New York to Shut Down?

The budget crisis in New York is getting worse. The state has remained in operation thanks to a series of emergency bills that have included dramatic reductions in some areas of spending. But Republicans, worried that the cuts do not go far enough, have opposed the last three emergency bills.

In the latest development, the New York Times reports that two Democratic Senators have said they will not vote for any more emergency bills if they entail further cuts. That’s a problem because Democrats enjoy a razor-thin 2-vote majority. This prompted Governor Paterson to state that he will not give into “thug-activity,” presumably referring to his fellow Democrats. At least one Democrat in question, Senator Díaz, took it that way: “The Governor called me a thug. When I pick a fight, I don’t go back. Let’s see what a thug can do.”

If the politicians fail to play nice, the Times reports that the state government may shut down. This crisis was brought on by out-of-control-government spending. But a government shutdown is not likely to be a win for those who wish to reign in that spending. In his recent analysis of budget rules, University of Rochester Professor David Primo finds that states with automatic shutdown provisions spend $64 more per-capita compared to states that do not have automatic shutdown provisions.

Primo explains:

This finding relies on a result, first shown by Romer and Rosenthal (1978), that the more extreme a status quo or reversion point, the more advantaged is the proposer in bargaining settings with take-it-or-leave-it offers. By making the reversion point, in effect, zero, states that do not allow for some reasonable level of spending in the absence of budgetary agreement advantage the proposer in the process (in this case, the legislature). This result demonstrates the sometimes surprising effects of budget rules.