Albany’s Spending Spree

Even before it was over, this year’s New York state budget process had devolved into a giant step backward for fiscal responsibility, accountability and transparency. Given Albany’s already rock-bottom standards in all three areas, this was quite an accomplishment.

Lawmakers began voting on large pieces of the budget last week – before the final outlines of a balanced financial plan had been settled, much less disclosed. By so doing, they violated a provision of the state budget-reform law of 2007 – which required each house to present a “comprehensive, cumulative report” detailing changes in the governor’s proposal before the final budget vote.

As of late Friday, it was still unclear how much cash the state will actually be spending in fiscal 2008-09, or where all the money will be coming from. Legislative leaders looked increasingly desperate to find ways to raise and spend more money than the state can actually afford – and Gov. Paterson, still in his first month on the job, didn’t seem to be stopping them.

For example, the Senate and Assembly reportedly agreed to raise $250 million by borrowing that amount to finance construction of a “racino” at Aqueduct racetrack – and requiring the facility’s operator to remit the same sum to the state as an up-front “fee” at the end of the fiscal year.

The maneuver is reminiscent of the worst gimmicks of the Cuomo era in the early ’90s, when the state balanced its budget by “selling” highways, prisons and the barge canal to its own public authorities. Even some of the seemingly “hard” revenue raisers reportedly included in the 2008-09 budget are soft and questionable. Take the so-called Amazon tax, extending the state and local sales tax to more online vendors based outside New York: Some experts believe this is highly unlikely to survive court challenge – which would blow a hole of nearly $50 million in the financial plan.

Then there’s the deal to hike the cigarette tax, which will rise to $2.75 from $1.50 statewide (and to $4.25 from $3 in New York City). Anti-smoking advocates are applauding. But whatever merits this may have as health policy, it is dreadfully shortsighted from a fiscal standpoint.

The state’s cigarette-tax revenues, two-thirds of which support health-care programs, already are slowly dropping – reflecting a decrease in the number of smokers, the popularity of tax-free Internet sites and widespread illegal sales. The 83 percent jump in the per-pack tax will raise net revenues by barely 25 percent – while accelerating the long-term decline in smoking-related tax receipts. It will also require diverting even more scarce resources for tax enforcement, as more of New York’s remaining smokers turn to untaxed sources.

Keep in mind, all this finagling wasn’t necessary to fill a gaping budget hole but to increase state spending faster than inflation and personal income growth at a time when the economy has probably begun shrinking.

The primary blame for the excess rests on ex-Gov. Eliot Spitzer, whose first budget raised state-funded capital and operating expenditures by $5.4 billion, or 7 percent, during the just-ended 2007-08 fiscal year. Spitzer’s second budget, presented in January, raised spending by another $5 billion, or 6 percent, despite clear signs of an economic downturn. He had removed a token $200 million from the plan before his March 17 resignation.

Paterson obviously took office in a very difficult situation – but he doesn’t deserve a complete pass. He was willing to slice Spitzer’s spending increase by only $800 million, less than 1 percent of the state-funds total, and pointedly excluded the massive school aid and Medicaid programs from any belt-tightening.

Like Spitzer in 2007 and Gov. George Pataki in his last three years, Paterson made the mistake of striving for “on-time” budget – thereby increasing the Legislature’s leverage over him (and missing the April 1 target anyway). And he hasn’t prevented the Senate and Assembly from stuffing plenty of pork into the final package.

New York may yet muddle through the new fiscal year without having to reduce the spending the Legislature is now in the process of approving. But it seems more likely that the following year’s shortfall, last projected by Spitzer at $3.6 billion, will reach $5 billion or more.

Indeed, more than a few Democrats in Albany cynically expect bad times to strengthen their case for the misnamed “millionaire’s tax.” In reality, that proposed income-tax hike on New York’s top-earning households would not only hurt the struggling economy but also raise far less revenue than lawmakers will need to sustain all the budget priorities they continue to treat as sacrosanct.

Barring a sharp and unexpected economic turnaround, the fiscal climate will be much worse next year. Fasten your seatbelts, New Yorkers – and clutch your wallets.