10 questions | RICHARD RAVITCH
STATE BUDGETS ON UNSUSTAINABLE COURSE »
‘It’s Like Paying for Dinner by Selling A Piece of Furniture’ by Mary Branham
© Steven G. Smith / Corbis © AP Photo/Mike Groll
What was the interest and impetus to starting the State Budget Crisis Task Force?
What challenges will states face with federal deficit reform?
“(As lieutenant governor), I became aware of the fact that the budget of the state of New York was not what it appeared to be. … When I looked at the law that requires that New York have a balanced budget, I asked, ‘How could that be?’ and the answer was, ‘Revenue is not a defined term. ’Therefore, you could use anything to balance the budget, including money that you borrowed or money that you got from selling assets. To make a long story short, I found out most states had similar practices.”
“There’s a real disconnect between the congressional delegation in a state and the state itself. This is a function of many things, including the collapse of political party. … If you look at the re-election of a member of Congress, … that contest is not filled with discussion about how many police or teachers are going to be employed. … People lose sight of the fact that state and local governments have major responsibility for education, public safety, public infrastructure, health care, … those are not the responsibility of federal government under our constitution. Of all the reform plans I’ve heard of for the federal deficit, not one of those people have done a calculation on the exact impact on state and local budgets.”
What are the problems with those methods? “That’s not a sustainable course. It’s like saying you pay for your dinner by selling a piece of your furniture. Eventually, you’re going to run out of furniture.”
What is different about this report and others addressing state budget shortfalls?
CAPITOL IDEAS
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NOV / DEC 2012
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“It pointed out that we were, on the whole in most states, on an unsustainable course because Medicaid expenditures and retirement expenditures were growing faster than revenues. It pointed out that most states were using gimmicks to balance their budget. It pointed out that all of the proposals to reduce the federal budget deficit had catastrophic implications to state budgets.”
Is the report getting the attention and doing what you hoped it would do? “It’s hard to tell because we’re in the middle of an election season and people aren’t focused on substance; they’re focused on perceptions at this point in the political cycle. I think the real measure will be after this election, when hopefully the Congress gets around to trying to address the deficit problems at one extent or the other. At what point are they going to look at the deficit reduction?”
With all the discussion about decreasing the federal deficit and sequestration, states are facing some major challenges. How can they prepare? “Multi-year budgeting, more disclosure, stop using borrowing to balance your budget, more transparency. Here’s an illustration: There are over a trillion dollars of OPEB (retirement benefits such as health care) liabilities on the part of states and instrumentalities in the states, i.e. cities. A totally unfunded set of obligations. Who knows that? Second of all, some states like New Jersey and Illinois don’t even require that the pension contributions be made to meet the actuarial determinations, so they’ve gone unpaid year after year, plus they’re dramatically underfunded. In New York, we passed a law—stupidly—to permit the pension fund of the state and pension funds of the cities in the state to borrow the money from the pension fund. They need to pay the premiums (that are) required. … We have become masters of kicking the can down the road.”
