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December 19, 2008

BILL MOYERS: That sinking spell you are feeling could also be from the Ship of State going down in your own state capital. 43 of our states report they've hit the reefs and don't have the cash to pay their bills. Collectively, they face a total deficit of more than $100 billion by fiscal year 2010. Governors are sending out distress signals.

Here in New York, Governor David Paterson walked the plank just this week, carrying with him what the local media are calling his "doomsday budget." To deal with a gap of just over fifteen billion dollars, Paterson is raising taxes and cutting services, nobody is happy.

DAVID PATERSON: The other day somebody threw a pair of shoes at President Bush. And I don't know what prompted that action, but I would certainly assert that at the end of this budget presentation, if that's the most severe punishment I get, I'll sign for it now.

BILL MOYERS: New York's first African-American governor who is legally blind was thrust into office earlier this year when the incumbent Eliot Spitzer resigned over a sex scandal. David Paterson served as the Democratic leader in the State Senate and then as Lieutenant Governor before fate made him captain of the Titanic. I went over to his Manhattan office yesterday for this interview.

BILL MOYERS: This downturn we're in is hitting families and business very hard. People are struggling to get by. Now the states seem to be socking it to the taxpayers. You, like other governors, have proposed serious cuts in education, funding for hospitals, nursing homes and home healthcare, cuts in pension programs for state employees, new taxes and fees. How are people going to make ends meet in this recession that is deepening even as we speak?

GOVERNOR DAVID PATERSON: Well obviously there aren't many places for governors and legislators to go. You're going to have to cut healthcare and education because they comprise huge amounts of state budgets. There is a lot of pain in the downturn of this economy. And I think 2009 will be the year that people feel the pain. And my conscious is definitely in turmoil, I have vetoed bills that I sponsored. I was in the legislature until 2006. And by 2008 I never would have dreamed or had a nightmare of this proportion.

But I'm thinking that the sooner we respond to this crisis, the stronger and faster that we'll emerge from it and that perhaps we can learn a lesson about budget priorities in that we as governments have made the same mistake that consumers have made running up $950 billion in credit card debt. And that home buyers made with a million and a half to two million foreclosures in the last 18 months, which is that we were seduced by this societal doctrine that can, you can just keep borrowing and pushing problems off to the, into the future. The future has now stared us right in the face and we're in economic peril.

BILL MOYERS: You're asking New Yorkers to face 137 new or increased taxes and fees that will fall heavily on everyday people, paying more, for soft drinks, cable and satellite TV, haircuts, movie tickets. But you're not asking the wealthy to pay more in income taxes. And people are saying is that fair?

GOVERNOR DAVID PATERSON: I'm not ruling it out, Bill. What I have learned is that when you tax the wealthy in the downturn of an economy, you have an automatic link of a loss of job opportunities and then a loss of population. New York loses 150,000 people from its population every year, people moving to other states looking for greater opportunities.

BILL MOYERS: And lower taxes?

GOVERNOR DAVID PATERSON: And lower taxes. Lower property taxes and lower costs for food and for energy. What I'm afraid of is taxing the wealthy now, which in New York we're very fond of doing, still having a deficit, where are we going to go then? Tax the wealthy again? No.

What has happened is we have had consistent spending increases. Let me give an example. The Dow Jones average on Wall Street rose from about 2,500 in 1990 to over 10,000 in eight years. It quadrupled. And yet New York managed to be in budget deficit five of those eight years because no matter how much money we collected in taxes, we overspent it. It's spending that's causing our problems. And even though the special interests are all valid, I mean, the arguments against cutting education, the arguments about not cutting healthcare at this time are completely valid. Everybody's right individually. What it has added up to is everybody's wrong because we've overspent so much.

BILL MOYERS: Here's what the head of the Civil Service Employees Association has said about your budget. Quote, "The middle class will have to pay more and get less while the wealthiest New Yorkers slide by. There is no sharing of sacrifice here. It's working people getting stuck with the bill." If he were sitting here, would you concede he has a point?

GOVERNOR DAVID PATERSON: He has a point. However, it's the overspending, as I've said, that is continuing to create this problem. Every time you see another credit card, another refinance, another way to defer problems into the future, people jump at it. But that's what got us into this situation in the first place. So I'm saying I want to hold taxation or progressive income tax to the end so that I can say we've learned the lesson. We've proven we can stand up to a crisis. Now we'll finish it off by letting those who can most afford it close it down for us. When we bring it to a point where our economy's turning around, when this is all over, I want to guarantee the head of CSEA and the other unions and the other advocates and also the public, everybody is going to share the pain before New York brings back prosperity.

BILL MOYERS: What about this obesity tax? This is what the critics are calling your tax on regular soda drinks.


BILL MOYERS: What's behind that?

GOVERNOR DAVID PATERSON: Twenty-five percent of New York's children, one out of four, would be diagnosed as obese right now. The same items that you and I would have been kicked out of class for,

Bill, when we were in school, are now in vending machines in the halls, which is where I used to get kicked out. So you get kicked out of class, you go down to the vending machine and have a candy bar. But when you realize that children are 60 percent more likely to become obese if they drink these sodas, we were just saying that our government is inevitably having to care for them. And the obesity is leading to diabetes. It is staggering the number of young people who are pre-diabetic and diabetic. Who got diabetes when they were 16? It's happening regularly now. The government is the one that has to actually pay for these problems, as we did with cigarette smoking. And we're going to stand up and challenge the industry to help us pay for it.

BILL MOYERS: There's a libertarian group called Freedom Works led by former congressman from my home state of Texas named Richard Army. Let me read you what he writes about your proposal. Quote, "Who is Governor Paterson to make moral judgments about what New Yorkers drink and whether they should be punished by having to pay a tax?" Does he have a point?

