By LIZ BUTTON
Whether the recent bankruptcy of Detroit, Mich., could pose a similar threat in New York is a scary question, but it’s one state and local government officials may be asking themselves of late.
Last week, the League of Wo-men Voters of Rye, Rye Brook and Port Chester assembled four economic experts who agreed that, while the state is far from bankrupt and the situation in the Motor City is unique in many ways, there are certainly municipalities within New York State that have their own critical financial problems.
The LWV’s public panel, entitled “Detroit is Bankrupt: Could it Happen Here?” convened in Rye Middle School’s multi-purpose room on Dec. 5. Panelists discussed problems caused by state and local fiscal management and policy and what can be done about them.
When it comes to Detroit, all agreed that, while New Yorkers do not have to worry that the state is ultimately leading them down the same road, the way New York State government handles its finances is problematic, especially as it affects municipalities.
In Detroit, increasing debt and a declining population over the years lead to the city’s inability to cover pensions and retiree health insurance and still address a growing budget deficit. Detroit filed for bankruptcy in July and, this month, a judge authorized proceedings to
In the meantime, residents of the beleaguered Motor City must continue to deal with limited police service and a crumbling infrastructure. But the panelists attributed New York’s own fiscal problems to a variety of differing factors as the entire country continues to recover from the worst recession since the Great Depression.
Many towns in New York that are in danger of bankruptcy “are not Detroit-like;” the people who live there are wealthy, according to E.J. McMahon, founder and president of the Empire Center for New York State Policy, a non-profit think tank that promotes public policy reforms guided by free market principles. However, these municipalities share a key attribute in common with Detroit, they are running out of cash.
McMahon said that, to tackle the risk of bankruptcy in some of these struggling towns, the state needs to have a clearer policy when it comes to allowing municipalities to declare bankruptcy in order to prevent them from trying to borrow themselves out of a deficit and subsequently falling into a pit of debt.
Former New York Lt. Go-vernor Dick Ravitch, who serves as co-chair of the state Budget Crisis Task Force, which he created with economist Paul A. Volcker in 2011 to address threats to fiscal sustainability, said fiscal problems in New York State that trickle down to these failing municipalities persist because elected officials at all levels of government ignore the lessons learned by previous administrations who were forced to confront budget deficits such as those in effect when New York City came to the edge of bankruptcy in the 1970s.
The fundamental problem, he said, is that there is the seemingly, “inescapable, undeniable appetite on the part of people who are elected to office to kick the can down the road if they can.”
According to Ravitch, “The state has sold assets or borrowed money to cover operating deficits for the last 30 years, close to $28 billion.” Ultimately, this continued borrowing will result in an enormous accumulation of obligation to pay for benefits received by the current generation being put off to subsequent generations.
A third panelist used a more national frame of reference as a cause of the problem.
New York’s fiscal issues, are due, in part, to a national phenomenon, the American people’s “austerity mindset,” according to James Parrott, deputy director and chief economist of the Fiscal Policy Institute, a non-profit organization that works to advocate for a strong state economy where prosperity is shared among all New Yorkers.
This attitude of scarcity is reflective of intense income inequality in the country: A condition that has been increasing for the past three decades, Parrott said. At the same time, instead of addressing unemployment at the state and federal level, there is “an excessive preoccupation [in government] with how we can cut taxes as a solution.”
Unfortunately, Parrott said, this particular strategy of handicapping the state’s ability to raise revenues is not one that will facilitate economic growth. Instead, government—both st-ate and federal—should invest in aid for unemployment.
In New York State, this version of austerity is reflected in very limited growth in the state budget as well as the state’s property tax levy cap implemented in 2011, which, this year, will restrict growth in the property tax levy to 1.66 percent.
The state has also lost 60,000 to 80,000 public sector jobs over the last four years of economic recovery, according to Parrott, who proffered the idea that state government should invest in public sector jobs like the university systems upstate.
The panel also included Eli-za-beth Lynam, vice president and director of state studies at the Citizens Budget Committee, a group founded in 1932 during the Great Depression that promotes responsible public policy for New York City and the State’s budget and finances.