New York State Senate reduces budget deficit to $500M

New York has once again made its way into the history books — only this time, it probably wishes it hadn't. That's because the state's latest achievement is that it recently possessed its largest budget gap to date.

The New York State Division of the Budget reported that the budget gap, or gap between the state's expenditures and revenues, reached a historic high of $23.3 billion earlier this year.

"This problem has been long in the making — neither the governors nor the legislatures have had any discipline. They've used short-term gimmicks instead of making revenues match expenditures," said Leanna Stiefel, professor of economics and education policy at the Wagner Graduate School of Public Service.

According to NYSDB spokesman Matt Anderson, the gap has been reduced to all but $500 million. This, he said, has been a direct result of Governor David Paterson's Deficit Reduction Plan. Although the latest projections are significantly less than those made earlier this month, the Governor's plan has still come under criticism.

One concern is that the methods used in Paterson's plan, which included dipping into the state's short-term investment pool, only serve to perpetuate the current financial problem.

Dall Forsythe, a clinical professor at Wagner, warned against using short-term tactics like these.

"State and local governments often borrow from internal funds, like STIP, or from external lenders," he said. "If that borrowing grows from year to year, or if the government is unable to repay its borrowing by the end of the fiscal year, there can be a negative impact on the government's credit rating."

The massive spending cuts and increased taxes stipulated in this plan are also of concern, as they are expected to result in 19,000 layoffs in New York City alone.

Shanna Rose, a professor of public financial management at Wagner, said that the reality of the matter is that these are the only ways to address the budget problem.

"Ultimately there are only four ways to balance a budget: cut spending, raise taxes, borrow, or use 'one-shot' measures like rainy day funds," Rose said. "Earlier this month Governor Paterson proposed a new round of cuts. If he succeeds in getting even some of these reforms passed the state will be in better shape the next time a recession hits."

Stiefel stifled agreed that this is the likely course of action to avoid a deficit.

"No, [borrowing] never is wise for short-term issues," she said, "but something is going to have to happen to avoid an illegal deficit."

Stiefel added that this will hopefully teach the state to practice fiscal discipline.