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Winter 2005
   
The Empire State’s Quickest Route to Reform
Steven Malanga
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With Rudy Giuliani seemingly intent on running for the presidency in 2008, and Charles Schumer staying in his U.S. Senate seat, New York attorney general Eliot Spitzer is now the odds-on favorite to become the state’s next governor. But the key question is not whether he can win in November 2006, but whether he can be the type of reform governor that the Empire State so desperately needs right now.

For the government that Spitzer will likely take over is universally derided as the country’s most costly and dysfunctional. Though nominally divided between a Democratic assembly and a Republican senate, the New York legislature has in fact only one ruling party—the spending and patronage party, which has erected a massive public sector now crushing the state’s taxpayers. With a nod and a wink across the aisle, GOP legislators shovel billions into the state university, suburban school districts, and the state’s hospital system, while Democrats aim their billions at CUNY, mass transit, and social services, including by far the country’s biggest Medicaid program. Both parties, meanwhile, have proved ingenious about squeezing ever more money out of the state for this spending, saddling New Yorkers with the nation’s highest state and local taxes and also creating a virtual shadow government of quasi-independent authorities, boards, and commissions that float bonds and spend money outside the official state budget. So precariously perched is this fiscal edifice that the state careens from one budget crisis to another, while each year’s budget brings new taxes, fees, or financing gimmicks.

The situation has become so desperate that a broad array of New Yorkers are now proposing a slew of reform measures, from a state constitutional convention to a guerrilla-style effort to unseat unresponsive legislators. But these solutions range from the unfeasible to the potentially lethal. The real solution is much simpler. What New York really needs is a reform-minded chief executive who can wield skillfully and courageously the powerful weapons that the state constitution already gives the governor’s office to wrest back control of Albany from the legislature and its swarm of special interests.

Should he win, Spitzer should take as his model Thomas Dewey, another two-fisted prosecutor who had built a national reputation for effectiveness by busting mobsters before he won the governorship in 1943. Dewey assumed an office that Governor Al Smith—in what columnist Walter Lippmann called “one of the greatest achievements in modern American politics”—had made awesomely powerful, especially in giving the governor a tight control over the budget that allowed him to set the state’s agenda, control that has lasted to this day. Dewey wielded that power fearlessly. He faced down the state’s special interests, both in his own GOP and across the aisle. He resisted demands from leaders of his party to fill his administration with patronage appointments. He forced a GOP-dominated legislature to reapportion itself to reflect population changes, a task it had shirked for 25 years, and he prevented GOP leaders from raiding a capital fund that he had set up for postwar building projects. He continued the effort, begun by Smith in the 1920s, to eliminate state agencies, boards, and commissions.

When special interests tried to stymie his reform efforts, he fought implacably. Despite fierce resistance from the city’s teachers’ lobby and its Democratic allies, for instance, he reorganized management of the New York City education system, eliminating the power of the teacher-dominated board of superintendents and giving control to a single professional superintendent, to the applause of good-government groups. When legislators tried to skip out on votes for such controversial reform legislation, the sergeant at arms would round them up from the statehouse’s nooks and crannies, dragging one worried Republican assemblyman from his hiding place under his desk to vote. Little wonder that Dewey came to refer to the state senate and assembly as “my legislature.”

Of course, in equally skilled and determined hands, an office as powerful as Al Smith made New York’s governorship can be an instrument for ill as well as for good—and it was just such a dynamic governor who created the mess that is now crushing the Empire State. In his 15-year reign, Nelson Rockefeller conjured into being New York’s giant welfare state—and then left it to his successors to grapple with the problems that it posed. Derided by conservatives in his own GOP as a “New Deal Democrat in Republican clothing” when he won office in 1958, Rockefeller brought to government a grandiose—and ruinously costly—vision. Over nearly four full terms, he increased spending on the State University of New York tenfold, crafted the nation’s most lavish Medicaid program, and poured billions into giant construction projects, including the pharaonic Empire State Mall in Albany. The state’s budget skyrocketed more than fourfold to $8.7 billion in 1974 from $2 billion in 1958.

To pay for all this, Rockefeller raised taxes in eight of his 15 budgets, abandoned pay-as-you-go financing of capital projects, and piled up $11 billion in debt, saddling his successor with $264 million a year in debt service. He used public authorities to raise and spend money free of the state’s own ballooning budget and outside the normal state bond processes. Cajoling, bullying, and horse-trading to get his way, Rockefeller earned the title “the one-man legislature.”

