Soundings

William J. Stern
The Goo Goos Don’t Get It!
Spring 1997

In the Wall Street boom year of fiscal 1997, New York State will have a budget surplus of between $600 million and $1.5 billion, and New York City will run a $400- to $600-million surplus. What to do with it? The Citizens Budget Commission, one of New York's leading good government organizations (or goo goos, in political slang), suggests that the money should go to retire outstanding debt.

In the abstract, this suggestion makes eminent sense. The state and city carry gargantuan debt burdens, estimated at almost 40 percent of the nation's total municipal debt. Over 10 percent of the state budget and almost 10 percent of the city's goes to debt service, and the proportions are growing. Using a surplus to reduce debt would not only reduce interest costs in all future budgets but might also produce an increase in the state's credit rating, lowering interest payments on future borrowings still further.

Moreover, Wall Street, which fueled the boom, is a notoriously cyclical industry, and extra tax receipts will almost certainly not be available in fiscal 1998, let alone the distant future. Over the last 30 years in New York, every time Wall Street has boomed the state and city have treated the surpluses as if they'd recur annually, spent them, and ratcheted up the level of spending, worsening the state and city structural deficits. Like the proverbial drunken sailor, our state and city governments spend money when it is there to be spent, unrelated to any identifiable pressing need.

But however reasonable, the goo goos' suggestion that we reduce debt has zero chance of being adopted. The reality of New York government is that each year it collects billions of dollars from the people and businesses of New York and then politicians redistribute the money to relatives, supporters, and clients. Politicians who want to be reelected know that these politically connected insiders, in return, can finance a primary or general election campaign, influence media coverage, organize demonstrations, or provide campaign workers. When the Citizens Budget Commission cites "waste" in the budget, it is missing the real point. It is not "waste" but deliberate decision-making by elected officials to reward a constituency with public money. A politician who advocated using the present surplus to reduce debt instead of to reward the special interests would receive the approval of goo goos but would be hamstringing his political career.

The goo goo groups should support the only idea that has a real-world chance of defeating the spending constituencies and bringing about genuine reform: tax cuts. The tax-cut idea can rally a political constituency able to defeat the spending crowd. In New York, the nation's highest-taxed state, the voting public will respond to a proposal for reducing their taxes.

Lower taxes will lead to less borrowing, since over time the bond markets will hesitate to buy debt that is not clearly supported by specific taxes. (The markets are already concerned about New York's level of debt.) With less money available, state and local governments will have no choice but to reform the way they provide services and to eliminate useless government programs. Starving the beast by cutting taxes is the only method that has worked in producing real change in state and local government anywhere in the United States. No less important, lower taxes will encourage more private investment, which will create jobs.

If the goo goos keep making the perfect the enemy of the good, they are in danger of becoming part of the problem, unwitting allies of the status quo.

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