Fiscal Policy Institute Praises Cuomo Plan on Minimum Wage but Says Tax Cap and Budget Are “Unforced Austerity”

The Fiscal Policy Institute issued its annual report and analysis of the Governor’s budget and state finances earlier this month.  Executive Director Ron Deutsch and Chief Economist James Parrott and economist David Kallek outlined the status of various issues including the minimum wage, the state tax cap and the impact of the budget on human services and education.  FPI has been highly critical of the Governor’s budgets in recent years, attacking the tax cap and other tax policies that make the state’s tax system more regressive.  This year’s analysis includes praise for the Governor’s stand to move the minimum wage to $15/hour over the next five years as well as praise for initiatives on paid family leave, housing and homelessness

However, the report is critical of the state continuing a tax cap which now mandates spending at 2% or the rate of inflation which is well below that at under 1%.  The report says that this is “unforced austerity” that is putting the state in a “fiscal straitjacket” that will cause local services to further diminish and deteriorate.

This week the Assembly said it was considering options on the tax cap in light of complaints from local governments.   Some of the options would be to have the tax cap set at 2%.  Other options are to increase local aid from the state since revenues are growing at 4% to 5% and the state has a lot of extra cash.   The Governor said this week though that he is opposed to changes and that the current tax cap allows localities to override it if 60% of local boards vote to do so.

Here is an excerpt of the Executive Summary of the new FPI report on the 2016-2017 proposed budget.

Governor Cuomo’s 2017 Executive Budget advances some bold and progressive proposals that well reflect the values and needs of New Yorkers. In particular, the governor has shown great leadership and vision in forcefully advocating for a first-in-the nation statewide $15 minimum wage. If enacted, the minimum wage increase would lift the incomes of 3.2 million New Yorkers who desperately need a raise. The governor’s proposal to build a system of paid family leave is another important step that would improve the lives of New Yorkers.

The Executive Budget rightly recognizes the need to address issues affecting some of the poorest and most vulnerable residents in our state. It proposes to reduce homelessness and high levels of poverty in many of our upstate cities. It includes a multi-year plan to combat homelessness, together with the development of 10 anti-poverty tasks forces; these are productive ways to recognize that child poverty and homelessness are at record levels across the state.

But, in many critical human infrastructure investment areas, rigid adherence to a two percent spending cap is unnecessarily blocking real progress. Last June, the State Budget Director noted that New York State “is in the best fiscal position in many years … with money in the bank, growing reserves and more surpluses on the horizon.” The state now enjoys its highest credit ratings in more than four decades. Although the recovery has benefitted New Yorkers unevenly, the state’s economy is in the midst of a period of sustained employment and total income growth. Tax receipts are growing at an annual rate of four or five percent. Yet despite the strong current economic and revenue picture, state operating expenditures are projected to increase by only 1.7 percent in FY 2017 from the current year—less than the 1.9 percent projected rate of consumer inflation.

This stark juxtaposition between four to five percent growth in tax receipts and a self-imposed cap on spending of two percent or less define a budget policy best characterized as unforced austerity. It is austerity driven by a policy choice, not by a faltering economy.

Unforced austerity budgeting has severely restrained services in many critical areas affecting New York’s children, families, and their communities. The state has simultaneously put a fiscal straitjacket on local governments by insisting that they live under an artificial and rigid tax cap, limiting property tax increases to two percent or the rate of inflation, whichever is lower. The result is that local government spending in most parts of the state has suffered, with a corresponding deterioration in services from schools to parks to libraries, and an inadequate public response to hardships afflicting many families. It is hard to imagine that a reduction in school and local government jobs of nearly nine percent would be possible without a significant erosion in public services.

Note:  I am currently serving as President of the Board of the Fiscal Policy Institute – Michael Burgess