Budgeting is a topic that causes many people to tune out, convinced that only a policy expert can grapple with the mass of statistics involved. Yet the state budget is the most basic tool for implementing government policies and priorities, and shaping an environment that can improve or worsen every aspect of people’s lives. The New York State budget is a case in point.

The state should be awash in revenues this year, generated by three unprecedented windfalls: the boom on Wall Street, the so-called “welfare windfall” generated by welfare reform, and the settlement of a class action lawsuit against the tobacco companies by the Attorneys General of a number of states.

But the 2000-2001 Executive Budget submitted by Gov. George Pataki in January fails miserably in seizing the opportunity to address the major economic and social challenges facing the state. A major reason is that state revenues are being soaked up by a series of tax cuts enacted during Gov. Cuomo’s last year in office and Gov. Pataki’s first five years. Taking effect in a number of steps, many of which kick in long after they were enacted, they reduced state revenues by $9.4 billion during the current fiscal year. They will offset revenues by $11.6 billion during the 2000-2001 state fiscal year, which begins on April 1, and by over $14 billion a year when fully implemented.

Without those cuts, badly needed investments in the state’s human and physical infrastructure could have been funded by a large stream of revenues from these sources:

• The Wall Street windfall: New York State has experienced two consecutive years of unprecedented increases in personal income tax revenues. These are a result of the huge bonuses paid to Wall Street executives and the fact that capital gains declared on New York State tax returns have quadrupled (from $12 billion in 1994 to a projected $55 billion this year).
• The welfare windfall: New York State is also getting substantial fiscal relief as a result of the federal government’s conversion of the old Aid to Families with Dependent Children (AFDC) program to a block grant (called TANF – Temporary Assistance to Needy Families) at a time when welfare caseloads are plummeting around the country. Under TANF, New York gets $2.4 billion per year from Washington whether caseloads go up or down.
• The tobacco windfall: Money coming to New York State from the settlement of the class action lawsuit against the tobacco companies will go in part to financing Family Health Plus, a program enacted last December to provide health insurance to uninsured adults in families with children previously eligible for coverage under the state’s Child Health Plus program. This use of the tobacco settlement monies is laudable – but it does not begin until 2001, and then at a low level which rises only gradually. The rest of the tobacco settlement money is going to budget balancing, either directly or indirectly.

The policy implication of all this is that New York State should have a substantial pool of resources to invest in the kinds of education, literacy and job training programs that could give welfare recipients the skills and credentials they need to move up the socioeconomic ladder. The 2000-2001 Executive Budget does some of this, but far less than is needed.

And it does nothing to address the most important challenge facing New York State: the increasing gap between the relatively small number of New Yorkers who are benefiting from the current economic recovery and the rest of the state’s residents. New York has the widest income gap between the rich and poor of all 50 states, and one of the widest gaps between the rich and middle-income families. Despite the recovery, wages of the typical New Yorker declined in the 1990s. Middle-income jobs have been lost, the number of unionized jobs has declined, and most growing industries pay wages below the average.

There is much that state governments can do to push back against this trend:

• They can increase the purchasing power of the minimum wage. Of all high-income states, New York has the lowest minimum wage, relative to average wages.
• They can strengthen the state unemployment insurance system. Unemployment insurance is less effective in maintaining income than it has been in the past because a smaller share of unemployed workers now receive it.
• They can strengthen the social safety nets and provide support to help low wage workers move up the income ladder – through transitional employment programs, affordable childcare and transportation options. Unlike Gov. Pataki’s previous budget proposals, this Executive Budget does not propose cuts in Medicaid or the Tuition Assistance Program (TAP). But it makes college less accessible for many families – both by failing to update income requirements for TAP awards and by cutting funding for the state’s highly successful higher education opportunity programs.
• They can stop the movement toward more regressive state tax systems. In New York, despite its high poverty rates and great wage and income inequality, middle and low income New Yorkers pay a higher share of their incomes in state and local taxes than do better-off people – and the tax cuts of the last six years have made the situation worse. About 40 percent of the personal income tax cuts enacted in 1995 are going to the wealthiest 5 percent. Corporate income tax represents a declining share of state tax revenues. Yet the 2000-2001 Executive Budget is proposing a seventh consecutive round of tax cuts that will have negative consequences for the state far into the future.

While state government has begun investing in several key areas in which there are significant social investment gaps (such as child care), the 2000-2001 Executive Budget misses the opportunity to do more in these areas, to begin addressing the state’s numerous other unmet social and infrastructure investment needs, and to put its fiscal house in order.

Frank J. Mauro is executive director of the Fiscal Policy Institute (FPI), a nonprofit, nonpartisan research and education organization that focuses on fiscal and economic issues of importance to middle and lower income New Yorkers. Additional information about FPI is available by calling (518) 786-3156 or (212) 730-1551, or by visiting its web site atwww.fiscalpolicy.org.