"Something's Gotta Give..."

1. Something’s
Gotta Give
Kent Gardner
President & Chief Economist
Center for Governmental Research

2. 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

3. “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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. When do we know that the
frog is dead?
Something’s Gotta Give

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. Jump, frog, while you
still have a chance!