Barely six months after Rocky resigned to take the nation’s vice presidency, one of his authorities, the Urban Development Corporation, defaulted on its bonds, sparking a near bankruptcy in New York City, then groaning under the twin fiscal burdens of Rockefeller’s state agenda and Mayor John Lindsay’s vast expansion of social programs. Sharp cutbacks in state and city workers and services ensued, and the tough-minded governor who took office in 1975, Hugh Carey, pushed through such needed reforms as prohibiting authorities from issuing bonds not backed by a specific funding source. Still, Rockefeller’s gigantic state apparatus had a momentum of its own, and Albany Republicans and Democrats alike had a stake in keeping it growing after the 1980s national boom provided fresh tax revenues.

To rein in Rockefeller’s runaway government behemoth would have required sustained effort from more than one reform-minded governor. But after Carey, New York got instead two consecutive clunkers, Mario Cuomo and George Pataki, who for the past 22 years have allowed narrow but powerful special interests to run riot, making the Albany tax-and-spend machine careen ever faster.

Strange that despite his national reputation for soaring, visionary rhetoric, Mario Cuomo didn’t know how to control his own Democratic caucus in Albany and quickly found legislative leaders dictating to him, wresting control of the budget process and presenting their own free-spending budget as a fait accompli. As the state slipped into recession in the late 1980s, Cuomo stood by and watched as the legislature raised taxes by more than $1 billion in each of three consecutive budgets—while the state’s economy crumbled, accounting for nearly 30 percent of the nation’s job losses during the recession that followed. When Cuomo claimed to be too busy to get involved in a contentious transit-funding issue, an exasperated New York City mayor Edward Koch sneered: “I mean, you have to be able to do more than chew gum.” On Cuomo’s watch, the state budget rocketed from $28 billion to $60 billion.

Little wonder that Republican George Pataki trounced Cuomo in 1994 on a platform of cutting taxes and spending—which in his first year he began to accomplish, after installing a supporter as head of the GOP-controlled senate and threatening upstate assembly Democrats with tough reelection fights if they didn’t support his reform agenda. But when Pataki’s political godfather, U.S. senator Alfonse D’Amato, decided to push the party to the left in a misguided and unsuccessful effort to save his own job, he left Pataki high and dry, and emboldened the Democratic-controlled assembly to resist the governor’s agenda. Deflated, Pataki thereafter mostly drifted with the tax-and-spend flow.

So now the state totters once more on the brink of fiscal ruin, with Albany burning up money at an astounding pace, even though New Yorkers already pay 26 percent more of their personal income in taxes than the national average. New York is also the most heavily indebted state, to the tune of over $40 billion, costing taxpayers some $3 billion a year in interest. The shadow government of unaccountable authorities—now totaling an astounding 600 or more—has collectively amassed another $100 billion in debt, off the state books. Meanwhile, the state faces accumulated budget deficits of more than $10 billion over the next two years.

As a recent poll found, only 25 percent of New Yorkers have confidence in state government. With cynicism so high, New York has sunk to among the ten worst states for voter turnout. Instead, New Yorkers vote with their feet. From 1995 to 2000, New York lost about 1.6 million residents but attracted only 726,477 residents from other states—a loss of 874,248 and the greatest net domestic out-migration of any state.

Those who stay increasingly demand reform, to no avail: Albany legislators have insulated themselves from public accountability by gerrymandering their districts, so that nearly 98 percent of incumbents who have run for reelection over the last 15 years have won. The nonpartisan Center for Voting and Democracy ranks New York as the country’s least democratic state.

Former mayor Koch tells a story that crystallizes the entrenched legislators’ arrogant unconcern with the public interest. When Koch complained bitterly and publicly about a swollen pension hike that the legislature lavished on city employees, he recalls, “They sent [labor leader] Barry Feinstein to see me. He told me that there was nothing I could do to stop the bill, but that the legislators didn’t like my publicly criticizing them. So he offered to reduce our costs by about $70 million by delaying the legislation for a few months and told me that I should take the offer, because there was nothing else I could do. I hated it, but I knew he was right. These guys are untouchable, so they do what they want to.”

Even more arrogantly, New York’s legislative leaders have now launched a power grab of breathtaking audacity, all the more galling because it claims to be the reform that citizens crave. In an assault on the governor’s prerogative, the legislature has proposed to give itself the right to set the state’s fiscal priorities and dictate how the budget is shaped in any year in which the state does not pass a budget on time. Such legislation, of course, would encourage the legislature to stonewall the budget—as it does every year, anyway—so that it could invoke its new powers. It’s unlikely, however, that increasingly disgusted voters will buy this ploy. “I think the voters are finally fed up and ready for reform,” says Republican political consultant Jay Townsend. “I had a meeting with some legislators who asked me how I might run a campaign in New York, and I told them, ‘I’d run against you guys and the way you do business up here.’ That’s what can work now.”

