Less Than New York Needs

As the $121 billion state budget was heading toward passage late last week, some observers jumped to the conclusion that Gov. Spitzer had conceded too much, too soon in his first negotiations with the Legislature.

In sheer dollar terms, however, Spitzer made his biggest concessions back on Jan. 31 – in his own proposal for a 7.8 percent hike in state-funded spending. After pledging in his State of the State Address to “finally learn to say ‘no’ to budget requests we simply cannot afford,” the new governor unveiled an executive budget that, Medicaid aside, was mainly a big “yes” to the baseline he inherited from Gov. George Pataki.

The final result apparently adds up to a state-funded increase of just under 9 percent, which represents a smaller addition to the executive budget than those enacted during the previous governor’s final years in office. Last year, for example, the Legislature inflated Pataki’s 7 percent growth target to 11 percent – one of the largest jumps since the early 1970s.

Then again, Pataki was the lamest of lame ducks. Once the Senate Republican majority deserted him for good in 2003, he couldn’t make his line-item budget vetoes stick. Spitzer is in a much more commanding position: He’s forged a close political alliance with Senate Democrats, who control more than enough votes to block a veto override.

Yet even with the Senate minority in his corner and strong poll ratings in his favor, Spitzer couldn’t have held the line against significant additions to his spending plan unless he was willing to endure a potentially prolonged budget stalemate with legislators.

At first, he seemed ready to accept delay, declaring on March 19 that getting the right results was “much more important” than getting the budget done on time. But barely a week later, he suddenly seemed in a big hurry to reach agreements in time for the start of the fiscal year – implicitly bowing to the widespread but mistaken notion that the April deadline really matters.

Many details remain still unclear or unsettled, but Spitzer can point to some gains in the budget battle. Take Medicaid: The immediate savings from cost-containment are much smaller than he proposed, but he appears to have scored a significant structural change by forcing the Legislature to redistribute Medicaid reimbursements to facilities that actually serve the most Medicaid patients.

The governor also scored a solid win for education reform by getting the Legislature to double the number of charter schools without ensnarling them in more red tape. And he showed the right kind of flexibility in his willingness to scale back his proposed business tax increases, combining the remaining “loophole closers” with a reduction in state corporate-tax rates.

However, it remained unclear whether the Legislature’s addition of $500 million to the governor’s record hike of $1.4 billion in school spending would be accompanied by the kind of tough new accountability measures Spitzer had advocated.

And the bigger picture is more gloomy. As budget talks wrapped up, the federal government released new personal-income data providing a timely reminder of New York’s vulnerability to external economic shocks.

On the surface, all seems well: Personal income in New York state was up 6 percent last year, roughly on par with the national average of 6.3 percent. And New York’s per-capita income growth rate was among the fastest in the nation.

On closer inspection, however, a disproportionately large share of the gain came from Wall Street. Minus finance-sector earnings, New York’s net personal-income growth was an anemic 4 percent – 42nd out of the 50 states. And personal earnings in the Empire State’s once mighty manufacturing sector grew at less than a third the national rate – only two states did worse in generating new income from manufacturing.

Improving New York’s economic competitiveness will require the governor to do more to tame what he has called a “perfect storm of unaffordability” that drives people, jobs and investments away from the state. Yet in some crucial ways, he’s moving in precisely the opposite direction.

For example, the governor’s modest “mandate-relief” package for local governments apparently didn’t make it into the final budget. Worse, Spitzer is reportedly also negotiating an executive order that will make it easier for public-employee unions to organize some 50,000 private day-care workers – a potentially costly expansion of government vetoed by Pataki when the Legislature tried to push it through last year.

After a back-room negotiating process that represented a step backward for real budget-making transparency, Spitzer’s governance slogan has morphed from an assertive “Day One: Everything Changes” to a plaintive “Rome wasn’t built in a day.”

But New York’s public-sector empire doesn’t need building so much as selective demolition. With even larger state-budget shortfalls now stretching as far as the eye can see, Spitzer needs to break out his wrecking ball.

Read article at Manhattan Institute