New York’s Bleak Fiscal Outlook Highlights Need to Downsize State Government

Like California and many other states, New York is discovering that despite their recently-passed tax increases and the influx of stimulus dollars, they’re not out of the fiscal woods yet:

The state will face a perilous financial situation when federal stimulus money and temporary state tax increases on the wealthy expire two years from now, according to the financial plan released by the governor’s office on Tuesday.

Laura L. Anglin, the budget director, said Tuesday that the situation could get worse when quarterly tax payments and corporate taxes are due in June. For the fiscal year beginning in April 2011, the budget deficit is projected to balloon to $8.8 billion. The year after that, the deficit is expected to be $13.7 billion.

While far lower than what Gov. David A. Paterson’s budget office projected before this year’s budget deal, the gaps would still be enormous: On paper, they would be the second- and fourth-largest deficits in state history (the largest was this year).

“Federal stimulus funding provided the state a soft landing as it transitions to a new fiscal reality, but much more needs to be done to get our fiscal house in order,” Mr. Paterson said in a statement. “This year we took the first step toward implementing reforms that will make our state government more cost-effective and accountable, and we must continue the important work of reining in state spending in the future.”

Notwithstanding the Governor’s establishment of the New York State Commission on State Asset Maximization—a very positive step in terms of researching state asset divestiture and private infrastructure investment opportunities—New York will not be able to rely on taxes and fees to solve its structural budget deficit problem. They are going to have to get down into the weeds of state operations to find efficiencies and streamlining opportunities.

Gov. Paterson should look south and west for models on how to do the type of “scrub” that’s needed. Last week, Louisiana Gov. Bobby Jindal—in recognition of the same looming fiscal reality that’s facing New York—signed an executive order establishing a new Commission on Streamlining Government that will pull back the rug on state government and identify opportunities to privatize, streamline, consolidate, etc. Simultaneously, Illinois and Arizona have bills in motion that would establish a Florida-style Council on Efficient Government, a new government entity whose purpose would be to help state agencies discover and act upon opportunities for competitive service delivery.

The common theme with all of these approaches is their end goal: helping “right-size” state government and do more with less (i.e., deliver higher quality services for a lower cost). It’s really the same thing we all do around the kitchen table when it’s time to pay bills and rethink budgets. We prioritize, we rethink our assumptions, we make difficult trade-offs, and we embrace strategies we may have formerly resisted. This is what New York will need to do in a big way, and it will be no small undertaking given entrenched Albany politics. But as Gov. Paterson is signaling, it has to happen for the long-term fiscal health of the state, and pronto.