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State's fiscal crisis nears climax: stay tuned for biggest losers
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Yesterday, Budget Director Robert Megan issued a frightening statement -- Beginning in December, there is a very good chance that New York will not be able to meet many of its financial obligations to local service districts. The State is facing a budget gap equaling more than 5% of its total FY2010 budget. In addition, there are several substantial payments scheduled to be made to local social service districts, including $1.6 billion in School Aid funding for school districts and $1 billion in funding for city and county governments, among others. Based on current revenue projections, the State may not have the resources to make these payments.
Governor Paterson has made it clear that if no corrective action is taken, something will have to give: The State will be forced to make difficult choices about which payments to delay.
Part of Governor Paterson’s suggested “corrective action” is for the State and its multiple agencies to make $1.8 billion in spending cuts between now and March 31, 2010. Here in New York City, this would mean that local social services agencies, such as those providing cash assistance and child care subsidies, as well as local school districts would face similar difficult choices about which services to cut and which to preserve.
Adding to the State’s difficulties, New York also faces the possibility of a credit rating downgrade for the first time in almost ten years. A credit rating is an independent assessment of the creditworthiness of a bond by a credit rating agency, a higher credit rating generally leading to a more favorable effect on the marketability of a bond. The highest long-term credit rating symbol is “AAA” and the lowest is "BBB," one notch above junk bnd status. New York’s rating is currently at AAA. A credit rating downgrade would make it more expensive for the State to borrow money, thereby making fewer tax dollars available for critical priorities like education or health care.
When California was forced to issue IOUs, the State saw its credit rating downgraded to BBB -- the lowest in the nation. Governor Patterson has made it clear that the State must do everything within its power to address the current fiscal crisis and to avoid such an occurrence in New York.
Frank Mauro, Director of the Fiscal Policy Institute, a non-partisan research and education organization focusing on tax, budget, and economic issues, has argued that the Governor’s corrective action plan is a shortsighted policy recommendation that will undermine the State’s attempts at economic recovery. Taking $1.8 billion of demand out of New York's economy will disrupt recovery efforts by impacting spending on wages, goods, and services.
The State seems to be stuck between the proverbial ROCK and HARD PLACE - a position many States have found themselves in as they attempt to navigate the fiscal crisese caused by the recession. In the coming months, important policy decisions will be made concerning which services will be provided, and whose needs will be prioritized. It will be critical for individuals to remain aware of conversations taking place at the local - and especially - State levels, and to reach out to City Council Representatives and State Congress people to voice opinions about critical services and pending budget cuts.
