June 25 (Bloomberg) -- Richard Ravitch, who helped steer New York City out of a fiscal crisis in the 1970s, said the federal government should track states’ debt and fiscal health while insisting they improve budgeting and meet obligations such as pensions as the price of getting U.S. aid.
The former New York lieutenant governor, in an interview during a Philadelphia meeting of the State Budget Crisis Task Force he created with former Federal Reserve chairman Paul Volcker, said, “the federal government ought to put discipline on the states.”
Ravitch, 79, who advised New York state on the biggest U.S. city’s financial woes, joined with the 85-year-old Volcker to create the task force of former government officials in 2011 to examine U.S. state finances. The panel has criticized New York’s use of “one-shot” measures to balance budgets and said New Jersey may require a “Draconian tax increase” to meet pension obligations.
Referring to the way most governments account for expenses on an annual basis instead of over multiple years, Ravitch said the U.S. should tell governors that if “you want our money, you better start budgeting in accordance with accrual budgeting instead of cash budgeting.”
Ravitch also called for President Barack Obama to issue an executive order, similar to the one establishing a rebuilding task force after Hurricane Sandy, to insure coordination among federal agencies of actions affecting local governments.
“There should be some place in the federal government that measures the impact that a proposed federal law has on state budgets,” he said.
Pension funding is a deepening challenge for states and cities after the recession that ended in 2009. In addition to $3.7 trillion in municipal debt, Moody’s Investors Service estimates that U.S. localities face more than $2 trillion in unfinanced retirement obligations.
The Philadelphia meeting focused on the need for greater cooperation between the federal government and states as automatic federal spending cuts are under way.
Known as sequestration, the outcome was supposed to be so intolerable to Republicans and Democrats alike that both sides would compromise on spending to avert $1.2 trillion in cuts over nine years. Instead, no accord was reached and reductions began in March. As much as $85 billion will be withheld for the fiscal year that ends Sept. 30, forcing service curtailments and payroll cuts.
Philadelphia Mayor Michael Nutter said sequestration has resulted in dismissals of housing workers and the elimination of counseling for homeowners facing foreclosure. The city’s schools are “literally on the verge of an economic crisis,” the Democrat said.
School officials had said they would fire 19 percent of the workforce July 1 if they don’t receive additional funding to address a $304 million budget gap.
“This is not a sustainable model for cities,” Nutter said. “The federal government cannot balance its budget on the backs of cities and local governments.”
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