A confident Governor Paterson was well-received at a Town Hall meeting about the New York State budget at Brooklyn’s Borough Hall on Monday and no one can accuse him of sugar-coating the economic message. Paterson began with a brief historical analysis of how governments have changed the names of financial problems from Poland’s Crisis of 1899 to the Great Depression of the 1930s to what is today called a “recession.” The point of his lesson was that whatever it’s called, the pain is the same. “A recession is next door,” said the governor. “When you’re the one who’s lost a home or a job, that starts to feel like a depression.”
Paterson says New York State can be looking at a Depression if action is not taken now. And the action he has taken, he frankly detailed. “In my administration we have cut $4.5 billion from health care, we’ve cut $1.1 billion from education, we’ve cut our administration, our agencies, by $1.5 billion and in this year’s budget we’re going to cut it some more. We’re going to have to cut health care another billion, education a 5% reduction of $1.1 billion and another billion from our agencies, including $250 million from workforce reduction.”
Governor Paterson was quite clear in his warning when he said, “I came here to tell you that today we’re Crossing the Rubicon in terms of moving from recession to something else far worse if my colleagues and I can’t close a $9.2 billion deficit.” They had successfully closed an $18 billion deficit last year, said the governor, “but we had more options. We’ve used them up. We’ve depleted our resources.”
The governor then asked for suggestions but reminded the assembled that wherever a program is to be saved, “we also have to know how we’re going to pay for it,” because the state may run out of money by May or June.
Suggestions ran from borrowing from other countries; “most are in the same boat we are,” said Governor Paterson, although he added he has suggested that the Treasury could lend to highly rated governments at a favorable rate of return. Queen Mother Blakely’s suggestion that it would be cheaper if state institutions purchased Queen Mother’s Organic Coffee from her women-owned enterprise and queried as to how she should proceed. The governor acknowledged that, “There is a lot of purchasing the state does and we’ll have someone speak to you about that.”
Dave Taylor said the governor may not remember him, but he was from the Upper West Side of Manhattan, and came representing the Council of Senior Services to say that senior citizen centers throughout the five boroughs are currently under review by the NYC Department of the Aging to determine which should be closed. “Seniors are terrified. We are faced with the possibility of 75 centers being closed throughout the city. Will you take Title 20 off the table and stop the closing of senior centers?” “Dave Taylor, I remember you well from the Upper West Side,” responded the governor. “And if I remember correctly, I think you ran for City Council in 1989.”
Mr. Taylor’s question was an opportunity for Governor Paterson to show the dilemmas his administration is faced with. “A kind of triage,” is how he puts it. Two of the deficit culprits are the surge in Medicaid costs – “about $400 million” – and the Wall Street bonuses that were paid in stock, not in cash and therefore couldn’t be taxed.
“When the bonuses are not paid, they don’t go back to the public, they go to the firms,” explained the governor. “And the firms have very favorable tax benefits and ways in which when the money goes back to the firms, we can’t tax it at the same rate as if it was paid in bonuses. This cost us another half a billion dollars.” As the governor put it, “This was the public relations way that Wall Street is adjusting to the attacks on the high bonuses.”
Describing the economic environment he is in, Paterson said, “It is hard to take things off the table when actually we still have to come up with another billion dollars.”
He insisted that his administration is “particularly careful and scrupulous of those who live on the edge: Seniors. Homeless people with disabilities and people who don’t have many options.” And yet while still being mindful of the very real pain these cuts cause, New York State has to move forward and “the only reason it’s on the table is because of the dire state that we’re in.”
Councilman Charles Barron spoke in favor of looking for money where money is: wealthy folk. He called for a Stock Transfer Tax as a way to recapture some of that Wall Street money and congratulated the governor for blazing the path of taxing the wealthy. “I think you were bold. You were one of the few governors who had the heart and the spine to raise the PIT, Personal Income Tax surcharge, on those earning $250,000 or more and we got about $4 billion out of that. Let’s go up further, those making $500,000, charge 2.5% Those making a million, 7.5%. You cannot have a budget process and say that raising taxes on the rich is off the table. If you want to be fiscally prudent, then everything stays on the table: cutting us, taxing the rich and selling state assets. Tax the rich and put some of our stuff back in the budget.”
