With the coronavirus lockdown continuing to erode tax revenues, Gov. Andrew Cuomo has turned up the volume on his demands for a federal bailout of the New York state budget. In a weekend briefing, the governor repeated his estimate that the Empire State will need help closing a deficit of $10 billion to $15 billion. “I don’t have any funding to do what I normally do,” he said.
It’s reasonable to ask for federal help right now. But Congress shouldn’t feel compelled to subsidize what any state or local government “normally” does. New York’s budgetary “normal” would include funding $360 million a year in scheduled increases for unionized state-government employees, plus school aid to help underwrite more than $400 million in raises for teachers and other school-district employees outside the Big Apple.
Then there is Gotham, where Mayor Bill de Blasio is asking for his own federal bailout. His “normal” budget would include $1.5 billion in retroactive payments still owed to teachers and other city employees under Hizzoner’s backloaded first-term sweetheart deal with municipal unions.
Cuomo had good reason to complain that some key provisions of the $2 trillion federal rescue bill passed in late March shortchanged New York. But in repeatedly complaining that the bill provided “zero, nada, niente, zilch” assistance to states, he has been stretching the truth on a multilingual basis.
In fact, the rescue bill also included enhanced federal aid for state K-12 education programs serving disadvantaged students. New York’s share came to $1.1 billion, which translated into a $1.1 billion savings of state funds in Cuomo’s new budget. Even by Albany standards, a billion dollars isn’t exactly “nada,” much less “zilch.”
Of course, that wasn’t nearly enough to solve his growing problem. While all states will grapple with shortfalls due to the economic shutdowns, New York’s 11-digit operating deficit can be blamed in part on the state’s own risky policy choices during the late economic expansion (remember that?).
Cuomo perpetuated New York’s already heavy reliance on the volatile incomes of the highest-earning 1 percent, whose investment gains have crashed with the financial markets. In 10 years of healthy revenue growth, padded by an extraordinary $12 billion in civil penalties paid by various banks, Cuomo did far too little to build up the state’s core budget reserves.
And even before the pandemic hit, he had to close a $6 billion gap caused mainly by his failure to control Medicaid spending.
No one ever said Cuomo lacked nerve — but for sheer chutzpah, he has been outdone by the Illinois state Senate leader, who has asked the feds for $41 billion, including $10 billion to replenish the nearly insolvent Illinois public-pension funds.
New York at least can boast that its main pension system is well-funded by national standards — if only because the state’s highest court rejected an attempt by the current governor’s father, Mario Cuomo, to reduce pension contributions in the early 1990s.
Any federal aid secured by Cuomo and his fellow governors will only amount to a stopgap measure, not a long-term solution. There is a growing consensus that the economy may not be fully back to normal until next year, and tax revenues could easily take years longer to recover to pre-pandemic levels.
Doling out federal aid to states and localities with no strings attached — as Senate Democrats just proposed — would only perpetuate unsustainable spending habits.
In any coming aid package, Congress should shape its own version of a new normal — by attaching at least two conditions designed to foster prudent choices and accountability to taxpayers:
First, stipulate that federal aid otherwise due to any state will be reduced by an amount equal to money spent on higher wages or benefits for current government employees.
Second, require states and large cities to produce budgets that are balanced on the basis of Generally Accepted Accounting Principles, the same condition New York state imposed on Gotham after the fiscal crisis of the 1970s.
GAAP budgeting isn’t in itself a guarantee of good results. But tighter accounting will make it much harder for New York and other states to engage in the kind of fiscal gimmickry digging them into bigger holes in the future.
E.J. McMahon is research director at the Empire Center for Public Policy and a Manhattan Institute adjunct fellow. Twitter: @EJMEJ