Taxes, salaries and benefits must be on the agenda

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Erika RosenbergDespite the scale of the state’s financial problems, Gov.-elect Andrew Cuomo and the wizards in the Department of Budget could probably find ways to paper over them for a few years and hope an eventual rebound in revenues will eliminate the need to inflict any real pain.

But to be considered truly successful, Cuomo should embrace the challenge of putting the state, local governments and schools on a path toward a long-term stable financial future.

Next year’s projected budget gap is $9 billion (on a base budget of about $134 billion), rising to $15.6 billion by 2013-14. Federal stimulus funding largely goes away next year, and most of the revenue from a temporary tax increase on high earners disappears the following year. Most local governments and schools face problems on a similar scale and will look to the state for help.

Solutions won’t be easy to come by. Consider:

  • Benefit costs to public employees are helping drive costs up and are difficult to reduce. Mandated school district contributions to employee pensions are expected to quadruple over the next five years, while state and local governments face costs that will triple, according to the Empire Center for New York State Policy.
  • The 2% cap on property taxes that Cuomo promoted during his campaign will be unworkable without other reforms. A strict 2% cap would leave cities unable to fund anything but employee benefits out of property tax revenue by 2015, according to the NYS Conference of Mayors.

Cuomo will he confront countless obstacles in this effort. Those on the right will reject tax increases. Those on the left will oppose spending cuts and reform of public employee compensation schemes. Cuomo must require each interest group to give on something and force them through a public airing of the issues to consider what is reasonable. For example:

Is it reasonable that the top 1% of households in New York pays a smaller share of income as state and local taxes, at 8.4%, than the rest of the income spectrum (which generally pays 10% to 12%)?  After all, this group is now receiving a much larger share of total income, growing from 17% in 1990 to almost 35% in 2007, according to the Fiscal Policy Institute.

Is it reasonable that many public employees pay little or nothing toward their health insurance and are guaranteed pensions and health coverage in retirement, while most in the private sector pay an increasing share of the health-care premium (not to mention some of the highest state and local taxes in the nation) and take their chances in the stock market for retirement?

Although he has vowed not to increase taxes, building a solid financial foundation will probably require that Cuomo consider tax increases (especially on wealthier individuals) as part of an overall package of spending cuts, public employee wage freezes and benefit reforms, and repeal of state laws favoring public employee unions (Taylor Law and Triborough amendment). Only the complete package will allow the state to right its ship and give local leaders the ability to do the same.

Erika Rosenberg, Senior Associate
Published in the Times Union January 3, 2011