Budget Plan B: ‘We’re Headed for the Cliff’

ALBANY—So, since the budget negotiations have failed to accomplish anything, and Washington isn't going to hand David Paterson a check … what now?

The state is still spending money faster than it comes in, which means that if nothing changes, its general fund will run dry before April 1, when the fiscal year turns over.

While they were unable to agree on an immediate course of action, David Paterson and legislators left open the possibility of enacting some budget savings early. Paterson had hoped for measures that would have bettered the books by $5.2 billion – but what scenarios is New York looking at if we don't?

I caught Elizabeth Lynam, an analyst with the independent Citizens Budget Commission, on her cell phone and asked what might be coming.

Here's what she told me.

– If cuts are enacted before April, when the next budget is due, they'll have to be steeper than if they had been enacted this week, because there's not enough time to accrue savings. "What we're facing is a situation where we're driving off a cliff. They will have to make the cuts eventually, so whether the school districts get hit twice next year or whether they get a little this year and a little next year, is like a bypass or the ramp—it's more gradual. Now we're headed for the cliff."

– The state might just not pay its bills. Lynam said Paterson has the power of impoundment, meaning he can take the funds and say they're needed in state coffers, even if they were promised elsewhere.

– Under the same principle, the governor could just shut down the state government. Kind of like Bill Clinton did.

– Continue to hope for money from the feds. The state budget has to be balanced, but the federal government can issue debt ad nauseum. Paterson is lobbying for money from Washington, but no commitments yet, and, he said yesterday, he doesn't expect any until the new administration is in place. Also, history shows this is not a sure thing.

– Borrow money. This is tough, because of the abysmal credit market, plus the deals involved are complicated and time-consuming to structure. Also, taxpayers will have to pay interest.

– Eat into the Tax Stabilization Reserve Fund. It's a pot of about $1.1 billion that exists for exactly these situations. Lynam said it would only be used as a last resort, though, because dipping into it or another fund set up by Eliot Spitzer would leave no reserves at all, possibly affecting the state's bond rating. Finally, it's not enough money. "You're not going to get very far paying your bills with it," Lynam said. "And it's only just begun to rain—this is probably going to be a long storm."

Lynam's conclusion? "It really is a dilemma. There really isn't too much they can do to address spending in the short-term," she said. "Instead, we're going to be eating all we can at Thanksgiving dinner, and then next day kind of purge. It's a feast-to-famine situation."

Without legislators' help, there are two measures—postponing an aid payment to New York City and canceling a vacation exchange program for managers—Paterson can, and has, implemented unilaterally, said Jeffrey Gordon, a spokesman for the Division of the Budget. And next?

"The governor is looking at all administrative actions he could take going forward," Gordon said.

Budget Plan B: ‘We’re Headed for the Cliff’