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How to eliminate the middle class in NY

Shortly after assuming the Governorship in March, David Patterson warned of an economic crisis facing New York and vowed to cut spending rather then raise taxes. The Governor who served more then twenty years in the New York State legislature as a state Senator, acknowledged the failure of a tax and spend fiscal policy; “The reason that I’m avoiding taxes is that taxes are addictive, In many respects, when we taxed in the past, we could have taken advantage of those revenues to pay down on the deficit or our long term debt and we didn’t do that." After inheriting former Governor Spitzer's 2008-2009 budget, he moved to close a projected $4.6 billion dollar budget deficit with $1.5 billion dollars in new taxes and 1.8 billion in increased school spending. Yet he also cut spending by $1.8 billion and delivered enhanced property tax relief in the form of rebate checks. While his initial approach was somewhat mixed, it seemed apparent that he was beginning to understand the linkage between unchecked spending and the economic crisis facing New York state.

This past January, recognizing the crushing burden of local property taxes, former Governor Spitzer formed a commission to determine the root causes of excessive property taxes and to provide some solutions. Nassau County Executive Tom Suozzi was appointed to chair the commission; The New York Commission on Property Tax Relief. In June, the commission released it's intern report which recommended legislation to enact a school tax cap. The teacher's union came out in opposition as did Assembly Speaker Sheldon Silver. The Governor to his credit began a campaign throughout the state to build support for the plan. On August 8th, the NYS Senate passed the tax cap and several companion bills providing mandate relief to reduce local costs, however the Assembly refused to follow suit. Without action by the Assembly, property tax reform was dead. A few days later, the Governor called for one billion in additional spending cuts which excluded cuts in education aid. Then September came. The housing meltdown caused mortgage backed securities to default in record numbers. As various financial institutions lacked liquidity to cover the losses, major bankruptcies resulted causing a ripple effect in the national and local economy. It was time for the Governor to act.  

One week after the November elections, the Governor released an emergency deficit reduction plan which called for limited spending cuts including mid-year cuts in school aid. As school districts allocate state aid in their budgets, any difference in lost revenue would have to be made up by increasing local property taxes. Instead of holding the Assembly leadership accountable for their failure to enact a tax cap, the Governor remained silent. Instead of seeking to reduce the state's bloated workforce (200,000), the Governor did nothing. Instead of cutting New York's record Medicaid budget or consolidating the state's 860 public authorities, the Governor punted, yet when it came to homosexual marriage, the Governor was willing to act unilaterally in order to force his radical view upon the People of New York. What about the taxpayer and common sense? 

The constitution of New York requires the state's budget to be balanced and for voters to approve any long term borrowing. In an effort to circumvent the constitution, the legislature created public authorities which have the ability to issue long term debt. Like many other government programs that don't work yet expand in size, the number of public authorities have exploded to more then eight hundred sixty. These authorities many of which are governed by boards comprised of political appointees serve both as a mechanism for debt, 124 billion and as a patronage program for the well connected. They also serve as a means to balance the state's budget. In one of the most egregious examples of fiscal recklessness, former Governor Mario Cuomo sold Attica prison as an asset to the Urban Development Corporation in 1991 for $200 million dollars. Ironically, this public authority was created to "facilitate the development of affordable housing for low-income persons."  In order to raise the money, the authority issued interest bearing bonds. When the debt is finally paid off in April 2020, the ultimate cost to taxpayers will be $565 million dollars. 

One authority in particular, the Metropolitan Transit Authority has nearly $27 billion in debt. The cause is not in dispute; excessive borrowing to fund previous capital projects. Not surprisingly, the cost of debt service is one of the driving factors in the MTA's current $1.2 billion dollar budget deficit. Add in the high cost of health insurance and labor costs, future deficits will just get worse. Back in February 2005, former Comptroller Alan Hevesi issued a report critical of the MTA's excessive borrowing and warned of future budget deficits. Instead of taking corrective action, the legislature and MTA simply did nothing.

In light of the fiscal issues facing the MTA in terms of funding capital projects, Governor Patterson created the  Commission on MetropolitanTransportation Authority Financing chaired by former MTA chief, Richard Ravitich. Their report which was released earlier this month called for, surprise, more taxes. The tax of choice is a 0.33 percent payroll tax. Unlike the former Commuter tax which applied to all non city residents employed in New York City and paid by the employee, the payroll tax would apply to all employers including state and local governments, nonprofits and the self employed in the twelve county MTA service area. Even though it is paid by the employer, the cost or tax will be passed onto employees. Not content to stop at the $1.5 billion dollar a year payroll tax, the commission also recommended placing tolls on the four east and Harlem river crossings which is projected to raise another 600 million dollars annually. The plan will require an MTA takeover of these infrastructures. Even if both recommendations are enacted, fares are still projected to increase by 8%. The plan which is subject to legislative approval has been endorsed by the Governor. 

The issue of debt has become a recurring theme in the current fiscal crisis affecting New York. The Long Island Power Authority (LIPA) which was created for the sole purpose of lowering the cost of power on Long Island, recently proposed a 4.8% increase in electrical rates this year to total 20% over the next five years. The current Chairman, Kevin Law cited several factors for the rate increase including lower energy consumption resulting in a reduction of revenue, higher fuel costs and the cost to service debt, more then $6.6 billion, a majority of which was incurred due to the closing of the Shoreham nuclear power plant. In light of the high burden of taxation effecting Long Islanders, the Governor asked LIPA to sharpen its pencil and look for ways to rein in the proposed increase. On December 11th, the LIPA board voted to increase electric rates by 3.2%

It is important to understand that while LIPA's debt burden makes it difficult to reduce electric rates, both the Governor and LIPA bear responsibility for the rate increase. In an effort to fight "climate change", the Governor has embraced a mandatory Cap and trade program in NYS which will require all state utilities that emit greenhouse gases to pay a surcharge. This cost will ultimately be passed on to rate payers. LIPA can take several steps to cut costs; eliminate $40 million this year from their $1 billion energy conservation program especially in light of reduced consumption, eliminate their $27 million dollar contribution to the state's voluntary renewal energy fund and reviewing the cost of services provided by National Grid in the maintenance of the transmission grid, i.e. labor costs. Kevin Law who was appointed by Patterson did nothing. The Governor actually did something, he vetoed a bill which would require the New York State Public Service Commission (PSC) to perform a comprehensive review of LIPA before considering any rate increase above 2.5%.