Budget Backfire: Cuts On the Needy Won't Help

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Grassroots groups, nonprofits, charities and government agencies throughout the city and state provide services to people in crisis every day – and we can tell you, things are getting worse. Foreclosures are rising. Food stamp and Medicaid rolls are increasing. Unemployment is way up. Food pantries and soup kitchens are serving more people than ever – when they are fortunate enough to have the food to do so. The number of new homeless families entering New York City shelters has hit record highs.

Yet the state wants to cut programs and services for New York’s neediest?

Governor Paterson is ringing the alarm bell that the state's economy is in trouble and the deficit is growing. We have a $1.5 billion shortfall this fiscal year, projected to grow to $12.5 billion next year. To deal with this dire situation – because, unlike the federal government, states have to balance their budgets in good times and bad – the governor last week proposed $2 billion in cuts to education, Medicaid, nonprofit programs and the state workforce. That's on top of the cuts made earlier this year, and he's called the legislature back to Albany for a special session this week to act on his reduction package. Paterson says we need significant cuts to state expenditures, but has almost completely ignored the revenue side of the budget equation. The governor calls for “shared sacrifice” but seems to be targeting primarily those with the least means – even though leading economists have said that cutting services to poor families during a recession is counterproductive to economic recovery. It will only lengthen the recession and cause more families to suffer.

The statewide Better Choice Budget Campaign and the One New York: Fighting for Fairness Coalition of more than 150 social services providers, advocacy groups and unions are urging the governor to explore other options, from using reserves to raising taxes. We need the governor to be our champion again – to be the person in Albany who stands up and says we must help, not hurt, our most vulnerable citizens. We are banding together across the state to combat the very cuts that the David Paterson of yore, the state senator of more than two decades, would have stood shoulder to shoulder with us to fight. Where did that Paterson go?

Lessons from recent years

It’s time for the governor to take a lesson from New York’s history books as he develops his plan to dig the state out of the current fiscal crisis. He only has to look six years back. In January 2003, New York state was facing a deficit of $11.5 billion, and Governor George Pataki proposed closing the gap primarily through service cuts. In response to Pataki's proposal, Senate Majority Leader Joseph Bruno – with the help of state Senator David Paterson – and Assembly Speaker Sheldon Silver led the legislature in adopting a much more practical approach to balancing the state budget over the governor’s vetoes. It included a temporary three-year income tax increase of less than 1 percent on wealthy taxpayers. This approach to budget balancing helped New York rebound faster than it did from the 1990s recession, when the state relied on a strategy of massive budget and service cuts.

The temporary three-year tax increase did not have the negative impact on the state’s economy, or on the number of high-income taxpayers in the state, that Pataki predicted in vetoing the legislature’s budget bills. In fact, the number of high-income returns grew steadily from about 245,000 in 2002 to an estimated 430,000 in 2007, and employment in the state increased each year the temporary surcharge was in place. The wealthiest New Yorkers – those earning more than $200,000 – also saw their incomes increase 108 percent between 2003 and 2008, while those with incomes below $200,000 only saw an increase of 15 percent over the same time period.

The lessons to be learned from New York’s fiscal policy choices during the last two recessions are clear. The balanced approach to the state’s budget that was adopted in 2003 worked much better than the deep service cuts of the early 1990s which prolonged and deepened the effects of that recession on the state.

What is driving the current deficit also needs to be understood. It is not out-of-control state spending, as Paterson would have us believe. What the governor and Division of Budget fail to acknowledge is that the state has made some important, and expensive, new commitments in the last several years without any new revenue streams to pay for them. These commitments include state takeover of Family Health Plus and the local Medicaid Cap (costing $2.5 billion in 2010), the STAR property tax relief plan ($6 billion in 2010) and the Campaign for Fiscal Equity school funding settlement (which requires $5.5 billion in new foundation aid by 2010).

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