Advertisement

New York Officials Battle Old Foe--the Budget : Politics: State leaders are struggling with an economic downturn and a drop in bond ratings. Election-year strategies add fuel to the fire.

Share
TIMES STAFF WRITER

Once again, New York is facing troubled financial times. The lights are burning past midnight in the state capital of Albany as legislators struggle to forge a new budget. The bond rating services are critical, and residents are unhappy at the thought of even more taxes. Political reputations in an election year are on the griddle.

After almost a decade of growth, New York state and its largest city have joined the rest of the Northeast in an economic downturn. The gap in the state’s budget is estimated to be $1.5 billion, and the potential shortfall in New York City’s budget is $1.7 billion. Both budgets are intertwined not only monetarily, but politically.

“The state is beginning to exhibit the same kinds of problems the city had in the ‘70s--political gridlock, a continuing inability to bring deficits into line and an accumulated past deficit of short-term borrowing that has to be rolled over each year,” said financier Felix G. Rohatyn, a principal architect of reform when New York City teetered on the brink of bankruptcy more than a decade ago.

Advertisement

Making it worse is “a consistently weak economic climate,” Rohatyn said, whereas a decade ago the city and state where not in the fiscal soup at the same time.

Nevertheless, problems pale in comparison to New York City’s dark days of the mid-1970s. Then it was uncertain whether workers would be paid. Municipal accounting was so bad it took months to merely grasp the dimensions of the problem.

The federal government hesitated on whether to guarantee loans to the city, promoting the classic tabloid headline: “Ford to City: Drop Dead.” President Gerald R. Ford eventually relented and guaranteed the loans.

The current situation “is a very serious problem,” said Raymond D. Horton, a professor at Columbia University’s Graduate School of Business, but “it does not meet the criteria of crisis” as defined in the 1970s.

“The question then was whether the city was going to go belly up. . . . It was so bad the budget couldn’t be balanced for six years,” he said.

Nevertheless, Horton and others worry about a significant difference between then and now.

“We have a much larger number of New Yorkers who are in the middle of one or another kind of social welfare crisis,” Horton said. “That is where you can use the word crisis. The numbers of impoverished New Yorkers are much higher than in the mid-’70s. There are many more New Yorkers living without housing, there are many more New Yorkers dying of AIDS, addicted to crack. That is where the crisis is.”

Advertisement

Underscoring the present situation, Standard & Poor’s Corp. dropped New York state’s credit rating by two notches on Monday to the lowest point in its history. Only Massachusetts and Louisiana now have lower credit ratings than New York.

Standard & Poor’s action caught Gov. Mario M. Cuomo and legislative leaders by surprise. Aides to the governor, who is expected to announce that he will seek a third term in office, said the rating service had promised to suspend its judgment until the state’s new budget was completed, hopefully within the next several days.

In reducing the state’s long-term credit rating to A (the fifth highest available), Standard & Poor’s criticized the state for running operating deficits for three years in a row and chastised those involved in the budget-making process for being unable to forge a credible plan to close the $1.5-billion budget gap this year.

The rating service’s action has both spurred political blame and accelerated budget negotiations in Albany.

So far, Cuomo and Republican leaders (who insist the gap be bridged by spending cuts alone) have agreed on reductions totaling $500 million out of the $51.4-billion budget. The cuts are across the board, with the sharpest slashes in welfare programs, health programs and mental health services. More than 600 state employees would be dismissed, and 2,500 workers would be offered early retirement (out of a work force of 200,000).

The budget cuts agreed upon so far will mean a decrease of at least $104 million in state aid to New York City.

Advertisement

The deadline for the state’s budget to be adopted is Sunday, although negotiations often have stretched a few days past the April 1 goal. New York City must adopt its 1990-91 budget by July 1.

In an election year, the issue of taxes is the most politically sensitive. New York state is in the fourth year of a five-year tax cut program, and politicians of both parties are loathe to cancel the savings.

Partisan agendas abound in the budget struggle.

Republicans, perhaps with White House encouragement, hope to diminish Cuomo’s popularity by pinning the reduction in the state’s credit rating on the Democratic governor. In turn, Cuomo has sought to picture the GOP-controlled New York state Senate as stubbornly refusing to heed his predictions of shortfalls and ignoring his proposals for new taxes.

Many of the governor’s advisers believe Republicans in Albany relish New York state’s problems as a means of embarrassing Cuomo, who could be a presidential candidate in 1992.

“The basic problem is pure and simple--politics,” charged a key Cuomo strategist. “The GOP is trying to do, ‘Read my lips,’ ” referring to President Bush’s pledge of no federal tax increases.

In addition, a significant new voice has been added to the budgetary battle. New York state Comptroller Edward V. Regan has threatened to deny certification of the state’s budget for the new fiscal year unless it is conservatively balanced with realistic estimates of revenues and expenditures.

Advertisement

Regan, who issued early warnings about the state’s fiscal plight, is demanding that tax increases be tied to major spending reductions. In the past, the comptroller’s warnings often were ignored. But they are being taken more seriously this year.

Regan has his own political agenda. Former New York City Council President Carol Bellamy is expected to mount a serious challenge to him as the Democratic Party’s candidate for comptroller.

Meanwhile, Cuomo appears to be a heavy favorite to be reelected as no credible Republican gubernatorial candidate so far has emerged.

The state is required to have its budget balanced in cash terms. But using generally accepted accounting principles, New York state has operated with an accumulated deficit that it rolls over from year to year. That deficit is expected to grow to $5 billion.

Cuomo has proposed selling 25-year state bonds to consolidate the entire accumulated deficit. That would provide savings through lower interest rates, but would require dedicated streams of revenue to reduce the debt.

Advertisement