The coming Albany apocalypse
Over the weekend, the CBS news magazine 60 Minutes wrestled with the wave of budget woes sweeping state capitals from Albany to Sacramento.
As part of the story, they interviewed financial analyst Meredith Whitney, one of the few financial experts to predict the meltdown in the finance sector.
Talking about the huge debts that states like New York have taken on — to pay for current operations and to cover unfunded pension and health care obligations — Whitney said this:
“It has tentacles as wide as anything I’ve seen. I think next to housing this is the single most important issue in the United States, and certainly the largest threat to the U.S. economy.”
Some context. California’s budget deficit next year is $19 billion. New York’s stands currently at around $10 billion.
When you watch this CBS segment, it’s hard not to think that one figure comes out looking very good in all this: outgoing Governor David Paterson.
Paterson’s often clumsy fight to shrink the deficit, and to pay New York’s bills on time, makes him something of a canary in a coal mine in national politics.
(In Illinois, by contrast, gas stations sometimes turn away state troopers because vendors don’t believe that politicians will cover their gas bills.)
But the other take-away here is that the North Country still hasn’t grasped the freight train that’s rumbling straight at us.
Our government-jobs-heavy economy sits smack in the crosshairs of this trend. Put another way, those tentacles that Whitney described reach into all of our lives.
Even if this region’s lawmakers win some big battles next year, it’s hard to imagine that we won’t see painful cuts in state prisons, tourism spending, pensions, healthcare, aid to counties, forest preserve property tax payments, and on and on.
It’s hard to imagine that any sacred cow will be safe in this economic climate. Lt. Governor Richard Ravitch told CBS the following:
I think the consequences of doing this [eliminating Albany’s deficits] means probably very substantial reductions in public expenditures or increases in taxation…
I think Ravitch is wrong. I think we’ll see both at the same time, higher taxes and fewer services.
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It may take a bankruptcy for NYS in order for Cuomo to implement many of the cuts that will be necessary to get our fiscal house in order.
It seems almost necessary that we break many contracts with unions and pensioners to get to where we need to be.
There is no sign of cooperation at this point. Forcing the issue is probably the only option.
Goodbye, state-worker pensions. Better to eliminate them than to tax millionaires at 2001 rates. Somehow, the consequences of hard choices always seem to fall on people who don’t have as much money as multimillionaires. Weird.
Didn’t see 60 minutes, but some interesting counterprogramming here: http://mediamatters.org/blog/201012200012
OA –
I actually agree that the 60 minutes piece was lopsided in the direction of thinking and talking about the response to this crisis — with a heavy lean on spending cuts.
It’s too bad, really. Because I think people need to be reminded again and again that the coming pain will hit on both sides of the ledger.
But it’s not just billionaires who are almost sure to pay more taxes. To close systemic deficits of this magnitude, we’ll all be chipping in more…
Brian, NCPR
I just don’t see it. I honestly don’t believe it will happen in a radical way.
I think they will float more state bonds, cut back in some areas cancel some contracts at not for profits etc., and they will raise property, sales and income taxes in NYS.
I don’t see massive cuts particularly cuts that impact direct employment by the state or state pensions; it just won’t happen unless NYS literally cannot borrow or tax anymore. The fact is NYS can borrow and tax more and it will.
“Better to eliminate them than to tax millionaires at 2001 rates”. We can keep on chanting this as we fall into the pit, but it won’t fix the problem. Sure we can do this, then what? Tax rates on the wealthy and the middle class are already outrageously high. Income taxes are bad but they are just part of the equation. Maybe the story Brian references was lopsided, but I think in reality the solution will be lopsided as well.
Regarding state pensions, the state has already revised the system somewhat by creating a much less generous Tier 5 for new and future employees. The very generous Tier 1, 2, and 3 groups of employees will all be “expiring” in the near future. In other words, the number of retirees enrolled in those generous packages will be less as we move forward. What the state could do immediately is reinstate the 3% contribution from the employee toward the pension beyond the current 10 year requirement. And do it across all five of the pension systems. This would ease the annual contribution amount required from local, and state gov’t and school districts. Also a cap on the total amount any retiree can receive annually should be considered. Say $80,000 per year regardless of your average final year salary (which as we know is often artificially raised with obscene overtime pay the last few years of work within some state agencies).
