When Spitzer ran for governor in 2006, lack of confidence in state government was widespread, with 58 percent of New Yorkers saying that they were dissatisfied with Albany, according to a poll commissioned by the Manhattan Institute’s Empire Center for New York State Policy. At the time, nearly half of poll respondents said that either they or a family member had considered leaving the state—perhaps not surprising, considering that New York led the 50 states in out-migration, according to the 2000 U.S. Census.
Behind state residents’ discontent were a number of well-known problems that seemed resistant to reform. Powerful special interests—from public-employee unions to health-care groups—controlled much of the agenda in Albany, driving up spending on employee salaries and on benefits and subsidies to favored groups like hospitals and nursing homes. Legislators treated the state budget as a personal cookie jar, filling it with “earmarked” spending—that is, spending requested by individual members of the legislature that often gets approved under the radar screen. In 2006, legislators and the governor divided some $200 million in such “member items” among themselves.
Not content with this taxpayer-funded cookie jar, the state has also created a bevy of public authorities and commissions—at last count, a staggering 640 or so—that operate mostly outside the state budget. These authorities, according to a series of investigations into their workings, are often patronage mills loaded with lucrative positions for politicians’ friends and political allies. They are also largely unaccountable, and many have the ability to raise money through debt offerings. At last count, they have accumulated an incredible $100 billion in debt; New York taxpayers are on the hook for at least a third of that total.
This lack of accountability is a key factor in New York’s increasingly out-of-control budget. The state’s Medicaid program, for instance, is twice as large as the next-biggest state program, in California, even though California’s population is nearly twice that of New York. Similarly, most New York public employees can count on lavish health-care and retirement benefits—including the option of retiring with virtually full benefits at age 55 in many cases, a far better deal than most private-sector workers now have. The porcine budget has helped create a knee-buckling tax burden that has dramatically weakened the state economy. A recent Tax Foundation study, for instance, found that nine of the country’s ten most heavily taxed counties (out of a total of 783) are in New York State. The total state and local tax burden in New York now amounts to nearly 14 percent of personal income. Adding in the federal tax burden, New Yorkers are now forking over nearly 38 percent of their income to government, the highest percentage since at least the 1970s. No wonder that even with Wall Street’s extraordinary earning power, the state’s overall economic growth has been anemic for years.
Fed up with this situation, New Yorkers have been yearning for change. The Manhattan Institute’s 2006 survey found that two-thirds of state residents favored a constitutional limit on the growth of state spending, while more than two-thirds favored term limits for state officials. About 64 percent of poll respondents said the state should cure its persistent budget deficits by cutting spending rather than raising taxes. Mindful of how resistant New York’s public officials had been to reform, 64 percent of residents told MI that they favored granting voters the right to initiative and referendum, through which voters could directly make changes to state law.
Spitzer had promised to pursue reform—including taming Medicaid, reining in public authorities, and reducing pork. He accomplished little of that, and in fact the state’s budget ballooned during his short tenure. Now David Paterson waits to take control. The best that can be said about him is that he knows his way around Albany, having spent 20 years there, and that his fellow legislators like and respect him. He won’t enter office facing the resentment that Spitzer engendered. On the other hand, as a virtual unknown throughout most of the state, Paterson also has little political capital outside Albany. It’s not even clear whether he will be the most powerful Democrat in the state capital, or whether that role will now fall to Assembly Speaker Sheldon Silver, who, along with Senate Majority Leader Joseph Bruno, has ruled Albany for years. Both men are major impediments to change.
To reform New York, Paterson would have to stifle the state legislature’s tendency to overspend on pet projects, grab greater control of state authorities that squander taxpayer resources, and clamp down on out-of-control Medicaid spending. He would also have to seek ways to return democracy to New York State—through promoting initiative and referendum, or through changing the way that legislative districts are drawn in New York, stripping that power from the legislature, which has used it to carve districts in which incumbents are virtually assured of reelection. He could even try both methods.
But despite Paterson’s affability and the respect he garners in Albany as a straight shooter, there’s little in his past to suggest that he’s ready to take on these weighty problems. Instead, with a policy agenda to the left of Spitzer’s, Paterson may turn out to be an agent for even higher spending and higher taxes in New York. Indeed, the Working Families Party, the quasi-socialist party that continuously lobbies for higher taxes in New York (including a recent proposal for a controversial income-tax surcharge on wealthy residents), is closely aligned with Paterson, having helped him gain his previous position as State Senate minority leader.
Paterson will need to work hard merely to bring credibility and a measure of respect back to the governor’s office. New York needs much more than that, though—it needs a long-term program of reform. If Paterson can’t, or won’t, embark on such a program, New Yorkers face another three years in which their state government is in the hands of those who would exploit it and squander taxpayer resources. In that case, other reformers—perhaps Attorney General Andrew Cuomo, New York City mayor Michael Bloomberg, or maybe even Rudy Giuliani—would be lining up for a shot at the governor’s office in 2010.
At least, New Yorkers have to hope so.
Steven Malanga is senior editor of City Journal and a senior fellow at the Manhattan Institute. He is a coauthor of The Immigration Solution.