Cato Policy Analysis No. 506 January 7, 2004

Policy Analysis

Cleaning Up New York State’s Budget Mess

by Raymond J. Keating

Raymond J. Keating is chief economist for the Small Business Survival Committee and a resident of Long Island, New York.


Executive Summary

In recent years New York has faced large budget gaps as the state government has increased spending and the state economy has stagnated. The economic slowdown has created fiscal challenges for state policymakers, but Albany has too easily resorted to tax increases instead of pursuing needed spending reforms. Earlier this year, the legislature increased income and sales taxes and added to the state's already high debt load. State tax revenues will rise by an estimated $3.8 billion in fiscal year 2004, and spending will rise at least $4.0 billion. Last year legislators increased spending by $6.5 billion, or 7.7 percent, even though the budget faced a large deficit.

The state fiscal crunch will not be solved with tax increases, particularly if spending keeps growing by leaps and bounds. Higher taxes damage the economy and shrink the tax base as skilled workers and companies relocate to states with more hospitable tax climates. With some of the highest taxes in the nation, New York has been a net loser in domestic migration in recent years. New York should be cutting taxes to attract businesses and skilled workers, not increasing taxes.

Taxes can be cut and the deficit eliminated by restraining spending. For example, if spending growth had simply been held to the inflation rate since FY95, total state spending would be $77 billion in FY04 rather than the $95 billion currently projected, and there would be room to balance the budget and cut taxes. Looking forward, the state should launch a thorough review of the entire budget and cut unneeded programs. New York's per capita government spending on welfare, education, housing, and health care is far higher than that of other states and needs to be reined in.

This study looks at New York's recent budget trends and provides specific proposals to cut spending. Savings can be achieved by ending special interest programs such as business subsidies, contracting out state activities to the private sector, and privatizing services that could be better performed by businesses or charities. The New York government has tried to do too much for too long at the taxpayers' expense. If New York is to again become the beacon for economic opportunity and growth that it once was, the size and scope of the state government must be substantially rolled back.

Full Text of Policy Analysis No. 506 (PDF, 19 pgs, 137 Kb)

© 2004 The Cato Institute
Please send comments to webmaster