“What the state could do immediately is reinstate the 3% contribution from the employee toward the pension beyond the current 10 year requirement.”
What does this mean? Are you saying that even with these new Tier 5 people they only have to pay 3% for 10 years?
Thanks.
I think they will tinker around a little with the pension system also they may tinker around with the pay system. Maybe they won’t give as generous of cost of living raises; or horror of horrors not give a raise for a couple of years. Even now the guys here in SLC are getting back pay for their raises they didn’t get during contract negotiations. But cutting pensions or getting rid of staff, those things I don’t think are even on the table.
This is probably the reason they actually have to close a facility; it may be the only way they have the power to cut positions.
You guys do realize those people that retired back under Tier 1 were retiring making outrageous salaries of $25, $30 or $35 K a year, right? I’m not talking the high muckey ups, I’m talking the run of the mill Encon Officer, Forest Ranger, Trooper, etc. that I’m familiar with. What was “very generous” back in 1985 really isn’t a drop in the bucket today.
We have to do what we promised to do for current retiree’s. But frankly they should immediately change the system to not allow any pension to be paid until a person reaches 65 that would be step one. There is no reason to pay someone an annuity for 40-50 years for 25 or even 30 years of service. Retirement age is not 55 that is the bottom line. My agency has a pension and that is how we operate; and guess what the pension is fully funded.
But those are things that would never happen its fantasy land they will do many many things before actually touching pensions or pay of state employees.
It’s a really good idea to never promise anything.
Sometimes, to save a life after gangrene sets in, a limb needs to be cut off.
This is where we are at today with both the state and federal governments. Promises were made, often to win votes. We were told, we are still being told, to get good people we have to pay good money.
So we paid good money and the good people we got, got us to where we are. So much for paying good money to the experts who now seem to have been primarily expert at getting us to pay them good money.
No, they average worker did not cause the problem but they, like the auto workers, didn’t care all that much as long as they were getting their share.
It would be nice if all we had to do was to go after the most highly paid in government (including the private experts who have contracts with the government) and tax the millionaires. It would be nice but it wouldn’t be enough.
I’m afraid everyone will need to suffer to clean out all of the gangrene.
California, New York, Illinois, hmmm.
High tax states. Blue states, Hmmm.
Here’s an idea. Try lowering taxes, and cutting regulations.
Or better yet, say that those are crazy ideas, and do more of what you’ve been doing.
Pete said: “It would be nice if all we had to do was to go after the most highly paid in government (including the private experts who have contracts with the government) and tax the millionaires. It would be nice but it wouldn’t be enough.”
Right, so don’t tax the millionaires. Keep their taxes low. They don’t need to pitch in at all to help the deficit. But cut social security. And pensions. Because anyone poor enough to need social security or a pension is a loser.
oa,
“Goodbye, state-worker pensions. Better to eliminate them than to tax millionaires at 2001 rates.”
NY income taxes on the wealthy are higher now than they were in 2001. You’re confusing state with federal tax policy.
If Clapton is God, Warren Haynes is Jesus,
“What the state could do immediately is reinstate the 3% contribution from the employee toward the pension beyond the current 10 year requirement. And do it across all five of the pension systems.”
That would be too logical.
JDM,
“California, New York, Illinois, hmmm.
High tax states. Blue states, Hmmm.”
Actually, Florida and Texas have big deficits, as well. States like Vermont and North Dakota do not. So it’s really more of an urban vs. rural divide than a conservative liberal divide.
I would point out that many state workers get no pension at all, but have 403 accounts and the state contributes to these. But this is a far cry from the guaranteed pension that tier 1 and tier 2 receive. Re-instating the 3 contribution is something that most unions will agree to as a give back.