GOVERNOR DAVID PATERSON: He can cloak himself with moral turpitude but really, has to bear the responsibility in even making a statement like that for the unfortunate illnesses that are becoming epidemic. One out of four children is obese? I think it's, I think it's outrageous. And in terms of the budgetary question, if people would like to persuade us that maybe this isn't the time for an obesity tax, we're open. We'll listen to that. We understand. However, what I want to hear is not as much the criticism of our deficit reduction plan but how the individuals who criticize it think it should be replaced. In other words, by law, we have to close a $15 billion budget deficit by April 1st. If you want to take one of these taxes out, we're open. Tell us how to replace it.

BILL MOYERS: You and other governors met with President-elect Obama in Philadelphia recently to talk about this budget crisis. But to help you and the other 42 states that are in such trouble, he's going to have to go deeply into debt at a time when we're suffering a crisis because of debt.

GOVERNOR DAVID PATERSON: I think that that is a seeming paradox. But the way I would explain it is that medications you'd never take when you're well but you take them when you're sick to help you get well but then you know you can't keep doing it. In other words, there's a point that some of the conservative governors, Governor Sanford of South Carolina, they're right that there's a well. And there's a point that if you just keep spending and you just keep borrowing, you're going be in a further crisis. And what the president I think is trying to accomplish is a psychological stimulus package. When you see people working again repairing bridges and building train tracks, when you see the dollar available to spend again, then the economy will grow and we can go back to I think a far more pragmatic governing principal.

BILL MOYERS: And the "New York Times" this week has a remarkable story. The headline is Wall Street profits were a mirage. But huge bonuses were real. And it talks about the role that lavish bonuses played in the debacle. Has anybody suggested to you that maybe you go back to those Wall Street tycoons who took those and executives who took those billions of dollars in bonuses and retrieve some of that money?

GOVERNOR DAVID PATERSON: Bill, this may surprise you. That's how the state got its money. That's why we're in deficit now.

BILL MOYERS: What do you mean?

GOVERNOR DAVID PATERSON: At the end of the year, when they got their bonuses, that would be the fourth quarter of our fiscal year, January, February, and March. Thirty percent of New York's revenues came from those bonuses. And although I totally agree that they were voluminous and I think out of line, as the bonuses start to go away, New York's economy sinks further into a hole. And so I never rooted for the Wall Street tycoons. But I read that top officials at Goldman Sachs deferred their bonuses this year. I went and factored it out. That cost New York $213 million.

BILL MOYERS: So we're in a catch-22 situation.

GOVERNOR DAVID PATERSON: For New York it is because we are so dependent on Wall Street. And that was the problem. It was a false economy. And our state spent more and more money against the backdrop of Wall Street taxation as I was saying, in the '90s. And now here it is when the revenues have fallen off the cliff and New York never transposed itself or adjusted to a new economy.

So the manufacturing jobs going away upstate, and Wall Street collapsing downstate, we're in a very, very prohibitive situation where we're going to have to not only close our deficit but find workable, sensible, and different solutions in the future. But I guarantee people who are watching, wherever you are viewing this program, by the time New York takes control of its budget and restores our state to its mission of creating jobs and hopefully providing good educations for its children, everyone in New York will be grumbling. That's how severe it is. I went on television before the problems of AIG and Lehman Brothers collapsed and Merrill Lynch was subsumed by Bank of America. And I told New Yorkers this would be the greatest downturn in our economy since the Great Depression. It was said that I misestimated revenues. It was said that I was Chicken Little and that I was an alarmist. This is what I was trying to say.

BILL MOYERS: What was it? What did you see that others didn't see?

GOVERNOR DAVID PATERSON: When I looked at the skepticism of people who were evaluating the stock market, when the short sellers were saying we were headed for a downturn, when economists that I would watch on other networks talked about it in a kind of hint but not direct way. And one time I heard an economist say, "We could be headed for trouble." And the other one says, "Oh, are you, are you being an alarmist" "Oh, no, no, no, no. I mean temporarily we'll have trouble."

I realized that a lot of people knew that the economy was going in the tank but no one wanted to say it. Because we as a society have learned how not to tell the truth. I saw a woman who was saying she didn't know how to tell her children that their home was going to be foreclosed on. There's an answer. Tell the truth. Tell them we're going to have to move. And I think, governments, our government, New York State's government was guaranteeing the public that things were fine, that we had a budget that called for six percent growth after the negotiations. And I thought that the best way to buy credibility is to tell the truth.

You'll have to take a hit from it for it for a while. See, I think, Bill, a lot of people knew it was coming but weren't able to address it. And I thought I'll roll the dice. I'm unafraid of being unemployed. The truth has to be told sometimes. I'm willing to tell it because I think that the public is angry. And, and I'm honest. The criticisms, the CSEA quote, as you read before.

BILL MOYERS: The labor union.

GOVERNOR DAVID PATERSON: The labor union, they hurt me. But the reality is that in the end people remember those who were willing to identify and direct on problems that actually exist, even if they weren't heard right away. And I may be rolling the dice. But I believe that New York citizens, just as well as other Americans, will at least be happy that someone tried to warn that our habits need to be changed, that our culture of spending needs to be reduced, or we are headed for even greater trouble.

Those people think this budget is bad. Wait until they see an austerity budget or a state that can't get, can't borrow because its credit rating is in the toilet or a state that can't meet its cash flow. When that happens people will wish they had addressed these issues and this budget right now.

BILL MOYERS: Is there any consolation to have a disaster prove you prophetic?

GOVERNOR DAVID PATERSON: I don't want it to. My job is to persuade people that the better course is to bite the bullet. And years from now we'll realize how close we came to economic disaster.

BILL MOYERS: Governor David Paterson, thank you very much for joining me on the Journal.


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