Gardner, Kent
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Gardner, Kent

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"Something's Gotta Give..."

"Something's Gotta Give..."

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Gardner, Kent Gardner, Kent Presentation Transcript

  • Something’s Gotta Give Kent Gardner President & Chief Economist Center for Governmental Research
  • Center for Governmental Research Founded in 1915 by Kodak’s George Eastman Project-oriented nonprofit serving state & local government primarily in NYS 20 staff members in Rochester & Albany Public sector management consulting, economics & public finance, human services restructuring, education reform, health care Something’s Gotta Give
  • “If something can’t go on forever, it will stop” Confronting potentially infinite need, spending continues to rise Taxes increase apace as more spending requires new revenue New budget gimmicks are introduced each year, stealing from the future to balance the budget today Operating deficits are hidden and the gap is plugged by debt THE RECKONING: Recession lays the economy low and revenue plummets Something’s Gotta Give View slide
  • The year is 1975 and the budget is New York City’s The music stopped when the bonds went unsold In the early 1970s, New York City paid its bills with debt $8 billion annually in short term debt by 1974 5% of operating budget ($600m) financed through long term debt When the economy went into recession, New York’s ability to repay the debt was in doubt and the banks said “no more” Something’s Gotta Give View slide
  • Parental Supervision: Enter the State of NY Spring 1975: Created the Municipal Assistance Corporation (MAC) to borrow on behalf of the City Backed by sales tax revenue Last bonds retired in 2008 Established the Office of the Special Deputy State Comptroller for NYC (OSDC) Fall 1975: Financial Accountability Act (FEA): Created the Financial Control Board (FCB) to approve all budgets, contracts & borrowing from 1975 through 1986 Something’s Gotta Give
  • FEA Establishes Responsible Budget Culture Enshrined in 2005 City Charter Revision Must END the year with GAAP balanced budget; no provision for operating deficit Four year financial plan, updated quarterly RANs & TANs restricted to 90% of estimated revenue Short term debt must be retired in same year it is issued NYC’s financial problems TODAY are much less than those of NYS Although sound financial practice can only delay the coming crisis Something’s Gotta Give
  • Political gridlock: California style California votes today on a series of propositions that will raise $6 billion Gubernator announced last week that deficit has grown since February budget deal—Even if the propositions pass (unlikely), cuts of $15.4 billion will be required Wanna buy a prison? 2/3 majority required for budget passage confers power on individual state senators Something’s Gotta Give
  • New York State confronts worst of both Budget balance is built on illusion Spending in previous decades has exceeded inflation nearly every year State’s capacity to spend based on astonishing (and, as it turns out, illusory) prosperity of Wall Street’s financial services sector As economy shrinks, state’s capacity to spend shrinks with it Toxic politics: Narrow Democratic majority confers veto power on individual state senators Something’s Gotta Give
  • NYS Legislature 09-10 spending by 8.5% Total spending up by $10.4 billion to 131.9 billion (IF you believe Comptroller estimates) $3.5B Medicaid $1.5B K-12 school aid $1.2B other education $0.9B economic development $0.6B debt service Yet the NYS economy confronts a structural change that is likely permanent: 62% of budget actions non-recurring OSC estimates General Fund spending up 31% by 2012-13 (THREE years) Something’s Gotta Give
  • State Spending Outpaces Inflation NYS Spending Growth minus 8.0% Inflation 6.0% 4.0% 2.0% 0.0% -2.0% Source: Office of NYS Comptroller -4.0% 97 98 99 00 01 02 03 04 05 06 07 08 SFY Ending Something’s Gotta Give
  • State Spending Outpaces Inflation NYS Spending Growth v. Inflation $120 $110 All Funds Spending $100 96 Trended by CPI Billions $90 $80 $70 $60 Source: Office of NYS Comptroller $50 96 97 98 99 00 01 02 03 04 05 06 07 08 SFY Ending Something’s Gotta Give
  • What’s New York’s future? Questions we are tempted to ask: When do taxes become unaffordable? What’s the “tipping point”? Perhaps the crisis never comes . . . or no one is left to notice Something’s Gotta Give
  • When do we know that the frog is dead? Something’s Gotta Give
  • Delaying Hard Choices What can we afford? $160 $140 Spending $120 Fiscal Capacity $100 Billions $80 $60 $40 $20 $- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Year Something’s Gotta Give
  • Delaying Hard Choices What can we afford? $160 $140 Spending $120 Fiscal Capacity $100 Billions $80 $60 $40 $20 $- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Year Something’s Gotta Give
  • Delaying Hard Choices What can we afford? $160 $140 Spending $120 Fiscal Capacity $100 Billions $80 $60 $40 $20 $- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Year Something’s Gotta Give
  • Delaying Hard Choices What can we afford? $160 $140 Spending $120 Fiscal Capacity $100 Billions $80 $60 $40 Is there a tipping point? $20 Or only slow decline? $- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Year Something’s Gotta Give
  • Top tax burden on residents State State & Local Taxes Paid to Home 2008 (per capita) New York New Jersey California Rate of growth since 2000: Massachusetts #3 in the nation Virginia Pennsylvania Washington Illinois 15 Largest States Ohio North Carolina Georgia Michigan Florida Source: Tax Foundation Arizona Texas $0 $1,000 $2,000 $3,000 $4,000 $5,000 Something’s Gotta Give
  • How much more debt can we support? Debt per Capita FY2007 Massachusetts New Jersey New York Illinois Michigan Washington California Pennsylvania 15 Largest States Virginia Ohio Comptroller estimates 50% North Carolina Florida increase in rate of debt Arizona issuance through Foundation Source: Tax 2013-14; Georgia Texas Will reach 5% of total budget $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 Something’s Gotta Give
  • State policy drives local government cost Property Taxes as % of Home Value 05-07 avg Orleans Niagara Allegany Montgomery 20 highest taxed counties Monroe Wayne as % of home value Cortland Genesee Chautauqua Livingston Fort Bend TX Erie Average tax per dwelling: Onondaga Seneca Top 2 in nation in NYS Oswego Wyoming Fulton Source: Census Bureau & Cayuga Chemung Tax Foundation Schenectady 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% Something’s Gotta Give
  • Voting with their feet Net Migration to Other States 2000-08 as share of 2000 population Arizona Florida North Carolina Georgia 15 Largest States Washington Texas Virginia Pennsylvania Ohio California NYS: Ranked LAST Illinois Massachusetts among the states Michigan New Jersey New York Source: US Census -10% -5% 0% 5% 10% 15% Something’s Gotta Give
  • Isn’t this conference about LOCAL government? The cost problem for localities can be addressed locally But only solved in Albany Public benefit/pension reform Revise Taylor Law & repeal Triborough Amendment Force service consolidations: Assessment, fire, police, special districts Empower cost control in public education Substantive reform cannot happen without political reform—it is time to declare that “we’re mad as hell and we’re not going to take it anymore!” Something’s Gotta Give
  • Jump, frog, while you still have a chance!