New York Governor David Paterson set a June 28 deadline for an accord on the state’s overdue budget and said if lawmakers don’t cooperate he will submit an emergency bill that would have to be passed or else government would shut down.
Borrowing, including the sale of additional tobacco bonds, mustn’t be part of any agreement that closes the budget gap for the year that began April 1, Paterson said in a public meeting with Senate and Assembly leaders today. Lawmakers, under pressure from the governor, have passed 11 consecutive weekly spending bills that trimmed the $9.2 billion deficit in the governor’s $135.2 billion budget to about $8.1 billion.
“I will not sign any budget that has any deficit financing in it,” Paterson, 56, told the lawmakers in Albany. That ban includes the sale of bonds backed by tobacco-settlement payments, he said. Paterson previously said borrowing to close the deficit was a “last resort” that he wouldn’t rule out.
The rejection of borrowing to close the gap is needed to show that “we are not pushing any problems of today off into the future,” Paterson said.
Paterson, who isn’t seeking election in November, said the state will continue to face budget pressure after his term is completed at year-end. Federal stimulus money runs out this year and in 2012 the three-year increase in the top tax rate for individuals earning more than $200,000 will expire, he said.
Assuming this year’s deficit is bridged as Paterson proposed, the budget gap for the year beginning April 1, 2011, would be $5.39 billion, according to state projections. That gap would be larger if this year’s deficit was closed by additional one-time actions not sought by Paterson, such as bond sales.
Paterson’s budget prepared earlier this year called for the state to raise $650 million from a new tax on sweetened drinks, equal to a about 1 cent per ounce, and $200 million from an extra $1-per-pack tax on cigarettes. Both chambers have rejected the soda levy, with only the Senate opposing the cigarette tax in its budget plan prepared in March.
Attorney General Andrew Cuomo, a Democrat like Paterson and front-runner in November’s gubernatorial election, also opposes selling bonds to close the deficit.
Senate Democratic Leader John Sampson of Brooklyn, a proponent of a tobacco bond sale to raise $700 million to $1 billion, told reporters after the meeting that the financing is still subject to negotiations and shouldn’t be ruled out.
One advantage of tobacco bonds is that they are “not state debt technically” and wouldn’t immediately affect the state’s finances, Budget Director Robert Megna said this month.
With about $60 billion of existing debt as of March 31, New York is the second-most indebted state after California. It owes investors about $9.8 billion for bonds sold to pay operating expenses, not for capital projects such as roads or buildings, according to a March report by Comptroller Thomas DiNapoli. Payments on bonds sold to shrink deficits cost the state $1.1 billion last year, or about 20 percent of all debt payments, state documents show.
Without selling more tobacco bonds, the state could expect to begin receiving payments in perpetuity from tobacco companies after 2018, according to Megna. If more bonds are sold, the cigarette company payments would be absorbed by bondholders for additional years, depending on the amount of new securities and their interest rates.
Tobacco bonds weren’t covered by a 2000 law intended to curb New York’s borrowing, even though they are backed by a state pledge if the cigarette companies’ payments are insufficient, according to DiNapoli.
A new $700 million sale “would likely eliminate the accelerated” repayment of existing tobacco bonds and extend their expected life by at least two years, the report said. The existing bonds have a stated final maturity of 2022.
Paterson said his push for a budget agreement has added urgency because the state is running out of money and is shifting funds between accounts and delaying payments.
New York lacked almost $1 billion to pay all its June 1 bills and delayed $1.5 billion of school aid due that day until the second half of the month, after June 15 income-tax payments, Megna said last month. Without a budget that cuts spending or raises revenue, the state’s next cash shortage may come in September, he said.
Beat the Deadline
A budget agreement may be reached within a week, or sooner than Paterson’s deadline, Senate and Assembly leaders said after the meeting. Areas of disagreement between the two chambers include aid to local school districts, the state’s largest expense, borrowing, and state funding for local property-tax relief.
The Assembly is working “to get as close as we can to the $9.2 billion in cuts,” and then consider alternatives, said Assembly Speaker Sheldon Silver, a Democrat from Manhattan.
Silver didn’t describe additional sources of revenue the Assembly might support, except to say they don’t include any “broad-based taxes” or an increased tax rate on high-income individuals. The Assembly isn’t considering selling state assets, he said.
Sampson said the Senate will continue to push for state- financed rebates on local property taxes for low-income senior citizens without any new taxes or fees, as it proposed earlier.
“I’ll have to convince the governor” to allow a tobacco bonds sale, he said.