Magical budget thinking returns

DON’T YOU HATE the huge bonuses those greedy Wall Street bankers paid themselves after the government bailed them out with our money? Government could force them to give it back. But that might be a case of Be careful What You Wish For.

Consider the paradox facing this state. New York desperately needs the wealth that new regulations would prevent people from accumulating.

The return of corporate profits and obscene executive paychecks in the banking industry proves that government must limit the wild bets Wall Street executives make with other people’s money. Congress is considering some ways to do that right now, and while the measures under discussion in Washington aren’t nearly as tough as the ones President Obama proposed, they might help protect us from the same type of excesses in the future.

But here’s the potential pitfall. Wall Street profits yield huge amounts of tax revenue for the state. So if banks and bankers earn less, then the state has less money for schools and municipalities like Columbia County, and more of the burden for government services shifts to the local level. That means an increase in property taxes, cuts in services, or both.

Similar complexities bedevil attempts to come up with a balanced state budget by the constitutional deadline at the end of this month. The allegations of scandal dogging Governor David Paterson have hampered his ability to move the process forward; and as an unelected governor who has decided not to seek election, he has an even weaker hand. The state Senate remains so evenly divided that it can hardly function. And worst of all, the state faces a multi-billion-dollar deficit.

This is much bigger than the squabble of the week at the state Capitol. The governor’s proposed budget calls for a 5% cut in school aid. That sounds small enough, but the Hudson, Ichabod Crane and Taconic Hills school districts believe that among them they will have to cut over 140 jobs. That would be the largest layoff in the county since Kaz announced in the fall of 2008 that it was shipping over 300 jobs from Greenport to Mexico.

The budget squeeze couldn’t come at a worse time, either. In January, the most recent month for which figures are available, the county had an unemployment rate of 8.3%, the highest rate here since the state began to keep records two decades ago. In addition to the trauma for the individuals and their families facing layoffs, such a large cut will undoubtedly affect the quality of education the school systems will be able to offer as well as the county’s overall economy.

In the past, governors and the legislature have wiggled out of similar, though less severe, budget crises with fiscal gimmicks–pretending to sell assets like prisons and roads, raiding funds intended for specific purposes and playing all sorts of other games designed to pretend that they had balanced the budget. Instead, what they actually did was borrow money, making New York one of the most indebted states in the country.

That has led most reasonable people outside Albany to conclude that more borrowing would amount to madness and that borrowing should not be considered one of the options. But that’s exactly what Richard Ravitch, the appointed lieutenant governor, has suggested the state do.

Mr. Ravitch, who led the effort to stave off the looming bankruptcy of New York City in the 1970s, bluntly says that the state has no practical way of making budget cuts deep enough over the next few years to balance its budget. Period. So he recommends that the state borrow up to $6 billion to sidestep the worst cuts, but only with the approval of a panel of overseers, empowered to say whether the budget actually is balanced and, we assume, whether the debt is being reduced. If the panel doesn’t like what it sees, the legislature and the governor would have 30 days to fix the problem. If they can’t reach agreement, the governor would have to make the unpopular cuts.

This ranks as one of the nuttiest, most implausible plans ever proposed, except for all the other budgets of the last few decades. It will put us all deeper in debt, but what’s new about that? It creates a kind of super-government, but the one we’ve got now doesn’t work so well. Hmmmm.

It’s not what we would wish for, but judging from the way that democratic governments stumble on solutions, the Ravitch plan just might be paradoxical enough to get the state through this latest disaster. It’s worth considering.

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