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Be prepared for a painful state budget

New York has had to craft difficult budgets in the past, most recently during the worst of the Great Recession that began in 2008. That doesn’t compare to what Albany is facing today.

“We have no state revenues to speak of,” Gov. Andrew Cuomo said last week. “You can’t spend that which you don’t have.”

Like the Covid-19 pandemic, itself, this is a genuine crisis. The only immediate real wiggle room is the possibility of some short-term borrowing to offset the three-month delay we all got on paying our taxes – an appropriate option under the circumstances.

Clients of the state are howling, and not without reason. Everyone is going to feel pain, beginning with the state’s public schools. All rely on state funding; some, like Buffalo’s, depend upon it to fund the vast majority of their operations.

But state revenues have cratered. New York City’s geographically small financial district accounts for about 17% of state revenues. That’s a huge hit even before considering the economic collapse that shuttered or hobbled businesses around the state. Tax revenues have plunged in a way that they haven’t at least since the Great Depression.

Under those circumstances, the state has no responsible alternative but to acknowledge the economic disaster that the novel coronavirus has wreaked on New York. The question is how best to implement the painful cuts that are coming.

First, the state must acknowledge that it simply doesn’t know what is going to happen. Will the virus have run its course here in another six or eight of 10 weeks? If so, what will that mean for state revenues? We don’t know.

Will the federal government follow up on its emergency relief funding, providing more urgently needed money to New York and other states whose crucial obligations will otherwise go unmet? To hear Cuomo tell it, last week’s $2 trillion federal package left New York critically short of funding, especially for Medicaid.

There’s no telling on any of it. It’s been said many times already, and it’s absolutely true: This is uncharted territory. It is essential for budgeters to acknowledge that they are operating in the dark and to retain flexibility in case conditions further deteriorate – or improve.

This is also a moment to act upon the maxim espoused by Rahm Emanuel, among others: “You never let a serious crisis go to waste,” the former mayor of Chicago once said. “And what I mean by that [is] it’s an opportunity to do things you think you could not do before.”

In New York, that could mean acting to bring the state’s Medicaid costs more in line with the rest of the country. Even before the new coronavirus laid waste to state revenues, Albany was facing a $6.1 billion budget deficit, with Medicaid driving two-thirds of it. New York is also one of the nation’s top Medicaid spenders. A 2014 report by the Kaiser Family Foundation found that New York’s per-enrollee cost of $7,806 was 36% higher than the national average of $5,736.

It’s possible that poverty in New York drives up the state’s Medicaid expenses. But it’s certain – a point of pride, even, among some officials – that New York’s program is purposely generous because Washington picks up half the cost. But when Erie County’s Medicaid costs accounted for its entire property tax levy, as it did not so many years ago, the program needs to be reconsidered. There’s a chance to do that now.

School spending should also be on the agenda. New York has some of the nation’s highest per-pupil costs and gets middling results. Other states spend less and do better.

In the meantime, all New Yorkers should prepare for the economic pain this budget will produce. The deadline is upon us, but more than most budgets, this one will need continual review until long after the crisis is past.

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