Governor David Paterson and the legislature back in April enacted a state budget that became unbalanced before the ink was dry. Spending and taxes were increased substantially with help on the spending side from the American Recovery and Reinvestment Act, a.k.a., the Stimulus bill, which Congress passed, in part, to bail out the states. Hiking taxes during an economic slowdown usually results in less revenue than projected, which has been realized in New York.

Last month Gov. Paterson sought to address the resulting current-year budget shortfall by proposing $3.2 billion in budget cuts. The state Senate balked, resulting in a smaller package of budget savings that left education and other programs untouched. The Senate, with the narrowest majority of Democrats, could not muster the votes for such mid-year reductions.

I viewed it wrong and unfair for the state to cut school aid to districts when all but the largest five districts levied their property taxes and, by a vote of its residents, adopted their school budgets based on the promised aid level from the state.

The governor took what savings he could get this month from the legislature. Now he has decided to delay school aid payments and other local assistance due to the cash crunch confronting the state (here). (NOTE: if there was a formal policy statement or press release from the Paterson Administration on this significant action, I could not locate it.) The governor's action is legally dubious and organizations like the state School Boards Association may seek a court order to stop him from refusing to spend appropriated money on a timely basis.

Delaying aid payments may be possible by the governor, whose executive powers oversee implementation of the state's financial plan. This is different from impounding funds altogether; that is, not spending legislatively appropriated funds for an indefinite period. The governor's intentions at this point are unclear: "I will continue to withhold payments until this economy is leveled off," he said yesterday. What if the economy in New York doesn't "level off" for another year, or longer?

Short-term Borrowing Anyone?
Delaying state aid to school districts may force many of them to borrow funds on a short-term basis to pay their own bills and meet cash flow needs. The state used to do this very thing--short-term borrowing--for decades so much so that it ballooned to a $5 billion budget gap. The state turned this gap into long-term borrowing by creating the Local Government Assistance Corporation (LGAC) in the early 1990s to issue bonds backed by the state sales tax.

It is unfair for the state to force school districts and local governments to borrow because of its reneging on promised aid. I don't envy Gov. Paterson's enormous fiscal challenges, but he and the legislature should look to borrow on a one-time, short-term basis (without it becoming a recurring, reckless habit as before) to make good on the state's promises to localities and school districts this year, rather than force them to resort to this stop-gap measure.

Gov. Paterson also is entitled to have a better read on the cash situation, but doesn't appear to be getting much help from the State Comptroller (here).

Peter Murphy
for The Chalkboard