NY lieutenant governor proposes deficit plan

NEW YORK (Reuters) - New York state may need a dose of the same medicine that saved New York City from a near bankruptcy in the 1970s as the state struggles with a five-year, $60 billion structural deficit, Lieutenant Governor Richard Ravitch said on Wednesday.

Ravitch, a long-time financial guru and public servant, outlined a plan that would create a financial review board, oblige governors to submit five-year financial plans and impose strict controls on new debt.

The state could use short-term borrowing of about $2 billion a year to help close the five-year deficit, he said. The review board, whose five members would be private citizens, would assess on a quarterly basis whether the state's budget was balanced and the deficit was being sufficiently pruned.

Many of Ravitch's solutions mirror measures he helped devise to steer New York City through its fiscal crisis decades ago. New York's constitution would not allow for the state to adopt the kind of financial control board that oversaw city budgets, he said.

Likening his short-term borrowing plan to the debt New York City issued after the September 11, 2001, attacks, Ravitch said the U.S. government had failed to make a "serious response" to safeguard essential services that states provide.

New York, however, could change its fiscal year to a July 1 start from April 1, bringing it in line with other states, and could use stricter generally accepted accounting principles, another remedy imposed on New York City during the 1970s.

Making it clear that he did not view borrowing as the preferred solution, Ravitch said new "transitional" bonds could be backed by personal income tax revenues. Only three years of this debt might be needed, for a total of $6 billion.

The debt could only be issued if the proposed review board determined that "the plan or update is projected to achieve or maintain balance at the end of the fifth year of the plan," he said. The debt service would have to be repaid "within a limited amount of time."

The new transitional bonds could, for example, default automatically if the state board found enough progress was not being made closing the structural deficit.

Further, bond covenants could be written to stop the state from issuing either state-backed debt or the new kind of debt if the review board said the deficits were still too big.

Some of Ravitch's plan would require the legislature to accept diminished power over budgets -- though Ravitch stressed that he was deferring to its authority, by not, for example, recommending specific cuts. Nor could the state balance its budgets simply by slicing spending, he said.

Democratic Assembly Speaker Sheldon Silver said Ravitch's plan was about "mitigating cuts," not avoiding them as significant sums would have to be cut if it was adopted.

"There really isn't a big giveaway of the prerogative of the legislature other than committing to a GAAP-balanced budget within five years," Silver added.

Ravitch said all the new board's members would be financial experts: the governor would name two, with the comptroller and the two legislative chambers each naming one member. Members would serve for five years and make their decisions by a majority vote.

While praising several aspects of Ravitch's plan, Mayor Michael Bloomberg questioned its use of deficit borrowing, and criticized the review board plan.

"I do not think that Albany should be appointing the members to that. I think that doesn't pass the laugh test," Bloomberg said. The board members should be named by mayors of the five biggest cities, he said.

(Reporting by Joan Gralla and Elizabeth Flood Morrow in Albany; Editing by Kenneth Barry and Leslie Adler)