From Bloomberg: “The Florida agency that manages about $50 billion of short-term investments for the state, school districts and local governments holds $2.2 billion of debt cut to junk status…Florida may not be in a position to bail out its funds, given how the construction slowdown is affecting its revenue and it has no income tax. ‘Where are you going to make this up? It has to come from the taxpayers, or spending cuts, or a combination.’” I’m shocked, shocked that politicians followed the advice of experts campaign contributors and invest in securities with a little extra promised short-term yield and a whole lot more long-term risk. “Florida isn't the only government whose short-term investments have been affected by rising mortgage defaults in the U.S. and investors' diminished appetite for the securities tied to them.” What’s in our public employee pension funds?
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By the way, Florida also has an ongoing property tax revolt, which is being solved by a statewide “welcome stranger” policy of sticking it to anyone who moves there, opens a business there, or owns a second home there. Having enough revenue without a state income tax was easy enough when an expanding population meant many public employees relative to the number of public employee retirees, and plenty of “young” elderly retirees from elsewhere with money to spend and virtually no public service requirements. Now that more ex-government workers are drawing pensions, and more ex-pensioners require nursing home care, Florida is running into some of the same issues NYC did in the 1970s.
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From the Financial Times: “Global credit turmoil has spilled over into the market for bonds backed by US commercial mortgages, threatening to push down property prices and scuttle deals. Issuance of US commercial-mortgage-backed securities fell to $6.3bn in October, down 84 per cent from a record $38.5bn in March, according to Commercial Mortgage Alert, a trade publication. The decline in CMBS issuance is crucial because such securities have provided an estimated 40 to 60 per cent of financing for new commercial property purchases in recent years.” I am shocked, shocked that the REIT boom that drove commercial property prices and sales volume is over, and that a more normal level of investment transactions could cause MTA real estate transfer and mortgage recording tax revenues to plunge back to what they were, blowing a massive hole in next year’s agency budget. I’ll be stunned if Blackstone and Tishman don’t buy every major building in the city, and then turn around and sell them providing double the taxes, year after year.
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Want to postpone the fare hike until “everything is on the table?” By then much more revenue will be off the table, and the hike will be larger.
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From the Rochester Democrat and Chronicle: “Even though Gov. Eliot Spitzer has already promised to raise aid to local schools by $1.35 billion next year, aid to education isn't exempt from potential budget cuts, Spitzer's budget director said Tuesday. ‘Everything is on the table,’ said Budget Director Paul Francis. ‘All spending has to be reviewed.’” I am shocked, shocked that given the sky-high level of education spending in the rest of the state, education spending will rise no higher in New York City. Money has to be saved somewhere to offset the enormous burden on suburban and upstate property taxpayers, and New York City state income taxpayers, or excess spending outside the city.
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Actually, keeping the existing gap as it is would be the best-case scenario. More likely the state will cut aid to New York City, where spending per child is now above the national average adjusted for the cost of living (after years, decades of being very low) and increase it for the rest of the state, where spending per child is off the charts. As it did in 1995-96. And a large share of the money we do receive will go to retirees rather than the classroom. Repeating similar decisions made that year and in 2000. How about keeping education for the city unchanged, but taking away education “tax relief” aid from overspending districts unless they cut back, reversing the “more to those who already get more” policies of the past? Rather than having them increase spending even more, and then demand a higher share of education funding because their property taxes are too high? Now that would shock me.
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I don’t even think the fiscal situation will be that bad here, compared with some states (and parts of our state) learning to get by with greater difficulty for the first time. But it doesn’t take much of a downturn to hurt those who have been losers in the State of New York fiscal priorities. As the Russian proverb goes, “the shortage will be divided among the peasants.”