Gotham Gazette

The Place for New York Policy and politics

The State Budget and NYC

The state budget was due on April 1, and so somebody wishing to play an April Fool's Day joke might have predicted that the budget would be delivered on time, that it would provide for the needy of the state while exercising fiscal prudence, and that it would put aside partisan politics to consider the welfare of New York and its citizens.

Instead, to nobody's surprise, there was no state budget by the deadline -- for the 19th year in a row. This time, it is no joke.

With Albany facing a $12 billion budget deficit of its own and state lawmakers divided over what to do about it, the state is unlikely to provide the aid that Mayor Michael Bloomberg needs to push New York City out of its budget crunch. As a result, Bloomberg, who releases his executive budget next week, is drafting a proposal that will call for up to $1 billion more in cuts, including 15,000 layoffs and additional reductions of up to 18 percent at some city agencies.

The budget put forth by Governor George Pataki in January balances the budget largely by slashing spending. It calls for cuts in an array of programs, particularly education and health care. If adopted, the budget could lead to the elimination of pre-kindergarten programs and to larger elementary school classes, steep tuition hikes at public universities, and cutbacks in staffing at hospitals and services at out-patient clinics.


The state budget always presents a struggle. But this year's budget is complicated by the huge deficits at the state level, in New York City and in other local governments.

As he drafted his budget in January, Pataki faced a number of harsh realities. September 11 and the national recession, particularly severe in New York, reduced tax and other revenues for the government and boosted demand for services. During the boom years of the 1990s, Albany had increased spending and cut taxes. Now, with the good times over, the bill had to be paid.

Pataki proposed a budget with $90.8 billion in total spending, a slight decrease from the current fiscal year. He increased spending for security but cut most other areas. To maintain this level of spending with falling tax revenues, Pataki called for borrowing money and for a number of new or increased fees - including a fee for sex offenders when they register (as required) with the state and $2.25 added on to each new tire sold in New York.

The budget includes some $2 billion less in help for New York City than Bloomberg had wanted. And it does not call for the commuter tax the mayor has been banking on.


The budget process in New York State usually seems confused and even chaotic. But aside from the missed April 1 deadline, there are a few certainties.

Governor George Pataki, Assembly Speaker Sheldon Silver and Senate Majority Leader Joseph L. Bruno - the so-called "three men in a room" -- play key roles. The governor sets forth the budget and holds veto power. The leaders of the State Senate and Assembly largely control what passes the state legislature, with little role for the other members.

Among the three, the governor holds the most power. According to Frank Mauro of the Fiscal Policy Institute, this approach, adopted in 1927 under Governor Al Smith, was intended to allow one person to take a comprehensive look at the budget and reconcile revenues and expenditures.

Despite occasional challenges, this system has prevailed. In 1998, for example, the legislature tried to assert its power by coming up with its own set of appropriations bills. In response, Pataki vetoed more than 1,000 items in the budge. The legislature could not muster enough votes to override the vetoes, and so, said Mauro, a lot of organizations went without funding that year.

The legislature's chief bargaining tool, guaranteed in the state constitution, has been its ability to reduce the governor's appropriations, says E.J. McMahon, a senior fellow at the Manhattan Institute.

"The deliberate intent of our current budgeting structure . . .is to put the governor in the driver's seat and then the second part of the process is to make it as easy as possible to keep spending in check," he said. "Once the governor proposes, the legislature can reduce any line item. . .and there is nothing he can do about it. The legislature can increase any line item that he proposes, or try to add separate line items of their own, but the governor can veto such additions."

In fact, Pataki called for no new major taxes, other than a reinstatement of the sales tax on clothing. Instead, he asked for increases in subway and bus fares (these have already been enacted) as well as in college tuition.

Critics condemned the plan, using such words as "devastating," "disastrous" and "unconscionable." Blaire Horner, legislative director of the New York Public Interest Group, said the governor's budget is "filled with gimmicks, one-shots and tax increases." Others charged that the decreases in spending and service cuts amounted to a tax on the poor.

The governor's proposal is now before the legislature. If past years can serve as a guide, few details will be discussed publicly and deliberations will go on late into the spring, if not the summer, leaving local governments with no choice but to guess what their funding will be.

And Democrats and Republicans will jockey for advantage. As soon as the budget came out, Assembly Speaker Sheldon Silver, a Manhattan Democrat, condemned the cuts and the hike in the sales tax. Some observers believe tax hikes are inevitable - the question is who gets blamed. State Senator Eric Schneiderman accused Pataki of "just throwing the hot potato to the legislature."

And just as they dodge blame for taxes, politicians will vie to get credit for saving one program or another.


On a recent morning in Chinatown, 16 quiet and attentive four-year olds gathered in a semi-circle on a blue rug, in the pre-kindergarten class of Sue Auslander and Karen Risden at P.S. 126, as Miss Auslander read the book "Sam Who Never Forgets," which teaches the importance of remembering one’s promises.