Describing an imposition of a Stock Transfer Tax as “tantalizing” Paterson said, “The Stock Transfer Tax began in 1905, and in 1966 it was shifted and the Transfer Tax benefited New York City. It was reduced between 1978 and 1981 and here’s why. We’re not living in the kind of world as in 1905. We’re living in an electronic environment. If you want to move Wall Street to Downtown Newark or Greenwich, Connecticut, impose a Stock Transfer Tax. They don’t need the geographic location of
Wall Street to operate any more.”
The governor then offered a suggestion of his own on retrieving some of the Wall Street bonus money. “What I think we should do is talk to Wall Street, which is the engine of our economy, about the way they are shifting resources that just denied New York State half a billion dollars this year and half a billion next year. I do think there is a discussion that we have to have with the major firms on Wall Street about how to support New York State, which is supporting them.”
On the issue of taxes the governor agreed that he had enacted one of the most stringent taxes on the wealthy, over 9%, “for which we got a lot of criticism,” but his administration has found that this approach has diminishing returns. As proof, he offered that they had projected over $4 billion in revenue but actually got in only $3.6 billion. Apparently, people’s loyalty to New York does not extend to paying more in taxes. “The problem is people will say they moved to Florida, and stay there one more day a year than they do here in New York, and for that, they don’t pay any taxes at all.”
To a question regarding the Atlantic Yards project, Paterson said he had waited for the Court of Appeals to make a decision regarding the use of Eminent Domain in the taking of private property for private use and was surprised that it allowed the taking to move forward. “And now the Supreme Court has made a decision. There was a process, I did not want to impose my own judgment where there has already been a court decision in the matter.”
Councilwoman Letitia James said there could be savings in closing empty upstate prisons and merging redundant agencies. Paterson responded that they have already begun the merging of agencies, but said the savings are “only in the tens of millions of dollars,” and they’re looking at a multibillion-dollar hole to fill.
Councilwoman James had also brought up the subject of the proposed Sugar Tax, which she said was a regressive tax. Perhaps because the governor’s schedule showed his next stop was a Sugared Beverage Tax Symposiumÿ in the Blue Room of the Capitol he took to the question like a bear to honey.
“In the end it may be regressive, but it’s a different kind of tax,” the governor insisted, “because all of the tax collected is designated for health care services. We are losing $8 billion a year from people smoking and almost as much, $7.5 billion a year, treating diabetes, heart disease and other ailments coming from obesity, largely caused by sugar. Companies have freely sold these products in our communities and put them in serious, serious physical condition and we’ve never taken a look at that.” Paterson spoke of the proliferation of hospital units around the country treating childhood stroke and heart attack victims.
“We assessed how much money we would get from a Sugar Tax but we also assessed that there would be a 15% drop-off in the market. This will drop the amount of money the taxpayer is paying for health care. 60% of adults in the state are obese, 25% of children and 33% of minority children are obese. 80% of African-American women are obese. Well, okay, 79%. I’m speaking for a class of people who don’t have a vote. And that’s the children of this state. And when their parents come down here and shaking the wall about their children having heart attacks, it’s not going to be on my conscience.”
Also speaking for the children was Ms. Jackson of AARP Chapter 2197 who asked, “Why are we cutting Kin Care when it saves the state money. We have over 400,000 children in Kin Care. Keeping those children out of the foster care actually saves money. We need that $2 million for those children, keeping them with their families, the Kin Care program builds family bonds as well as saves the state money.” Paterson said he would go back and take a look at the Kin Care program. “But,” he said, “If the premise of your question is that we have made cuts that otherwise brought revenues into the state, what I want to tell you is that’s how dire our situation is.” He gave the example of the Parks System where he said every dollar the state spends generates $5 in revenue. “The problem is we don’t have the dollar to open the parks.”
The governor describes a scene much like a family at the kitchen table holding back on paying the cable bill in order to pay the rent. “We have to make payments to local governments at the end of March and payments on Medicaid. We are $2 billion short on those payments and nobody knows where we’re going to come up with the money. That’s why we discussed holding back the tax returns for two weeks. That would bring about $500 million into the $2 billion we have to pay. These are not choices. These are necessities.”