City Journal

Stephen Berger
Reconstructing New York
New York City's problems call for fundamental reforms. Here's an agenda for making the city work
Winter 1992

Stephen Berger, president and chief executive officer of the Financial Guaranty Insurance Company, was formerly executive director of the Emergency Financial Control Board and the Port Authority of New York and New Jersey.

The political tragicomedy that culminated late in June with the enactment of New York’s bad-news budget leads depressingly but inexorably to one conclusion: The government of the City of New York does not work.

It’s not that city employees are not hard-working or that they cannot deliver good and even, occasionally, excellent services. But city government, given the scope of its responsibilities, the rules by which it operates, and the resources available to it, can no longer offer basic municipal services of acceptable quality at a price its citizens can afford.

The budgets adopted this year at city hall and in Albany will not solve the problem. Without fundamental changes in city government, budget deficits will reappear every spring, each bringing with it a new round of service cuts and tax increases. Streets will get dirtier and less safe, bridges will deteriorate, poor children will remain poorly educated and grossly discouraged, and taxes will rise.

More radical, permanent solutions to the city’s problems are called for. Getting them won’t be easy. Neither Mayor Dinkins, Governor Cuomo, the City Council, nor the State Legislature has shown the willingness to go beyond conventional short-term budget-cutting strategies, or to risk the wrath of entrenched interests that proposals for more fundamental change would provoke.

Those who consider themselves realists will no doubt respond that, in New York’s current state of mind, sweeping changes in city government are not politically possible. But true realism now requires not only the recognition that there isn’t enough money to support the bloated government New York’s politicians have created, but that there never will be enough money. In the face of that reality, conventional ideas about what is “politically acceptable” become irrelevant. Measures that are acceptable in this sense are by definition inadequate.

Political Culture and Governmental Paralysis

It is not surprising that Mayor Dinkins and Governor Cuomo find it hard to come to grips with economic reality. Doing so would require that they violate two of the most basic operating principles of New York’s peculiar political culture. The first is that no problem can be dismissed as outside the scope of city government. Municipal government, which in most cities is expected to provide no more than a clearly defined set of basic services, has in New York become society’s last, best hope for dealing with every imaginable problem. The second principle is that city government, despite the rhetoric of its officials, is not committed to helping its citizens obtain the services they need. It has instead become an elaborate system for dispensing benefits to its service providers, mostly members of Civil Service employee unions.

Blind adherence to these principles has made it difficult even to ask hard questions about what city government should do, let alone reach agreement on the answers. The fiscal crisis of the 1970s, for example, produced some long-overdue but temporary belt-tightening, important improvements in municipal financial management systems, and a shift of responsibility for financing some functions—such as the City University’s four-year colleges—from the city to the state. But we who were involved in resolving the crisis of the mid-1970s failed to define in any serious way the proper limits of city government’s activities. Nor did we question how the city can best assure its residents get the services they need.

The major players at the city’s table during the 1970s represented, for the most part, established public and private interests. It was much easier for such a group to discuss who should pay for the City University than to ask why the city should maintain a university after the state had established its own. It was easier to weigh the closing of one or two city hospitals than to consider the feasibility of privatizing all of them; easier to haggle over head counts than to contemplate a thorough overhaul of the Civil Service system.

Across-the-board belt-tightening, without serious changes in the scope or structure of city government, became the primary response to hard times. Then, as prosperity returned in the 1980s, it was all too easy to loosen the belt a notch or two each year. Nearly fifty thousand employees were added to the city’s payroll between 1983 and 1990. City payroll costs grew during those years by 36 percent in constant dollars—almost double the rate of growth in the city’s economy. Major new initiatives like a multibillion-dollar housing program were launched, and new problems arose—such as AIDS, crack, homelessness—which a city with strong liberal traditions could not ignore.

But the boom couldn’t last forever. When it finally wound down in 1989 and 1990, the city found itself seriously overcommitted and deeply in trouble once again. And once again, elected officials are irresistibly tempted to avoid the most fundamental issues. Rationalizations for this avoidance abound: We don’t have time to think about such issues when we are dealing with a crisis; the Legislature will never be willing to make hard decisions in an election year; there is no need for major structural changes, because once the recession is over we will be able to restore all the money we have cut; and anyway, it’s all the Federal Government’s fault.

