cut the budget!"

Paterson blames his historically low approval ratings on the economy and the "tough choices" he has had to make to keep New York out of devastating financial straits -- along the lines of what California is suffering through. New York has yet to issue IOUs to its debtors as California has done, and Paterson has trumpeted that fact -- even taunting his potential opponents, daring them to get off their "deck chairs" and join him in the "ocean" with the sharks. But while Paterson has repeatedly sounded the alarm, he has not yet presented any kind of concrete plan to close the state's multibillion spending gap.

The state faces a mounting budget deficit but accounts of its size vary. Early estimates pegged the gap around $2.1 billion, but because income tax revenue has been lower than anticipated, Paterson has said the gap could reach $3 billion or more.

Earlier this summer Paterson promised to introduce a budget plan in the fall. In a July report, his Division of the Budget said: "To address this issue, Gov. David A. Paterson today announced that he will work with Lt. Gov. Richard Ravitch to develop an Economic and Fiscal Recovery Plan that will eliminate the current-year budget deficit and improve the state’s long-term fiscal health. The governor’s plan will be released in September." September is now officially over.

As summer wore on, Paterson spoke of having a special legislative session in the fall to address the deficit, but legislators countered that they wanted to see a plan before returning to Albany. Paterson also readied what seemed to be his financial super weapon: Ravitch, whom Paterson asked to review the state's finances. Paterson continued to push for the legislature to return to address the deficit but to no avail.

Finally, Paterson called a public leaders meeting. The meeting featured Paterson, Ravitch, Senate Conference Leader Sen. John Sampson, Senate Minority Leader Dean Skelos, Assembly Speaker Sheldon Silver and Assembly Minority Leader Brian Kolb. The meeting was designed to get the leaders to publicly agree at least on a path toward finally addressing the budget gap.

Meeting of the Minds

During that meeting last week, Paterson spoke again of his desire to make real cuts to spending rather than using the state's rainy day fund or raising taxes. If such cuts are not made, he said, "We would face the peril of being unable to meet our obligations, having our credit rating reduced, and getting ourselves into serious economic trouble."

Rather than returning for a special session the attendees agreed that staffers from Paterson's office and the legislature will meet to formulate a plan. Beyond that it seemed the attendees didn't find much common ground -- even on the size of the deficit. Skelos reportedly said it was only $1.6 billion. The Democratic leader, Sampson, responded to Paterson's $3 billion claim by saying his conference "doesn't believe in government by guess work. We need real numbers to provide real solutions." Silver and Kolb indicated they agreed with Paterson's projections.

This may be where Ravitch comes in. At the leaders meeting the new lieutenant governor said little except to suggest leaders look for common ground before looking for solutions. ""If we start off, hopefully with a common view of the numbers that we have to address, then we can talk about solutions in the context of that agreement, rather than fighting about solutions because we disagree with what the underlying numbers are," he said.

Critics like E.J. McMahon, director of the Empire Center for New York Policy, say that Paterson, despite his flagging poll numbers, needs to lead -- he has to present a plan and shepherd it through the legislature while taking the heat for tough cuts.

"You have to lay something on them," said McMahon. "You have to push for it and have to give them cover. You have to say it was hard but it had to be done."

McMahon said that having legislative and executive staffs negotiate over the size of the deficit and solutions to cut it is simply futile. "Legislative staffs don't work that way. They are reactionary; they don't initiate," he said.

Sen. Liz Krueger agreed that the governor should present a plan for the legislature to consider. "That’s why I advised my conference leader not to move to a date for a special session until we have a plan," Krueger said.

Who to Blame for the Delay?

Krueger said that criticizing the legislature for holding up a deficit reduction plan is simply "not a rational objection."

The legislature actually has a limited amount of input into the budget. The New York State constitution requires executive budgeting. In other words, the governor is responsible for presenting a budget plan after consulting with the appropriate departments. The legislature then can then strike things from the budget or reduce them but it cannot alter the budget in other ways.

Krueger pointed to the 2004 Court of Appeals decision Silver Vs. Pataki, which resulted in a ruling that the legislature had overstepped its bounds in a number of instances.

In one example, former Gov. George Pataki argued that the legislature had overstepped its bounds in trying to postpone a prison project approved in the budget. After the budget was passed the legislature voted to bar construction until the project received legislative approval. The court found that the legislature was acting beyond its authority.

Getting Their Way

This does not mean the legislature has no say. During the extremely secretive budget negotiations last year, the legislature was seen as having won the budget battle with Paterson. Many of the large cuts to education and health care that the governor had sought were restored. To avoid making the large cuts that Paterson threatened, the budget imposed a tax on the rich and a number of newly implemented fees and surcharges, and used federal stimulus money.

McMahon, whose organization advocates reducing spending on labor benefits, education and health care, said that Paterson can't expect the legislature to make the tough cuts needed to actually reduce spending. "They don't know how to say no to anyone," he said.

It's Getting Worse

Comptroller Tom DiNapoli bolstered McMahon's argument with his recently released Financial Condition Report for the 2008-2009 year. DiNapoli's report showed that the cumulative budget deficit could expand to $38 billion by the 2012-2013 fiscal year if current spending and income trends continue. The report finds that spending has increased 21 percent over the past four years and could go up another 22 percent by the 2012-2013 fiscal years.

"The state must look to the spending side of the ledger, rather than raising taxes and issuing large amounts of debt to pay for things it cannot afford,” DiNapoli said in the report. “New York needs a strong dose of fiscal discipline, which has been lacking for far too long. The State must make difficult choices today to fix New York’s persistent budget troubles.”

As McMahon points out, the legislature never wants to make spending cuts, especially in areas like education and health care, because of the cuts can incur the wrath o unions and the Working Families Party.

Some legislators are delaying making cuts because they hope a new round of federal stimulus money could save them from making further reductions. "They've been propped up by stimulus," McMahon said. However, so far, there is no new stimulus plan and, McMahon said, "You'd be hard pressed to find anyone in Washington who thinks that" there will be.

Krueger said the state still is finding that certain money has been allocated to New York through the stimulus plan, and those funds help. "I would like to see the stimulus continued," she said, "but it's too early to tell." Ravitch warned that the state could face "cataclysmic impact" if the stimulus is not extended past 2010.

In any event, Krueger said, real cuts must be made -- and quickly. "We need to make sure the savings is immediate. We can't make cuts that we find would take six months for savings to start," she said.

McMahon, who is a strong opponent of the income tax increases in this year's budget, said he fully expects labor groups and the Working Families Party to push for another tax increase rather than making cuts in the budget. "I would bet on it," he said.

Krueger and Sampson, who both supported the income tax increase, have publically stated they do not support closing the budget gap with increased taxes or fees.

In the end, some say Paterson might desperately want to take the lead on the budget. He may very well want to make tough cuts and take a stand for fiscal responsibility, but with an approval rating of 17 percent the hard reality may just be that Paterson doesn't have the political leverage to push the legislature to accept any cuts. His only hope may be to negotiate with the legislature and hope its members understand the gravity of New York's financial situation.

"The more Paterson says we can't wait while he does not offer a plan the more otherworldly this gets," said McMahon.



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