Future Finance: NY

Back in December, I noticed but did not blog when the NY Times said
Experts Warn of Budget Ills in New York State, Lasting Years

New York State faces long-term budget problems that are compounded by the teetering finances of its local governments, an aging infrastructure and the possibility of severe cuts in federal funding......New York’s problems had been “papered over with gimmicks” for decades...
... outsize spending on health care and education, its vulnerability to the ups and downs of Wall Street, and the struggles of its local governments to pay retirement obligations. ... “Albany has increased dependence on a small number of very wealthy taxpayers to keep the state going,” ... New York... is particularly vulnerable to possible cuts in federal aid resulting from efforts to reduce the federal budget deficit....The report said New York’s local governments were “facing a rapidly deteriorating fiscal future.” ...Syracuse... annual pension costs had increased 50 percent since ... 2010, to $30 million from $20 million. “If you say to the municipality, ‘You’re just going to have to figure out how to pay for it,’ what you are saying is that now bad people aren’t going to be arrested, fires aren’t going to be put out,” she said. “Snow will not be plowed from the roads. Trash will not be collected.

The 69-page PDF Report of the State Budget Crisis Task Force reports on many sources of instability and unsustainability, including

A new top rate of 8.82 percent applies to individuals with taxable income above $1 million and married couples above $2 million and does so in a more concentrated way than has occurred previously. Further, this “millionaires” bracket brings increased dependence on a relatively small number of taxpayers (estimated to be 31,000), roughly half of whom live outside the state.

In other words, the money available to the state may suddenly decrease, whether from renewed recession or from financial companies moving their operations to lower-tax regions; their incentives for doing so have risen.

State general aid to local governments is moderate ($873 million in 2010), and is procyclical, increasing when state revenues are strong and remaining flat or decreasing during downturns. Aid to K-12 education is by far the biggest portion of state aid ($23 billion) and is the largest item in the state budget.

And the result for K-12 education?

95 percent of school district leaders said they were drawing on reserves to pay for recurring operating expenses, with two-thirds indicating they were “very concerned” at the extent to which they were doing so. Compensation costs represent 70 percent of school district budgets, but contractual cost relief is difficult. Few districts are negotiating contracts with zero across-the-board increases. Built-in annual step increases remain in place; increases in pension and health care costs are in the double digit range. Further, the savings from the generational turnover of teachers seems to have peaked. All other things remaining constant, status quo contractual terms and ordinary retirements will drive larger average annual salary increases than in the recent past. Add to that any increase in costs other than compensation.

Unsustainable trends will not be sustained indefinitely. They will end.
Or maybe not? No. They will end.