EDITORIAL: Borrowing should be last resort for government

Boards should exhaust other options first

Categories: Editorial, Opinion

When your household bills get too high, the sound financial advice is to immediately go out and borrow a lot of money.

Oh wait, that’s the opposite of sound financial advice.

Actual sound financial advice is to try to find ways to cut spending, to put off certain purchases and expenses until a later time, to find ways to bring in more money (getting a second job, selling things), and to negotiate with your creditors for extensions or modified repayment plans.

But if you’re in government and you don’t have the desire, skill or political courage to do any of those things to any great degree, you go right for the big loan — potentially saddling taxpayers with interest payments for years into an uncertain financial future.

The city of Schenectady, facing a $12 million deficit, is considering joining those ranks, with Mayor Gary McCarthy asking the City Council to approve a tax anticipation note of up to $7 million to cover payroll costs and other government functions. The note would be repaid over five years.

No doubt the city is in a big financial bind, along with just about every other state and local government body in the country.

Without big spending cuts, staff reductions or other maneuvers to generate or recover tax money, the city’s financial position is precarious.

Part of this borrowing movement among local and state governments, no doubt, is designed to pressure members of Congress to push for a federal bailout of those local and state governments.

Gov. Andrew Cuomo has been pushing for the feds to pass a $500 billion relief bill for state and local governments, citing potential state deficits of $30 billion over the next two fiscal years.

As the new head of the National Governors Association, he’s likely to ramp up his lobbying efforts.

No one wants to be responsible for police and firefighters and social workers and road crews failing to show up to do their jobs, he argues. No one wants to call the unemployment office or DMV or social services department and get an answering machine.

That’s the kind of leverage governors have over members of Congress: culpability.

Absent a big federal bailout, governments on all levels are turning to borrowing.

The state of New Jersey, for instance, is seeking to borrow $9.9 billion to cover its budget deficits — a measure that’s been met with a lawsuit from opposition party Republicans over the attempt to bypass voter approval.

But resorting to borrowing won’t come without consequences to taxpayers.

That money has to be paid back, with interest. And interest rates, even if the money is borrowed through some kind of special government loan program, won’t necessarily be favorable to the borrowers.

Eventually, when the COVID crisis subsides and revenue starts to come back in some form, taxpayers will be on the hook for those loans on top of what they now pay to support the government. It’s likely government revenues won’t return to past levels in the near future, so the cost of borrowing could come on top of even higher taxes.

And if state government here in New York refuses to trim its costs and decides to find savings by cutting aid to local governments and school districts, the prospects for local taxpayers are even more bleak.

Some kind of short-term loan to carry the city and other governments over the hump might be warranted and necessary. The idea of borrowing something shouldn’t be dismissed outright.

But before they go that route, governments at all levels need to do what we as individuals would be expected to do when faced with financial shortfalls: Look internally for solutions.

We know there are billions of dollars in waste in state government. We know there are places to cut. We know there are exorbitant state employee contracts that could be renegotiated. We know the governor has the authority to make cuts himself. We know there are billionaires in this state who have benefited from the COVID crisis who could be asked to pay more into the state treasury to help balance the state budget. (It’s not so easy for them to just pick up and leave the state, as some fear they would do if taxed higher.) We know there are pay raises for state government workers on hold that will eventually have to be paid if a long-term pay freeze isn’t enacted.

But the governor is counting on the feds to cover all our expenses, without state cuts. That’s not only unreasonable, it’s unlikely.

On the local side, has the city of Schenectady done all it can to trim expenses and recover revenue?

An article in Thursday’s Gazette about the mayor’s borrowing plan noted that the city is owed about $29 million in uncollected taxes. Recovering less than half this amount would close the city’s deficit.

Have employee unions done enough to help the city out in this crisis by offering major concessions to avoid layoffs and program cutbacks? Have the budget-cutters in the city gone through and pared everything that could be pared?

The city of Albany in May announced plans to lay off nonessential workers to help close a projected $20 million budget deficit. 

Westchester County officials proposed earlier this year what amounted to buyouts of municipal workers, offering them $1,000 for each year of service to quit. 

A survey by the National League of Cities last month showed 32 percent of cities in the U.S. would have to furlough or lay off employees, and 41 percent had enacted or planned to enact hiring freezes.

Borrowing is the easy way out of a financial crisis.

The politicians don’t have to make the difficult decisions on cutting programs and staff, which voters hate.

They don’t have to raise taxes, which voters also hate. And they can put off the pain onto some future administration and some future generation of taxpayers and voters.

The coronavirus crisis is indeed unprecedented, and unprecedented steps may need to be taken to deal with it.

But putting more burden on taxpayers through borrowing, without first exhausting all other options, should be a government’s last resort.

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