Eliot Spitzer’s public statements make clear that he knows this. Accordingly, if he wants to govern successfully, like Dewey—and like Dewey reach for even higher office—he should campaign in a way that gives him a mandate for needed reform. Without credible opposition, without the political need to sell his soul to Democratic special-interest groups, ambitious, smart, and rich enough to resist corruption, Spitzer is ideally placed to run as a new broom who will sweep away Albany’s costly and undemocratic conspiracy against the taxpayers. He can stress that he has not come up through the corrupting legislative ranks, dominated by free-spending representatives of public-sector unions and government-funded nonprofits. Though his judgment is not infalible, he can boast of having helped bust mob-run operations in the garment district and, like fellow prosecutor Rudy Giuliani, having blown the whistle on Wall Street wrongdoings. He can point to his drive, along with state comptroller Alan Hevesi, to scrutinize the state’s hundreds of authorities and boards to make them more accountable. He would do well to step up this push now, to show just how serious he is about taking a fire hose to Albany and washing it clean.

Once in office, Spitzer could work miracles with only a few commonsensical measures. He would first of all have to use the power that a new governor wields within his own party to oust the current legislative leadership and install his own supporters. Since only the governor can submit a state budget, he will be able to set the agenda of how much money the state will spend—and on what. The legislature can participate in the budget process only by adding or reducing individual appropriations, and the governor can veto any of their individual changes without throwing out his entire budget. Spitzer can therefore cut back on the state’s ruinous Medicaid spending—more than Number Two—ranked California’s and Number Three—ranked Texas’s combined—and he can push through a plan for a state takeover of the localities’ share of Medicaid’s cost, to discourage state legislators from profligately spending tax revenues that the localities currently have to collect. This crucial move will require a tough prosecutor’s nerves of steel: when Westchester County executive Andrew Spano announced plans in November to inform county residents of just how much the state’s Medicaid tab was costing them, powerful health-care union czar Dennis Rivera darkly hinted political consequences, and Spano quickly backed down.

Spitzer should then start consolidating the 64 mostly mediocre campuses of the state university system and making them accountable. He also needs to put the brakes on the state’s budget-busting aid to local school districts, spiraling up at two to three times the rate of inflation. Though supporters argue that such aid holds down local tax increases, in fact municipalities usually raise taxes whether the state ponies up more aid or not. Finally, Spitzer needs to inject cost-saving competition into New York state government. One place to look is the free-spending Metropolitan Transportation Authority, which, despite big state and city subsidies, is bleeding red ink and soaking riders with ever higher fares. Transit systems around the country have lowered costs by bidding out everything from bus routes to operation of train systems. Not the MTA.

The governor must reject the fiscal gimmicks increasingly used to finance big spending hikes. He should prevent the funneling of more and more of the state’s spending into off-budget accounts: for example, the 1999 Health Care Reform Act, financed by tobacco-settlement revenues, cigarette taxes, and surcharges on hospital bills that generate up to $2.5 billion a year in spending that does not appear on the official state budget, thus concealing the true size of the state’s spending.

Like Dewey, Spitzer should slash the number of independent authorities, and make the borrowing and spending of those that remain subject to voter approval. Such authorities have “borrowed money to air-condition a Tonawanda golf dome, move 47 graves in a Dryden cemetery, open an Adirondack museum with a fake river and buy vans for a Brooklyn youth circus,” the Syracuse Post-Standard reports—as well as to fund the yet-to-open National Museum of Catholic Art & History in East Harlem, not associated with the Catholic Church and run by an ex—Playboy bunny. Not surprisingly, these patronage mills have often been accused of nepotism, cronyism, and misspending funds. Audits of the former Harlem Urban Development Corporation found millions of dollars missing or squandered, for instance, and most recently, the New York Racing Association agreed to install a court-appointed monitor to settle federal charges of conspiracy to commit tax evasion.

Finally, Spitzer should campaign to strip the legislature of its power to redistrict itself and the state’s congressional seats. New York needs a constitutional amendment to institute nonpartisan redistricting, as in Iowa or Arizona, where independent panels draw legislative districts objectively, without regard to political affiliation or incumbency. In Iowa, the process has produced districts of equal population and plain, rectangular boundaries that are among the most competitive in the country. And the state also needs vigorous ethics-rules reform for both legislators and lobbyists.

Whatever his message, Spitzer will probably win. The question he must ponder now is: Does he want to win—and govern—in a way that goes down in history? All New York will be hanging on his answer.

 

 

 
It’s time for someone to wield the power of New York’s governorship for the public interest.
City Journal Winter 2005.
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