That lesson was on the minds of the pre-kindergarten teachers themselves. Earlier that day, they had discussed Governor Pataki's proposed cut of $1.2 billion from state education programs, including the entire $204 million for pre-k programs.

The possible end of pre-kindergarten in New York City is among Pataki's most controversial cuts - and one of the most ironic, since six years ago, the governor signed a law calling on the state to fund "universal pre-k," as a way to prepare children for elementary school and help working families. The program never became universal - enrollment is now about two-thirds of those eligible - but that means nearly 44,000 youngsters.

Pataki's proposed cuts to education are at every grade level, including college, and total more than $462 million. (SeeGotham Gazette's Education Topic Page).

New York City Schools Chancellor Joel Klein has charged that "those with the highest needs are being asked to absorb the highest burden of these reductions." He projects that the budget reductions could cause the city to lose 2,700 teaching positions.

For example, Pataki's budget eliminates the $89 million that New York City receives to reduce classroom size in grades kindergarten through three. The city already falls markedly short of the state goal of 20 students per classroom.

City-funded after-school programs also face elimination. New York City's Extended Day/Violence Prevention program will lose $32 million under Pataki's plan, resulting in the termination of a program for approximately 30,000 children.

Education advocates note that the cuts come just as school districts struggle to meet standards set by the federal No Child Left Behind law and various state programs.

Both the Campaign for Fiscal Equity, which has legally challenged the state's system for funding education, and the Citizens Budget Commission want the state to change its funding formula rather than simply slash spending. "The state system should skew aid toward more needy districts," said Diana Fortuna, director of the budget commission.


Nidhi Arora chose the City University of New York because it offered an affordable, quality education. Next year, when her tuition could rise by $1,200 to $4,400, it may still offer quality but Arora, who already has a part-time job, will no longer be able to afford it. As it is, "my brother was going to Queens College and had to drop out and work."

Tuition at the City University of New York has been rising steadily since then-Governor Hugh Carey instituted tuition at the formerly free university in 1976, but Pataki is proposing the largest increase in CUNY's history. Meanwhile, though, according to the New York Public Interest Research Group, CUNY's full-time faculty has decreased by nearly 49 percent since 1974, the governor also has called for cuts in the university's overall budget and in several state-funded financial aid programs.

"I can't believe they want me to pay one-third more next year to come to a school that's going to be worse off than it is now," said Brooklyn College sophomore Thermus Knosis.

The tuition hike's most drastic effects will be felt by CUNY's six community colleges, where some 60 percent of students earn less than $25,000 a year and one-third support at least one child.

Students have held protest rallies against the proposed changes, and the New York Public Interest Research Group has launched a No Tuition Hike campaign.


Education advocates are not the only ones demonstrating against the budget. Last week, more than 30,000 health-care workers massed in front of the state capitol to protest $2 billion in cuts to health programs. Officials of 1199/S.E.I.U, the health-care workers union which helped organize the protest, said that under the Pataki plan, some hospitals will be forced to close and 22,000 jobs throughout the state will be eliminated.

A report released by the Greater New York Hospital Association, an advocacy group for nonprofit hospitals in the metropolitan area, says city hospitals are looking at losses close to $700 million over the next two years because of Medicaid cuts and a tax on hospital revenue.

Pataki's plan reworks Medicaid spending so the state would absorb prescription drug costs, while the city would take on a larger percentage of hospitals' operating budgets than it must pay now. While the swap could help upstate communities, where pharmacy costs outstrip Medicaid drug costs, the Citizens Budget Commission and the Bloomberg administration estimate this change will cost the city around $240 million.

"Medicaid cuts are a big financial finagle. . . . What the city needed was relief from Medicaid costs," said E.J. McMahon of the Manhattan Institute.

The proposed budget also includes restoration of a .07 percent tax on hospital revenue and a reduction in the number of people eligible for Family Health Plus, a health insurance program for working people without private insurance. In testimony before the State Senate, the hospital association said (in pdf format) the budget could result in cuts in hours of clinics and reductions in staff, including residents and interns -- reducing the quality of care. And the association points out that these cuts come at a time when city hospitals are being asked to prepare for possible terrorist attacks.

Bernadette Kingham-Bez, senior vice president of Manhattan's St. Vincent Catholic Medical Center worries that the cuts could make hospitals reduce services at community medical centers, forcing more patients to come to emergency rooms with non-emergency conditions. "The enormity of these cuts will have a huge effect on every form of health care," said Kingham-Bez. "We will all feel it."

The proposed state cuts to Medicaid, teaching programs and homecare hit New York City harder than any other place in the state, according to Jennifer Cunningham, executive director for the New York State Council for Local 1199. Of the $650 million being taken from teaching and Medicaid hospitals, she said, almost $500 million will be cut from New York City hospitals because that is where most of the teaching hospitals are.

Aides to Pataki admit the cuts are unpopular. "It's not as if we went into this thinking we aren't going to take some heat," one anonymous official told the Times. " The governor is prepared to do it because he thinks it's the right thing to do for the state."


