New York Gov. David Paterson has long railed against deficit borrowing to help the state out of its fiscal mess, but such a plan could be under discussion, the governor said yesterday.
Lieut. Gov. Richard Ravitch has been working on a four-year financial plan for the state that a published report said could include an option to sell deficit bonds through the state’s public authorities.
“What Lieut. Gov. Ravitch may be talking about is that that borrowing would be accompanied by an imposed discipline like a spending cap,” Paterson said at news conference in Brooklyn following a town hall meeting on the state budget. The governor said he would meet with Ravitch later in the evening to discuss the proposal, which he said he had not yet seen.
At least on its surface, the idea did not appear to be popular with the governor, who has warned that the state needs to take recurring actions to deal with a combined current fiscal year and fiscal 2011 budget deficit that may be as high as $9.2 billion.
“Deficit borrowing is what got us into this mess,” Paterson said. “We borrowed in deficit without any understanding of how to pay the money back. We squandered surpluses. We papered over deficits and we recklessly infused resources from borrowing when we were living beyond the margin of our means.”
Paterson has previously proposed spending caps, without success.
The deficit bond proposal was first reported yesterday by the New York Daily News, citing anonymous sources. A spokeswoman for Paterson last week said that the lieutenant governor’s four-year plan would be released in the coming weeks but did not specify a date. A call to Ravitch was not returned by press time.
Despite its fiscal difficulties, New York has maintained its credit ratings. While one-shots like deficit financing are generally frowned upon by rating agencies, they don’t necessarily trigger rating actions.
“There are some states that have done deficit financing and we haven’t changed the rating,” said Standard & Poor’s analyst David Hitchcock. “We can’t say that would necessarily be the case here. It all depends on the details.”
The impact of a single action like deficit financing on a state’s rating is hard to quantify, Hitchcock said, citing California, which the agency downgraded in January.
“When California had their problems, they did deficit financing, but there were other problems associated with that,” he said. “It depends on the magnitude of it.”
Felix Rohatyn, who worked with Ravitch in the 1970s to solve New York City’s fiscal crisis, said that when the city and the Municipal Assistance Corp. did deficit financing in the 1970s, an essential piece of the deals was the accompanying financial reforms, including the creation of a control board staffed respected finance people to restore confidence. Deficit financing for the state would similarly need to be paired with actions such as a cap on borrowing, Rohatyn said.
“It would have to be part of plan and where the spending would be put under control and the bonds would be sold as part of a plan,” he said. Rohatyn, a banker and former U.S. ambassador to France, served as MAC’s chairman from 1975 until 1993.
The state comptroller’s office has historically cited the perils of short-term budget fixes, including deficit borrowing, said Robert Whalen, a spokesman for Comptroller Thomas DiNapoli. He said the office didn’t have enough information on Ravitch’s proposal to comment on it.
“We’ll take a look at it when it’s a proposal,” Whalen said.
With the new fiscal year beginning on April 1, Paterson yesterday tried to refocus his agenda back on the state’s fiscal problems after weeks of dealing with scandals, including his alleged involvement in an aide’s domestic violence case that is under investigation by Attorney General Andrew Cuomo.
Paterson has said repeatedly that he has no plans to step down before his term ends.
