One of the blogs I follow made an excellent post on New York State’s coming fiscal catastrophe:
Expected Returns: State Handouts Accelerating, New York Fiscal Black Hole Showing.
The unstoppable fiscal train wreck of states is coming to a head. Without the wherewithal to turn their budgets around, states are turning to the bankrupt federal government for assistance. Rest assured, this is only the beginning. From the WSJ, State Set for Boon in Aid
New York finally got some good news from Congress on Wednesday when the Senate pushed forward $2.6 billion in aid for the state, after two months of lost votes on the issue threatened to blow big holes in local and state budgets.
Just a day earlier, Albany lawmakers had approved a contingency plan to impose spending cuts if the federal money didn’t arrive. Both Mayor Michael Bloomberg and Gov. David Paterson had warned that without the funds, layoffs would be likely.
The measure would provide about $2 billion in health-care payments to the state, roughly $530 million of which would go to New York City. It also provides about $600 million in statewide education funding, which supporters say will save an estimated 7,100 teacher jobs.
If you follow the budget crisis in New York and negotiations with unions, you know that it’s one big farce. Teachers in New York City who have come to expect annual 4% pay raises are apparently making huge “sacrifices” by accepting only 3.3% salary increases based on seniority. Is it just me or is there a huge disconnect between the public and private sector? Nonetheless, there will eventually be an implosion in states’ budgets followed by drastic public sector cuts when the federal bond bubble pops.
Whenever you artificially create a bubble, the inevitable contraction leaves behind a swath of destruction. The real estate bubble created job growth that was concentrated in the housing sector. When the bubble popped, most housing sector jobs disappeared. We currently have a historic bubble in the public sector that will eventually pop. This will have deep ramifications in the years ahead.
I believe the worst isn’t over for New York, and one of the key reasons is real estate. In the chart below, you’ll notice that California and New York, states with two of the bigger fiscal black holes, both experienced relatively muted housing declines. This has kept revenue via property tax collections relatively stable. Remember, everything hinges on real estate. Municipalities cannot support a further 10% decline in real estate, which is something I fully expect.
After two months of setbacks, Senate Democrats were able to persuade two Maine Republicans to support it, giving them the votes necessary to overcome a GOP filibuster. One of those senators, Olympia Snowe, warned that this would be the last batch of aid for states.
“The states are becoming completely dependent on us,” said Senate Minority Leader Mitch McConnell, who opposed the bill. “When does it end?”
Mr. Bloomberg called the expected aid “a significant measure of relief,” though the mayor warned that even with the funds, the city faces a projected $3.3 billion deficit next year
There is no way this is the end of bailouts for municipalities. This insidious form of quantitative easing will have consequences. There is no free lunch.
It is gross irresponsibility such as this that caused me to include forming an emergency plan in case of a (further) financial crash in my platform. It is astounding to me that the legislators and bureaucrats in Albany and New York City cannot see what is coming.
When elected, I will do what I can to get them out in front of this issue. If that fails, I have emergency plans to help the people of Staten Island that don’t include Albany or New York City – because if we do what the politicians are doing (waiting & hoping for the federal government to save them), we are going to be in the same boat as the people of New Orleans were when Katrina smashed into them.
With the current crop of politicians in Albany and Washington, it clearly is going to get worse before it gets better. I urge all community leaders to gather their members and prepare. We will need to come together as a community and help our neighbors in the times ahead.