Former New York Lieut. Gov. Richard Ravitch and former Federal Reserve chairman Paul Volcker are forming a task force to analyze states’ budgets with the goal of helping governments put in place stronger, long-term budget practices.
The two influential policy-makers and long-time friends are teaming up to document how states have used non-recurring resources to cobble together balanced budgets and to see if they can offer advice for states to make better long-term decisions. The investigations will include looking at debt practices as well as unfunded pension liabilities and other post-employment benefit costs.
Ravitch said in an interview Tuesday that after he made recommendations last year for a sustainable state budget in New York, “a lot of people got in touch with me from around the country.”
“I have a very strong suspicion that the course that many states are on is not sustainable,” he said. States that balance their budgets with asset sales and borrowing “by definition” are using a method that is “not sustainable in the long term,” he said.
Ravitch said he has been encouraged to pursue the project by people at the Federal Reserve Bank of New York, among others.
Donald Boyd, of the Nelson A. Rockefeller Institute of Government, will serve as executive director for the task force. Boyd said the group hopes to have a report out in about a year.
The project will analyze at least five states — California, New York, Florida, Texas and Virginia. The group may be expanded as funding allows, Boyd said.
The goal of the task force “is to show the difficulties states face in the future delivering services at a reasonable price in the way of taxes,” he said.
Ravitch was appointed lieutenant governor in 2009 by then-Gov. David Paterson. Ravitch previously was chairman of the state’s Metropolitan Transportation Authority.
As lieutenant governor, Ravitch “got deeply into the way the budget was prepared and constructed in New York,” Boyd said. Those budgets frequently relied on short-term solutions to get budgets passed from year to year, he said.
Now, Ravitch is looking to take his expertise in state budget practices nationwide, Boyd said.
Last year, Ravitch proposed to Paterson a series of budget reforms intended to return New York to a structural balance in five years. One proposal suggested the state could issue a limited amount of “transition bonds” backed by its personal income-tax credit to help close the budget deficit temporarily. He told The Bond Buyer last year that deficit borrowing-backed personal income taxes may be needed if the state can’t achieve a balanced budget in a given year. The plan was not adopted by the governor or Legislature.
He also pushed for an overhaul of the state’s Medicaid system and for the state’s adoption of generally accepted accounting principles.
Volcker has been a key player in the Obama administration’s early financial reform efforts. Volcker, who served as the Federal Reserve Board chairman between 1979 and 1987, was appointed chairman of the President’s Economic Recovery Advisory Board in December 2008. He also led the administration’s charge to prohibit proprietary trading at banks.
The new task force will also include Carol O’Cleireacain, who previously was deputy state treasurer in New Jersey and is a nonresident scholar at the Brookings Institute. The task force will also be working with elected officials and budget officers in the five target states.
The task force has acquired funding from several foundations, Boyd said.