There are two problems with this boom-and-bust, cut-and-restore, blame-the-other-guy approach. It will never permit the city to establish a long-term, stable balance between its resources and responsibilities. And it forces the city to impose devastating budget cuts on services that really are essential, even as it continues to spend hundreds of millions, or even billions, of dollars on functions that may not be needed at all.

Management-by-roller-coaster also undermines whatever is left of New Yorkers’ confidence in their government. They perceive that city officials cannot plan intelligently, manage competently, or make hard decisions. Individual citizens, city employees, and organized interest groups refuse to sacrifice for the sake of the city, because they simply don’t trust the people who are asking them to give up things they value.

Public officials who are unwilling to acknowledge the limited scope of sound city government, and who dare not develop more flexible ways for citizens to obtain vital services, sometimes defend their inaction by insisting that virtually everything city government does is essential. Look behind these arguments, however, and you will find a simple determination to protect existing institutions and interests.

New York’s political leaders do not respect their citizens as customers, capable of making intelligent decisions about the services they want and ready to pay for what they get. The primary loyalty of New York’s political leaders is to its service-providers—to school administrators and teachers rather than to parents and children; to hospital bureaucracies rather than to those who need medical care. Until that underlying attitude is changed, New Yorkers will not get what they are paying for.

Mandate Madness

The fault here does not lie entirely with the Mayor and his city hall colleagues. Defining what city government should do and how it should operate is not solely, or even primarily, the city’s prerogative. State legislation, far more than the city’s own charter or its local laws, defines what the city does and what it pays for—in the schools, in the Medicaid program, in city prisons, and elsewhere. By some estimates, as little as 25 percent of the city’s spending is effectively under the control of the Mayor and the City Council.

The same could be said of how the city provides services. Civil Service and collective bargaining requirements, the structure of the city’s decentralized school system, rules governing the delivery of health care services—all of these are determined in Albany.

It is disingenuous at best for the Governor and his colleagues to describe themselves as willing to help the city recover when it demonstrates its readiness to put its house in order. They are, after all, coauthors of the very conditions they bemoan. Albany politicians and bureaucrats who never met a mandate they didn’t like, who try to dictate everything from grade-school curriculums to the deployment of police, seem to suffer collective amnesia when it comes to taking responsibility for what they themselves ordain.

An Agenda for Reform

The fiscal problems that plague the city and the state will not disappear in 1992 or 1993. A thorough review of what government does in New York, and how it is done, is therefore essential.

New York should, for example, completely overhaul state and city financing and delivery of health care. It makes no sense to have local governments pay for nearly a quarter of a $13 billion Medicaid program which is managed by the state. Medicaid, perversely, has become a form of city financial aid to the state. Governor Cuomo’s proposal to phase out local contributions to the program makes a great deal of sense. But two critically important details remain unclear: how much revenue local governments will need to forgo in exchange for the state’s assumption of all Medicaid costs, and to what extent the state will be willing to limit Medicaid spending. The more serious Albany is about containing costs, the less it will have to demand in revenue transfers.

At the same time, city officials should recognize that with the spread of private health insurance and the advent of Medicare and Medicaid, the original rationale for the municipal hospital system—providing services to those who could not afford private physicians or hospitals—is no longer as compelling as it once was. While many city hospitals continue to provide essential services in specific communities, it is not at all clear why they should be owned or operated by the city, which must take responsibility for deficits that under private management might be significantly reduced.

There are several possible alternatives, including consolidation of services, contracting out management of some hospitals to nonprofit or proprietary operators, and even outright sale to a private corporation. The city should not be operating a gigantic hospital system. Instead, it should work in partnership with the state to assure that all New Yorkers have access to good medical care. The “managed care” program recently adopted by the State Legislature represents a step in the right direction.

Just as assuring universal access to health care doesn’t require that the city operate its own hospital system, assuring access to higher education for all qualified New Yorkers should not require the maintenance of two large public university bureaucracies: the state and city universities. The goal of making higher education broadly accessible, without regard to income, could be met more effectively and less expensively by expanding state grant and loan programs for low-income students at both public and private colleges. The added cost could be offset by substantial increases in tuition—say, to $4,000—at CUNY and SUNY, and by consolidating and shrinking the university bureaucracy.

There are many other state and city agencies that duplicate each other’s functions: employment services, human rights, consumer protection, support for the arts, and economic development agencies are among them. There are ample opportunities here for substantial reductions in the city’s bureaucracy, and for eliminating some agencies outright.

