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For Release — Tuesday, November 15, 2005

BUSINESS COUNCIL: ALBANY SHOULDN'T RUSH FISCAL REFORM THIS TIME

ALBANY—The Business Council called upon the Legislature today to begin a thoughtful, broadly based effort to develop an effective package of fiscal reforms for the state–rather than rush ahead with another patched-together, poorly thought out proposal like the constitutional amendment that was overwhelming rejected by the people on Nov. 8.

Robert Ward, The Council's director of research, said that among the measures to be considered as part of a fiscal reform package might be debt reform, and constitutional limits on taxes, spending, and unbalanced budgets. His remarks came in testimony to the Senate Democratic Task Force on Legislative and Budgetary Reform, at a hearing in Syracuse.

Some have suggested that in the wake of the defeat of Proposal One, the Legislature could quickly enact as law some of the provisions of the plan that the voters rejected. But Ward said that not only would such hasty action show a lack of respect for the decision of the people–it could also kill the opportunity to develop a more comprehensive, well-thought-out package of fundamental fiscal reforms.

"The voters' overwhelming rejection of Proposal One ought to be seen as a wake-up call for Albany," Ward said. "The people want real reform – and they are not easily misled. The last thing Albany should do now is to pass some hasty, cobbled-together, poorly thought-out proposal with a few hand-me-down elements of that proposition. Not only would such hasty action show a lack of respect for the decision of the people – it could also kill the opportunity to develop a more comprehensive, well-thought-out package of fundamental fiscal reforms."

Discussion of fiscal reform should focus on the state's basic problem, Ward said: "Albany refuses to live within its means."

State and local taxes in New York are the highest in the country, by far. And, as Comptroller Hevesi has pointed out, state debt has been rising "at an alarming rate."

"On average, every woman, man and child in New York – every baby born today – is burdened with more than $10,000 in debt incurred by our state, localities and school districts," Ward told legislators. This year's state budget spends $4 billion on debt service, more than total state-funded spending on public-protection activities including the State Police, the prison system, parole, probation, criminal courts and crime-victims services.

Rising debt is linked to ever-increasing spending, Ward said: "It is the relentless use of debt that allows Albany to spend more money every year than its tax base produces. Spending more than you can afford in one year guarantees a budget gap in the years that follow – and compels still more borrowing. The cost of debt service, in turn, soaks up dollars that are sorely needed elsewhere. We simply must reform Albany’s irresponsible borrowing habits."

Real fiscal reform should start with tough Constitutional limits on debt, Ward said.

"The centerpiece of real debt reform should be a Constitutional amendment that limits state-funded debt to an affordable percentage of New Yorkers’ personal income," he said. Comptroller Hevesi has proposed a limit of 5 percent, a commonly accepted guideline among public-finance experts. Outstanding debt is currently around 6.5 percent of personal income. The comptroller also has proposed a statutory limit on new borrowing that would bring the state into compliance with the 5 percent limit within 10 years. The Business Council urges the Legislature to give first passage to such a Constitutional amendment in 2006.

"As Comptroller Hevesi says, real debt reform would force tough choices, serious planning and clear identification of priorities," Ward said. "In other words, it would require our government leaders to govern."

The Council also supports a Constitutional limit on spending increases. Ward noted that Governor Cuomo and the Legislature created a temporary spending cap, in state law, in 1990.

Measures to require balanced budgets, and an annual financial report to taxpayers, should also be on the agenda, he said.

"Respected New Yorkers, in and outside of state government, have made other proposals for fiscal reform," Ward said. "We urge the Legislature and other state leaders to conduct a detailed and thoughtful review of such proposals.

"If such review starts now, there will be ample time to prepare Constitutional proposals for action by the Legislature in the coming session, so that second passage can occur in 2007," he added. "With no legislative action in 2006, any reforms requiring Constitutional change will likely not take effect before 2010. Thorough debate is essential. So is action."

The full testimony is available at www.bcnys.org/whatsnew/2005/1115fiscaltest.htm.

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