Ravitch Scours New York State Funds
Few people with Richard Ravitch’s resume would call themselves a student, but with the state facing a $2.1 billion current-year budget deficit, New York’s lieutenant governor has hit the state’s books.
“I’m spending all my time now going up a learning curve,” Ravitch, 76, said this week at his office on Third Avenue in Manhattan. Top of the agenda is getting up to speed on the state’s falling tax revenues, economic development strategies and infrastructure needs.
In a state that relies on the financial services industry for 20% of its tax revenue, the national recession and credit crunch have pummeled finances, creating an estimated cumulative $38.2 billion budget deficit through fiscal 2013.
Ravitch is well aware that his time in office may be limited, and not only because he won’t be running for reelection next year. State Senate Republicans challenged the constitutionality of his appointment to the post last month by Gov. David Paterson, and a hearing on the matter is scheduled for Tuesday. The position had been vacant since Paterson became governor last year after former Gov. Eliot Spitzer resigned in a prostitution scandal.
Ravitch, whose days are filled with meetings with fiscal experts, was reluctant to discuss how the state will close its budget gap. A plan is expected to be released next month.
“I’ll have a hell of a lot more to say in the event that the courts find that I am lieutenant governor,” Ravitch said. But the man who was called upon in the 1970s to rescue the then-nearly bankrupt Urban Development Corp. and who not only created the Metropolitan Transportation Authority’s first capital plan but wrote the statute authorizing it to sell bonds was at no loss for words when discussing the state’s long-term infrastructure needs.“It’s a serious problem, and I think the stimulus bill begins to address it at the periphery but doesn’t deal with it fundamentally,” Ravitch said of the U.S. American Recovery and Reinvestment Act. “What do we do now if you assume the stimulus bill as we know it is not going to be renewed or a level of appropriation isn’t going to occur?”
Local infrastructure needs in New York are vast and face an $80 billion funding gap over the next 20 years, according to a report released by State Comptroller Thomas DiNapoli this week.
Local governments have increasingly funded general-purpose capital projects like municipal buildings rather than “core infrastructure”: transportation and clean water and wastewater projects. Meeting those infrastructure demands, primarily for transportation, will cost $250 billion but only $170 billion of expected resources have been identified.
Ravitch said that the country’s underfunding of its infrastructure “to the point where it was stymieing economic growth” caught his attention years before his latest appointment.
“The Chinese are spending seven times as high a percentage of their gross national product on infrastructure as we are: What does that tell you about the future?” he said.
Sitting on Ravitch’s desk was a copy of a commentary from the Rockefeller Institute, an Albany-based public policy think tank, that called attention to the fact that the stimulus funds only scratched the surface of the state’s needs.
“I don’t think that state revenues in New York or elsewhere will bounce back as quickly as the stimulus money will dry up,” said David Shaffer, senior fellow at the institute and author of the commentary. “There’s going to be another few years of dicey adjustments for everybody to deal with.”
Capital spending tends to end up at the back of line during a financial downturn as governments try to keep human services and education funded.
“The cumulative impact of that is pretty serious,” Shaffer said.
One avenue New York and other states have been looking at to fund infrastructure projects is public-private partnerships, which involve a concession with a private company.
“They should be explored, but I am somewhat skeptical,” Ravitch said. “Why finance something taxable if you can finance tax-exempt, particularly if there’s a user charge involved?”
Using P3s to complement existing facilities might work, but Ravitch is concerned about the public cost.
“If you want to drive your fancy car on a toll road to get someplace a little bit faster and you want to pay a big toll I don’t want to object to that, but I wouldn’t use public powers or public money to facilitate that,” Ravitch said.
Ravitch has been Paterson’s go-to guy before. Last year the governor tapped him to lead a commission to help craft a bailout package for the cash-strapped MTA. Some of the commission’s recommendations were included in a compromise adopted by the Legislature — namely, the creation of a new revenue stream from payroll taxes — but not the creation of a new public authority to issue bonds.
“One of the reasons I recommended a special borrowing authority was that over the long term I wanted to separate the capital [spending] from the operating in a way that was very clear to the public,” Ravitch said. The adopted plan is expected to back about $6 billion of bonds, leaving a nearly $10 billion hole in the authority’s proposed $28.08 five-year capital plan.
Ravitch doesn’t know how they will fill that gap.
Though clearly disappointed, Ravitch does not appear bitter over the role of politics in passing the final plan.
“Politics is not a bad word,” he said. “I mean, how else is democracy going to work?”
Politics also swirl around the redevelopment of the World Trade Center site as developer Silverstein Properties Inc. has sought greater public assistance from the Port Authority of New York and New Jersey to build on the site. The Port Authority has balked as has Paterson, and the matter is now in arbitration. Ravitch said current downtown rents couldn’t support the debt service on the buildings.
“You don’t use limited public resources to finance a privately owned office building for which there are no tenants,” he said. “I’d rather see the Port Authority buy buses for the New York City Transit Authority.”
Ravitch said his job now is only to make recommendations, such as the idea that the New York pension fund get involved in bond insurance, which he said could benefit both the retirement system and municipal borrowers.
People have turned to Ravitch for a long time, for his decades of public and private-sector experience.
Former Mayor Ed Koch this week said he was “one of the smartest people I’ve ever met, particularly when it comes to government financing.”
“I would go to him for advice whenever possible,” said Felix Rohatyn, former chairman of the New York Municipal Assistance Corp. and a longtime Lazard Freres banker who worked with Ravitch during the '70s fiscal crisis.
“He was a powerful voice then as he is now.”