Pataki and his aides say rising taxes will hurt the state economy far more than declining services. "If New York's record prior to 1995 proves anything, it's that high taxes are the surest way to weaken the economy and drive jobs across New York's borders," he said in his budget address

But others say cuts in services could drive away jobs - and decimate essential programs. They argue that the state should also institute careful tax hikes.

Some unions propose a temporary .07 percent increase in the state personal income tax on incomes over $100,000 and 1.4 percent for those making $200,000 or more.

Mayor Bloomberg, of course, wants a commuter tax. His proposal for "personal income tax reform" would raise nearly $1 billion by taxing commuters at the same rate as city residents. This would bring in more money than the tax on commuter salaries that existed between 1996 and 1999.

So far, the governor has adamantly resisted any kind of commuter tax. "The most the mayor can hope for is a renewal of the old commuter tax, which would raise about $400 million," said E.J. McMahon of the Manhattan institute.

This spring, a number of other tax ideas have surfaced. These include closing corporate tax loopholes and taxing stock trades and companies that do not provide health insurance for their employees. The Black, Puerto Rican and Hispanic Caucus in the state legislature and the New York City Council Black, Latino and Asian Caucus have proposed a package that they say would provide an additional $8 billion in revenues. It includes a commuter tax and a graduated income tax surcharge on people with incomes of at least $100,000.

So far none of these ideas has the governor's endorsement. The caucuses do, thouh, oppose the one major tax Pataki has proposed: restoring the sales tax on clothing and footwear under $110. Pataki's plan offers four one-week "sales tax holidays," during which at least the state tax would be lifted.

Some politicians say this tax will place an unfair burden on lower income New Yorkers. Merchants fear that bringing back the tax, which was eliminated in 2000, will drive shoppers to New Jersey, which does not have a sales tax But other businesspeople are more sanguine. "While nobody likes to pay taxes, I think the merchants . . .of New York City understand the state is having fiscal difficulties," explains Lisa Rosenthal, associate director of Retail Services for the 34th Street Partners Business Improvement District. "We're optimistic that retailers will do OK."

Until 2000, New York City charged a 4.25 percent local sales tax on clothing and a .25 percent tax to raise money for transit in addition to the state tax. Bloomberg has not mentioned the city sales tax, but Ted Potrikus, senior vice president and director of government relations of the Retail Council of New York State, said he believed many local governments would reinstate their sales taxes if the state tax went back into effect.


With every big cut or significant tax attracting controversy, Pataki and Bloomberg have embarked on a scavenger hunt for funds.

There is money to be found this way, said Blair Horner of the Public Research Interest Group. For example, the state is allowed to collect taxes on cigarette sales on Native American reservations, but doesn't, losing as much as $1 billion. Uncollected deposits on beer and soda bottles could yield another $100 million.

In his search, the governor lit upon the money from the state's landmark legal settlement with tobacco companies. Worth $681 million, the settlement was set aside for healthcare. But Pataki wanted to use it as collateral for a loan. Now, though, much of that money may not be there to borrow against because of financial difficulties at tobacco giant Philip Morris.

Last week, with Congress on the brink of giving the city and state at least of millions of dollars to fight terrorism, Pataki saw another opportunity. With 80 percent of the money earmarked for the city, Pataki aides furiously lobbied Congress to try to get an increased share for Albany.


As the budget debate goes on, New Yorkers, including many who voted for Pataki last year, are showing signs of discontent. The leadership of Local 1199, which endorsed Pataki's reelection, still refrains from criticizing the governor directly. But some members who attended the massive demonstration in Albany last week were less circumspect. "When they go for election, they promise you that they are going to give you everything," Yolanda Carela, a home attendant who voted for Pataki told the Times. "But when they get elected, forget about it."

A Quinnipiac University poll released in February found Pataki's approval rating at a seven-year low of 49 percent. Only 26 percent approved of the way he was handling the budget, with 85 percent of respondents objecting to school aid cuts and 84 percent to the cuts in health care.

With little room to maneuver, Bloomberg remains reluctant to criticize the governor. He has said that there is "no governor with whom I would rather work." It remains to be seen whether Bloomberg will still feel this way later this year when the state passes a budget that reveals what services in the city will be have to be cut and what taxes New Yorkers will have to pay.

This article by Anne Sachs, John Gallagher, Jennifer Benepe and Zubin Soleimany

Print Friendly and PDF

Editor's Choice

Gotham Gazette: New York Voters Approve $4.2 Billion Environmental Bond Act
New York Voters Approve $4.2 Billion Environmental Bond Act
Gotham Gazette: 
New York City Voters Approve Racial Justice Ballot Measures
New York City Voters Approve Racial Justice Ballot Measures
Gotham Gazette: Max Politics Podcast: A Winning Formula for Democrats in Tough New York Races
Max Politics Podcast: A Winning Formula for Democrats in Tough New York Races
Gotham Gazette: Max Politics Podcast Max Politics Podcast