Ravitch Says Payment Delays May Beat Notes to Ease New York Cash Squeeze
“I’m against borrowing of any sort for a deficit, without conditions,” Ravitch, 76, said in an interview in Albany. He questioned where the state would find funds to repay short-term notes, absent a plan to close a budget gap he estimates at $9.5 billion for the fiscal year that began April 1.
Lawmakers have agreed on spending cuts and measures to raise additional revenue of about $6 billion, or about two- thirds of a deficit they estimate at $9.2 billion.
The inability of legislators to agree on a balanced budget is “ensuring they will have to cut in five-sixths of the year what they could have cut over a full year,” Ravitch said.
Comptroller Thomas DiNapoli said the shrinking length of time to reduce spending or raise taxes in the current year is a growing problem. Speaking to reporters in Albany yesterday, he said the cash squeeze forecast by the Division of Budget for the first week of June may come in late May.
The state ended its fiscal year with $2.3 billion in the general fund, its main operating account, only because the governor delayed $2.9 billion of payments, DiNapoli reported last month.
New York has stayed in business through repeated one-week emergency spending bills. Governor David Paterson, 55, said he will include furloughs in the next stop-gap measure, forcing 100,000 workers to take one day a week off without pay. The move will save the state $30 million a week.
Paterson’s practice of pushing back payments, such as the $2.1 billion for school districts that was put off from March until June, just delays the cash shortage, Ravitch said. He said what is most important is for lawmakers to agree to balance the budget.
Ravitch proposed in March a five-year plan to end a chronic imbalance between spending and revenue. The proposal would allow the issuance of as much as $6 billion of deficit bonds in the next three years if accompanied by more oversight of finances and new powers for the governor to cut spending.
“How would they pay it back?” Ravitch responded when asked about short-term borrowing to cover the projected cash squeeze. The repayment issue isn’t solved by declaring an emergency as required by state law in order to sell short-term notes, he said.
That rule was put in place in 1990 when the Local Government Assistance Corp. was created to refinance accumulated budget deficits with bonds backed by 25 percent of state sales- tax receipts.
The administration will review during the next week the state’s options for coping with the funding shortage, said Larry Schwartz, secretary to the governor and one of his budget negotiators. Paterson’s policy “has been to cut first and borrow when there’s no other option,” Schwartz said.
A note sale by the state is likely as a way to solve the cash-flow imbalance in coming weeks, Assembly Ways and Means Chairman Herman “Denny” Farrell, a Democrat from Manhattan, said at an April 19 conference sponsored by the Albany-based Nelson A. Rockefeller Institute of Government.
No Decisions Made
With the state’s spending plan in limbo, the Division of Budget hasn’t decided on a way to close the $1 billion cash gap in the first week of June, said Matt Anderson, a spokesman for the unit.
The government may delay payments or borrow, Robert Megna, the state budget director, said last month. “Investors would probably be much more willing to buy” a new debt issue if a full-year spending plan was in place, he said.
The budget impasse persists as New York prepares to sell $2.51 billion of the $5.9 billion of debt it plans to offer this year, according to a schedule published by the Division of Budget. The stalemate hasn’t had a significant effect on the yield of the state’s bonds.
About $510 million of debt backed by state appropriations is scheduled for sale next week. An issue of about $800 million, backed by personal income taxes, is set for this month, followed by $1.2 billion in June.
Yields on some state bonds have declined relative to top- rated securities since sales in March, before the budget stalemate began.
New York’s income-tax bonds due in 10 years and rated AAA by Standard & Poor’s were estimated to yield 3.27 percent on May 3, based on Bloomberg data, or 0.13 percentage point greater than a Bloomberg index of AAA bonds. On March 5, the securities were issued at a yield of 3.21 percent, or 0.21 percentage point above the index.
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