JIM MALATRAS EXCLUSIVE: Albany’s Version of Goldilocks and the Three Bears

In the 1920s, the legendary progressive hero Governor Al Smith led the bipartisan charge to amend the New York State Constitution to reform the state’s budget process. In the end, the reforms gave the governor tremendous authority over the process. New York was not alone. Many states across the country followed, moving to strong executive-oriented budgets. We don’t have the space to dedicate to why this was an important reform, but the buck had to stop somewhere — and from then on, the governor was firmly in charge.

Since those reforms, the courts have reinforced the governor’s primacy in developing the fiscal plan for the state. As a former legislative aid, who believes in the importance of a robust legislative process, I’m not arguing that the legislature has no role — in fact, as a co-equal branch of government, it serves a critically important function of review, analysis, providing alternatives, and input during the process. It’s simply a factual point that the state constitution requires that the tone, tenor, and pace of the budget process be set by the state’s chief executive.

But with that authority comes great responsibility and, for better or worse, the buck does stop with the governor. Governor Cuomo released his Executive Budget last week, and like many years I call this the “Goldilocks” phase, meaning no matter what a governor proposes, it is never enough — some proposals can be simultaneously too hot, too cold, or just right — yet nobody ever says that it’s just right at the outset.

Take one of the largest flashpoints in the annual budget ritual: K-12 education spending. Education spending makes up about a third of the state’s overall spending. But it’s a critically important investment by the state because, as Governor William H. Seward said in 1839, “The standard of education ought to be elevated … education is the chief of our responsibilities.”

This year, the governor proposed a 3 percent increase, with total education spending exceeding $26 billion.

And in a New York minute came the complaints.

A columnist in the Capital Region blared that the governor’s budget was “too hot”— complaining in a column that the governor has thrown fiscal discipline out the window because there weren’t enough cuts in his budget given there is a $4.4B budget deficit. This columnist scoffed at the new fees in the budget, like those against drug manufacturers (in some cases, to pay for treatment of an epidemic they caused) and argued that education spending “which has already spiked 35 percent since 2012” should have been cut instead of increased.

(Ignoring, of course, the state’s self-imposed 2 percent spending limitation and the very difficult 2011 budget year when a $10 billion deficit was closed with real reductions. The state, by acting more fiscally responsible over the past several years, has made it easier to deal with the looming fiscal crisis.)

At the same time, other education groups were yelling from the rooftops that the governor’s proposal was “too cold.” Only a 3 percent increase (an increase that exceeds the rate of inflation). They claim that it’s a moral and ethical outrage and the governor cares little for students!

Maybe, just maybe, the proposal could be “just right.”

I leave it to the reader to determine who Goldilocks is and who the three bears are in this comparison.

The columnist that criticized the education aid increase misses a fundamental policy objective about why the increase education spending is critical. The advocates — whose job is to always say it’s not enough — don’t recognize the state must to be mindful of spending in a year when federal tax policy and federal healthcare cuts, among other things must be accounted for because revenue is tight.

First, for those that say the budget proposal is “too hot,” the governor made funding of schools more progressive and therefore the increase is prudent and necessary to maintain progressivity. This is more than a mere numbers exercise; the state is making an important policy choice and it’s the right one.

What do I mean by maintaining progressivity? Schools are funded through two main sources (putting aside federal aid): the local property tax and the state income tax. Over the past several years, the state has shifted the burden from the local property tax (a regressive tax) to the state’s income tax (a progressive tax).

In 2011, the governor, working with the legislature, enacted a cap limiting property tax increases to 2 percent or the rate of inflation, whichever is less. It maintained local control with override provisions.

The cap went into effect in 2012 and has helped slow the growth of out-of-control property taxes. Prior to the tax cap, the average annual school property tax growth rate from 2000-10 was nearly 6 percent, far outpacing inflation or wage growth. In the first three years of the tax cap, the average annual school property tax increase has dropped from nearly 6 percent to 2.5 percent — a reduction of more than 58 percent.

At the same time, the state has increased education spending through the income tax nearly 4.5 percent a year. Therefore, the state has increased spending through a funding stream that says the more you make, the more you pay, while capping the tax that went up regardless if the family paying it had more income year over year to pay the increase, which they often did not.

Although the Left has largely opposed the cap, this new funding structure is fundamentally progressive.

Second, for those who say the budget proposal is “too cold,” there has to be a recognition of the extraordinary times we are now facing. There is a budget deficit and there must be acknowledgment that the federal tax changes, federal healthcare cuts, and overall national fiscal picture for state governments created a problem that cannot be ignored. A recent report by my organization, the Rockefeller Institute of Government found that, nationwide, state and local government revenue this quarter was weaker than the previous four quarters. It is easy for advocates to simply say “more for us.” I get it — they advocate for their specific interests. But, if they are to get more, who gets less in these difficult fiscal times, which is exacerbated by the federal cuts?

This is a unique year from the point of state and federal relations, especially in states like New York. The Rockefeller Institute’s analysis, which revived Senator Moynihan’s “Fisc” reports, found that New York is the largest donor state to the federal government, while getting the least back in return. Unless it is addressed, the new federal tax law, particularly the change to the state and local tax deduction, is likely to cause reduced revenue for schools (and other services) in communities all across the state. That entangles the already complicated Albany education spending budget dance.

In essence, the federal changes will throw the state’s newly rationalized progressive system of education funding—increasing state aid through the progressive income tax and capping the regressive local property tax—into chaos, which must be fixed if we want to keep the progressivity and rationality of the education funding system in place. That should be the focus, not whether the overall number is “too hot” or “too cold.”

This year, it is in our collective state interest to focus on the real threats to education—federal policy changes and looming fiscal problems nationally for state governments.  Sometimes, in times like these, the overall spending number is just right.

Jim Malatras is the president of the Rockefeller Institute of Government and an adjunct professor in political science at the University at Albany. He is the former director of state operations to Governor Andrew Cuomo and was the administration’s point person on education policy as well as the state’s property tax cap.