Thread: "New York must declare a financial emergency"

Manhattan Institute Says "New York must declare a financial emergency"

E.J. McMahon, director at the Manhattan Institute says New York deficits amount to financial emergency.

New York state's huge and growing budget gap requires government to take drastic actions to correct it, said E.J. McMahon, director of the Empire Center for New York State Policy at the Manhattan Institute.

McMahon spoke to the Council of Industry, a regional trade group, Friday at the Powelton Club.

He charted flat revenues against expected spending if nothing is changed and showed a $20 billion gap looming by 2012-13.

McMahon said the state must declare a financial emergency and enact a statutory freeze on public-sector wages for at least three years. State law allows this and enables contracts to be voided, he said. It would save at the rate of $2 billion a year for state, local and school taxpayers.

McMahon also called for shutting down the state's pension systems to new entrants and giving them instead a plan similar to one of the alternatives for the State University system, in which a stable amount is contributed by the state and employees can add their own.

He said some parts of the state's Taylor Law, governing labor relations with public employees, should be repealed, including compulsory arbitration for police and fire unions. Other laws should also be targeted for repeal because they're costly, including the rule requiring that on most public work the "prevailing wage" be paid, usually the union scale.

State spending should be capped by changing the state constitution, he said, recommending the "tax expenditure limitation" approach exemplified by Colorado.

He laid blame on politicians.

"It's their failure to stop the growth in spending that is the underlying problem," he said. "New Yorkers are voting with their feet and heading for the exits."

Tax Expenditure Limitation Analysis

There is surprisingly little in the way of current analysis of TEL analysis. I did find this TEL Impact Study by the Cato Institute that seems to predate 2000.

The existence of a TEL may not be sufficient to influence the size of government. The way a TEL is written can have an important impact on its effectiveness. Hidden loopholes may make it easy for a state legislature to work around the law. For example, expenditures can be shifted to an off-budget agency.

Empirical studies through 1990 found mixed results as to the effectiveness of TELs. Papers by Abrams and Dougan (1986), Cox and Lowery (1990), and Bails (1990) found TELs to be ineffective. These studies, however, are empirically weak. Abrams and Dougan along with Cox and Lowery use cross-sectional data. Bails does not adequately control for other factors that might influence government behavior (e.g. the business cycle).

The early findings that TELs are ineffective may be due to the fact that high-spending states are more likely to pass TELs, or because TELs may reflect a shift in voter preferences for less spending. In the latter case, it is not the TEL, but the change in voter preferences that causes a reduction in spending. In this case, TELs do not play a causal role in reducing spending. This TEL endogeneity issue may have a significant impact on statistical inference, biasing the results. Work by Reuben (1995) attempts to address this issue.

Poterba (1994) suggests that TELs may impact how a state adjusts its budget to unexpected negative economic shocks. Using data for the period from 1988 to 1992, he finds that states with TELs experience lower tax increases in the face of negative economic developments. A $1.00 increase in the budget deficit results in a $0.47 tax increase in TEL states. In non-TEL states, the increase is much higher--$1.03. TELs appear to have no impact on the size of spending reductions.

Impact Of Tax Expenditure Limitations

Cleveland State University has a more recent (2006) review of Tax Expenditure Limitations and their Impact on State and Local Government.

The PDF is 78 pages. Here are a couple pages of snips.

What drives the creation of TELs?

Tax and expenditure limitations are generally the result of voter dissatisfaction with the cost of state government. The public finance environment has experienced two discernible waves of tax limitation efforts, the late 1970s and the early to mid 1990s. In both eras, dynamic individuals dedicated to reducing the size of state government led citizen tax revolt efforts.

How do TELs work?

In general, tax and expenditure limitations have three main components. The first component is a spending limit. TELs typically tie annual spending limits to a combination of the inflation rate and the population growth rate. While TELs are the most common form of state spending limitation, three other limiting methods are also employed: (1) limit growth to some percentage of current general fund receipts, (2) limit spending growth to the same rate as personal income growth, or (3) limit growth in projected revenues.

In some cases unspent money, up to a designated percentage, is placed in a budget stabilization or rainy day fund. In the event that the state exceeds the predetermined percentage dedicated to the budget stabilization fund, the taxpayers of the state would enjoy a refund. However, in the case of Colorado’s TABOR, all unspent money is automatically refunded to taxpayers in the next budget year. The third component is a mechanism to adjust tax rates. TELs oftentimes require voter approval for any new taxes, tax increases, or changes in the tax structure.

Types of TELs

There are three broad categories of TELs: tax/revenue limits, expenditure limits,
and revenue and expenditure limits.

The most common type of restriction is an expenditure limitation. As of this publication, there were 30 expenditure or revenue limitations in place, with many states employing more than one restriction. Expenditure limitations are oftentimes tied to the combined annual growth in population and inflation, growth in personal income, or the size of the previous year’s budget. While these limitations predominate, several states have “appropriations to revenueâ€

The current mayor of New York once publically said " we welcome undocumented workers". And the "santuary city" exploded resulting in more jobs and welfare and social services for illegals less opportunites, less benefits and higher taxes for Americans.

Many of the big money-making Americans have left New York because they no longer want to allow the gov't to pick at them like they are leftovers at a thanksgiving dinner. Americans can't make money and/or even break even in New York. The Americans that left are replaced by more and more illegals/anchors and/or lower income people. It's no wonder the city of New York is hurting.

The Mayor and the majority of liberal Democrats have no right to cry "foul" and/or blame others and/ or continue to raise taxes for something they created.

The solution: Enforce our immigration laws, use attrition and deporation strategy. invite hard-working Americans to come back to New York through legal and special incentives.

New York will soon follow California as an example of what happens when the people allow the government to run their lives.

New Yorkers have been fleeing to the southern states in record numbers for the last 3 years. Long Island known for having one of the strongest economies in the country is slowly dieing due to the increased cost of living here. My county has been holding the line thanks to County Supervisor Steve Levy keeping Tax increases at bay, but that won't last much longer.

Wait until they get they tab for the outrageous trial of the 9/11 suspects. The security costs will be unbearable.

Originally Posted by ShockedinCalifornia

Wait until they get they tab for the outrageous trial of the 9/11 suspects. The security costs will be unbearable.

I can't print on this forum how I feel about Obama having made this decision! Are Americans completely blind??? Oblivious? Don't care? Stupid??!!! We are edging ever closer to revolution and we will ALL be affected.