When Gov. Eliot L. Spitzer proposed a massive increase in spending early this year and legislators, acting with unseemly bipartisanship, spiced in with even more tax dollars, critics saw the potential for failure. Potential, meet reality. Revenues are falling short, a deficit has opened and prospects for projects from property tax rebates to upstate revival are dimming. State leaders must now retrench and prepare a 2008-09 budget that faces the facts.
As always, the state's appetite for spending was largely driven by how much money negotiators thought they could lay their hands on, a figure that is disproportionately influenced by Wall Street. When stocks are flying high and traders are earning million-dollar bonuses, the tax dollars flood into Albany. That's not happening.
The stock market has become more volatile but has generally declined as the national housing sector suffers the fallout of the subprime mortgage debacle. The potential for broad economic damage was already in the news when Spitzer and the two legislative leaders agreed to a budget that increased spending by three times the rate of inflation -- but only after multiple rounds of secret negotiations, which, besides being flatly undemocratic, discourage caution.
Now a $4.3 billion deficit has opened in next year's budget, a figure that is $651 million higher than projections of just three months ago. That deficit is expected to grow even larger in the following two years, to $6.2 billion in 2009 and $7.9 billion in 2010. Budget-watchers think the state will have sufficient revenue to keep this year's budget in balance, but spending hopes for the next year may take a hit. That's troubling for Buffalo, where 83 percent of the school budget and major funding for redevelopment projects comes from the state.
The best way to fix this mess is to simultaneously apply financial and political discipline. Getting the former requires the latter. Albany needs, once and for all, to abandon its arrogant insistence on closed-door budgeting. Hiding from the public accomplishes nothing of public value. Its only use -- and, indeed, its intended one -- is to shield lawmakers from the bother of taxpayer oversight.
A little more bother might have resulted in a better budget this year. Now Spitzer is lowering estimates of personal tax revenues by $500 million -- partly due to declining earnings and bonuses on Wall Street, where financial activity affects about a fifth of state tax revenues -- and giving up for now on hopes of collecting $200 million in Indian sales and other tax revenues.
Openness was one of Spitzer's promises to New Yorkers during his campaign last year. That seems long ago now, but the goal is more important now than it was then. A lot of shine has come off the governor in recent months. He can start getting it back by attending to this promise.
In the meantime, do you hear that mournful tune coming from Albany? It's singing the subprime budget meltdown blues.