Bulletin #6: May 17, 1999
Back to the future? Not
This seems familiar--haven't we been here before? Sure enough. Only 11 years ago, New York lawmakers were debating what to do with a sizeable surplus. Predictably, pro-spending advocates swarmed in Albany, eventually persuading legislators to enact huge increases in spending.
Why not? After more than 10 years of economic and fiscal crises beginning in the mid-1970s, it seemed good times were back. The fiscal plan for 1988-89 projected continued good times, increasing revenues, and little need for new spending on social services. A balanced budget seemed within reach.
But unexpectedly fast growth in Medicaid and other factors produced a budget shortfall projected at $900 million. Despite efforts to close the gap, by November, the projected shortfall for the following year was $1.9 billion. And by January 1989, the next year's budget gap was estimated at $2.6 billion.
The grim outcome: less revenue, higher taxes, fewer jobs
Scrambling to close the gap, lawmakers cut education aid--in the middle of the school year. SUNY and CUNY tuition went up. The state workforce shrank. The state's credit rating plummeted. And, to undo the damage, New York turned to tax increases--which drove thousands of jobs out of state forever.
The real damage was not the spending jag itself but the tax increases imposed to pay for it. The budget passed in 1989 brought a billion-dollar tax increase. And that became an annual affair. New York repeatedly postponed, and threatened to cancel, tax cuts promised to New Yorkers. Business taxes were hiked across the board, and promised scale-backs were postponed. New taxes on key emerging industries such as energy, telecommunications, and manufacturing were imposed. The result: Both employment and industrial investment crashed statewide. In 1990 alone, New York lost 300,000 jobs.
To avoid a reprise: more tax cuts, spending restraint
Today we know better. Democrats and Republicans in the Senate and Assembly agree that we need more tax cuts. So does Governor Pataki.
Lobbyists for hospitals and the education establishment say hold-the-line spending means catastrophe. But New Yorkers already pour money into these systems. New York's K-12 spending is 50 percent above the national average. Medicaid spending is the highest in the nation by far; on a per-capita basis, it's 58 percent above the second-highest state. Let's not repeat past errors.