California, New York, Ilinois are victims of their own success and wealth. Furthermore, they are being milked by poor red states. NYS residents send the federal government billions more than we receive. Our money is subsidizing low taxes in red states.
http://www.watertowndailytimes.com/article/20101221/NEWS05/312219948
So does this look like a coming apocalypse?
That’s why I see the NYC-bashing so popular here in upstate to be self-defeating. The current fiscal situation illustrates just how heavily dependent the whole state has traditionally been on that NYC-institution Wall St.
As much as we like to bash NYC and play to racial stereotypes about welfare queens in the city, the fact of the matter (as Brian M has often pointed out) is that we are far more dependent on “big government” than they are. I believe that the county in NYS which has the highest percentage of its population on some sort of public assistance is not Bronx or Kings (Brooklyn) but… St. Lawrence.
Hmmm.
Three blue ships are about to crash and burn on the rocks. A fleet of red and blue ships aren’t far behind.
First thing I would do is tell the three blue ships to change course.
Cut taxes.
Just saying.
Mervel, some NYS employees cannot serve after age 57. Unless somethings changed in the past couple years a Trooper cannot serve after age 57. You have to get up into the rank of Colonel of above and then it’s around 62 and you’re done. It’s been that way for decades and we were told it was because that’s the cut off for a reasonable expectation that people could actually perform the job. IOW- most 65 year old people cannot reasonably be expected to run down an 18 year old bad guy and wrassle him into submission. That’s also why Troopers with injuries often get let go- you can’t reasonably perform the physical aspects of the job, you don’t work here.
Just thought I’d add that string to this big ball. You guys come up with an answer that works, I’ll sure vote for ya.
BTW- I don’t have a problem taxing the “millionaires”. I have a problem when the definition of “rich” is totally subjective and often inaccurate. Some would kill the goose that lays that big old egg of gold (Wall St) in a heartbeat.
Brian,
Sorry, but I don’t buy it. Rural states are in much better fiscal shape than urban states. Over the long run, we’ld probably be better of being free of corrupt NYC politicians. They are a large part of the problem.
Brian St. Lawrence County is not the poorest county nor the highest in the percentage of people getting assistance. We are however in the bottom five. Bronx county is substantially poorer.
But yeah the question is what would we do without assistance? I don’t know the answer. Part of the problem is up here we have a Mississippi economy combined with a New York City Regulatory and tax structure, we might well do better without down state. It is an interesting question.
New York City competes with the world capitals we compete with other low income rural areas. New York state does very poorly when it comes to the incomes of the bottom 20% of our population in comparison to other states.
To answer the question about the 3% contribution, once you reach 10 years of service, full-time employees in tiers 2,3, and 4 are no longer required to contribute 3% of their weekly or bi-weekly payroll into the retirement fund. I don’t believe this effects tier 1 as they, in most cases, never contributed to their retirement. And most workers in tier 1 have retired or will in the next few years.
Removing the employee contribution after 10 years of services was an idea pushed by the Pataki administration at a time when Wall Street was booming and the value of the retirement funds (all of them) were growing by large percentages each year.
As an example, take a high school superintendent who’s worked in education for say, 30 + years. He or she is most likely a tier 1 member who never has contributed to any of his or her retirement. They then retire at say, $140,000 salary, or if in a large downstate district, maybe $185,000 or even higher. For the lower salary, that person will collect about $80,000 per year (all exempt from state income tax by the way) for possibly 10-15 years (well over a million dollars total )and most likely never paid a dime into the fund.
Now, for younger workers in tier 3 or 4, they at least contributed something to their retirement. What needs to happen is EVERYONE, regardless of their tier, should contribute 3 % into the fund. This would lessen the burden that local gov’t, state agencies, school districts, etc. will need to pay as we move forward.
If Clapton is God,
I agree.
What are you insane that would be an apocalypse to pay 3%!!!! The horror the horror. If they do that we know things are really really bad.