Whoever wins today’s governor’s race, Eliot Spitzer or John Faso, will be taking over a state at a critical juncture. Even after a recovery from the 2001 recession, New York is hemorrhaging jobs, facing a multibillion-dollar budget gap, and losing its residents to other states. New York is also poised to take center stage on issues like gay marriage, education funding, and school choice, all of which are coming to a head in 2007. Below is a list of the 10 most important and immediate issues facing the next governor of New York:

Slow job growth: Although unemployment in New York is lower than the national rate, the state is trailing the national average in job creation. While New York City kept pace with the rest of the country over the past year, upstate industrial areas like Buffalo-Niagara Falls, Chautauqua County, and Rochester each lost jobs, with Mr. Spitzer comparing parts of upstate to Appalachia. In the last year, the state added 67,500 payroll jobs, an increase of .8%,compared to a national increase of 1.3%. The private sector trend is similar: New York saw an increase of .9% versus a 1.4% nationwide jump. Governor Pataki’s budget office is forecasting even slower job growth rates in 2007.

High Taxes: Tax studies have ranked New York as the first or second highest taxed state in the country for more than 25 years. Largely because of spending rates that have far outpaced inflation, New Yorkers pay significantly higher property taxes, sales taxes, and income taxes than the rest of the country. The growth of property taxes in the last decade has been a particular problem. The per capita property tax burden in the state is now 49% higher than the national average.

Albany lawmakers recently approved a cap on local Medicaid increases, which shifted more of the cost of the program to the state government, but property taxes are still growing at a much faster rate than inflation. To counter the trend, Governor Pataki has spent billions of dollars each year giving property tax exemptions to homeowners, a program that both gubernatorial candidates, Eliot Spitzer and John Faso, say they will expand. Fiscal watchdog groups say the School Tax Relief program, which is known as STAR, encourages school districts to spend more, favors wealthier school district over poorer ones, and ignores business property owners and renters.

Campaign for Fiscal Equity: One of the largest new expenses for the next governor will be to settle the Campaign for Fiscal Equity lawsuit alleging that the state is illegally under-funding New York City schools by billions of dollars in operating money a year. A final settlement tab will be around $4 billion in new annual aid for city, a small portion of which will come from the city’s coffers. School districts outside of New York will probably demand that the state match any increase given to the city, a result that would raise per-pupil spending in the state to a record national rate. The challenge for next year’s governor will be to deal with lawsuit while plugging a deficit estimated at $2.4 billion.

Hospital closings: Shortly after Thanksgiving, the New York State Commission on Health Care Facilities will submit to Governor Pataki its recommendations on which hospitals to close. The completion of the commission’s final report is sure to spark a public relations battle waged by hospital executives, community activists, and health care workers union, 1199/SEIU, all of which will look to the next governor and the Legislature to overturn many of the recommended closures. Mr. Pataki is expected to approve the commission’s report, but it’s not clear whether the Legislature will move to block it. Mr. Spitzer and Mr. Faso have both said the state’s deficit-plagued hospital industry is in need of downsizing, an issue that could be the most contentious one facing the next governor in 2007.

Medicaid spending: New York spends more on Medicaid than Texas and California combined, a major reason why New Yorkers are taxed more than other Americans. “You can’t reduce taxes in New York in the long run unless you do something about Medicaid,” said E.J. McMahon, a budget analyst for the Manhattan Institute. About an eighth of the new state spending this year was attributed to growth in Medicaid, which is expected to cost the state government an additional $3.5 billion over the next two years. Budget experts like Mr. McMahon blame the high cost of the program on escalating enrollment, low eligibility thresholds, costly benefits, fraud and waste, and an over reliance on hospital and nursing home care.

The future of charter schools: The establishment of charter schools in New York has been the most important inroad that the school choice movement has made in the state. But the future of the educational experiment hinges on whether lawmakers allow more charters to be granted above the current legal limit of 100. If Mr. Pataki fails to broker a deal on the schools in negotiations with the Legislature in December, it falls to the next governor to continue the push for a higher cap. Both Mr. Spitzer and Mr. Faso say they would like to expand charter schools, but a debate on the schools would have less to do with how many and more to do with what kind. The United Federation of Teachers, a powerful force in Albany, is open to adding more charter schools as long as they are unionized. It could be up tot the next governor to decide whether to fold a labor agreement into a charter school cap agreement.

Gay marriage: In July, the state’s highest court deferred to the Legislature on the issue of legalizing gay marriage, which is expected to be a lightening rod issue in the upcoming session. Mr. Spitzer has vowed to support legislation making same-sex marriage legal in the state, while Mr. Faso has said he is opposed to such a bill. Either way, the next governor will find himself at the center of the national gay marriage debate.

The “Driving Mrs. Hevesi” scandal: A last-minute spending spree could help comptroller Alan Hevesi edge out his Republican challenger, J. Christopher Callaghan. A victory by Mr. Hevesi, whose use of a state employee as a driver and personal aide for his wife has erupted into an ethics scandal, presents a number of challenges for the next governor. If Mr. Hevesi resigns from his next term in office, a decision that depends on the findings of the Albany County district attorney’s criminal investigation, it would be up to the next governor to nominate a replacement to be voted on by the Legislature. Whoever the governor picks will have to pass muster with the Democratic speaker of the Assembly, Sheldon Silver, who controls the largest share of legislative votes. Governor Pataki has indicated that he is leaning against trying Mr. Hevesi before the state Senate. That means it will be up to the next governor to settle on a punishment for Mr. Hevesi if the comptroller refuses to step down.

Pay to Play: A major theme running through the campaigns of each of the gubernatorial candidates has been ethics reform. Mr. Spitzer, in particular, has vowed to end what he describes as the “pay to play” culture in Albany. Public attention on corruption in Albany has sharpened amid the recent scandals involving Mr. Hevesi and the indictment of Queens assemblyman and labor leader Brian McLaughlin, who is accused of stealing $2.2 million from the state government, unions, and other groups. The next governor will be under pressure to make good on promises of ethics reform.

Mega projects: The governor would want to make his mark on development at the former World Trade Center site, as most of the construction at ground zero is slated to take place in the next four to six years. It’s unclear what the next governor would be able to change, pending agreements between the state, the Port Authority and the developer, Larry Silverstein. Last month, the speaker of the Assembly, Mr. Silver, killed Mr. Pataki’s plan to remake the Farley Post Office building into a Moynihan Station transit hub, setting the table for the next governor to launch an alternative plan to improve Penn Station. The next governor could seek to jump-start the process of moving the existing Madison Square Garden a block to the West and redeveloping the existing Penn Station, a plan that could require between $1 and $2 billion in public funds.

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The Empire Center is an independent, non-partisan, non-profit think tank located in Albany, New York. Our mission is to make New York a better place to live and work by promoting public policy reforms grounded in free-market principles, personal responsibility, and the ideals of effective and accountable government.