Cleaning Up New York State’s Budget Mess

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In recent years New York has faced large budgetgaps as the state government has increasedspending and the state economy has stagnated.The economic slowdown has created fiscal challengesfor state policymakers, but Albany has tooeasily resorted to tax increases instead of pursuingneeded spending reforms. Earlier this year, the legislatureincreased income and sales taxes andadded to the state's already high debt load. Statetax revenues will rise by an estimated $3.8 billionin fiscal year 2004, and spending will rise at least$4.0 billion. Last year legislators increased spendingby $6.5 billion, or 7.7 percent, even though thebudget faced a large deficit.

The state fiscal crunch will not be solved withtax increases, particularly if spending keepsgrowing by leaps and bounds. Higher taxes damagethe economy and shrink the tax base asskilled workers and companies relocate to stateswith more hospitable tax climates. With some ofthe highest taxes in the nation, New York hasbeen a net loser in domestic migration in recentyears. New York should be cutting taxes toattract businesses and skilled workers, notincreasing taxes.

Taxes can be cut and the deficit eliminated byrestraining spending. For example, if spendinggrowth had simply been held to the inflation ratesince FY95, total state spending would be $77 billionin FY04 rather than the $95 billion currentlyprojected, and there would be room to balance thebudget and cut taxes. Looking forward, the stateshould launch a thorough review of the entirebudget and cut unneeded programs. New York'sper capita government spending on welfare, education,housing, and health care is far higher thanthat of other states and needs to be reined in.

This study looks at New York's recent budgettrends and provides specific proposals to cutspending. Savings can be achieved by ending specialinterest programs such as business subsidies,contracting out state activities to the private sector,and privatizing services that could be betterperformed by businesses or charities. The NewYork government has tried to do too much fortoo long at the taxpayers' expense. If New York isto again become the beacon for economic opportunityand growth that it once was, the size andscope of the state government must be substantiallyrolled back.

Raymond J. Keating

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