Centralization and Decentralization

New York needs to rethink not only what services it provides, but how it provides them. Many large, highly centralized city bureaucracies never develop the intimate knowledge of specific communities they need to deliver responsive, high-quality services. Child welfare services, for example, could be more effectively provided through smaller agencies at the neighborhood level.

There are other areas, in contrast, where the paralysis of entrenched interests can be overcome only by concentrating responsibility in one place. The management of the city’s capital program, for example, is scattered among too many independent offices, bound by too many archaic rules, and burdened with too many political commitments and constraints. Planning and carrying out investments in essential public infrastructure are functions as basic to city government as education or law enforcement. Yet there is no equivalent of the schools chancellor or the police commissioner who can be held accountable for the city’s infrastructure.

While the city’s capital plan and its financing should be subject to the political process, day-to-day planning and management should be insulated from politics. One way to accomplish this would be to establish a new position in city government: the office of chief engineer. To provide the necessary degree of independence and autonomy, the chief engineer should be appointed for a fixed term, and should be removable only for cause.

He should be given broad authority to overhaul the city’s contracting and project management processes. He should, for example, be free to use general contractors, construction management firms, or in-house managers at his discretion. He should be able to select contractors by open competitive bidding, select-list bidding, requests for proposals, or one-on-one negotiations, and should have full authority to experiment with innovative contract forms, including those that incorporate financial incentives for contractor performance and “fast-track” construction.

An official with a long-term perspective on infrastructure investment could help get the city out of the vicious cycle in which the capital budget in good times becomes a wish list, but in bad times is city hall’s first choice for evisceration.

Even this level of political discipline may not be enough, however. Perhaps the most effective way to avoid both political pork-barreling and not-in-my-backyard nihilism would be to bypass the conventional legislative process altogether, and to have the chief engineer submit the entire capital program and financing plan directly to the voters in a referendum.

Ironically, centralizing responsibility for the capital program would make it easier to decentralize those elements that could best be managed at the neighborhood level. The chief engineer, for example, could give school principals greater responsibility for upgrading and maintaining the buildings they manage. The idea is not to choose either centralization or decentralization, but to strike the proper balance between them.

Civil Service Administration versus Human Resource Management

Finally, the city must overhaul its management of its own human resources. Changing archaic work rules that raise the cost of city government would help, but it is time to move more boldly. Do city employees really need both Civil Service protection and the right to bargain collectively?

The entire Civil Service system is an anachronism. It dates from an era when tenure protected government employees from political exploitation. Its rigid scheme of job “titles” is inconsistent with everything American industry has learned in the past twenty years about how to manage efficiently and how to make work satisfying for the people who do it. Its elaborate examination procedures have little to do with performance on the job. Moreover, the Civil Service is much less effective than the employees’ own elected representatives in protecting their legitimate interests. It is not worth trying to fix; it should simply be eliminated.

Rules for Reconstruction

The full agenda for state-city reform is too lengthy to be presented here. But it should reflect several important principles. The first is that the city’s residents are its customers. Like any well-run, customer-driven business, its role should be to determine what customers need and want, and to help them get it.

A second principle derives from the first. The scope and purpose of city government should be defined by what the city’s people need and want, not what the city bureaucracy currently provides. The fact that public employees, elected officials, and union leaders may have a vested interest in an institution should not be enough to justify its continued existence.

New Yorkers care about the quality of essential public services, but they generally don’t care who delivers them. Decisions about public versus private delivery of services should thus be made on a case-by-case basis, according to who can do it best and most efficiently, rather than on the basis of ideology.

A third principle is that delivery of public services maximize the range of choices available to citizens who use them. Few public services are natural monopolies, but established service-providers often insist on maintaining monopoly positions. And just as in the private sector, monopolies in government tend to deliver less responsive, lower-quality services at higher cost. If citizens are to hold public officials accountable for the quality of their work, then the right to choose is as important as the right to vote.

Defenders of the status quo often argue that widening the range of choice available to consumers of public services such as schools will hurt the poorest and most vulnerable New Yorkers, who don , t know enough to exercise such freedom intelligently. Yet the truth is that poor people stand to gain the most from greater freedom of choice. Being able to decide which schools will educate their children is as important to parents in Bushwick as to parents in Riverdale.

Fourth, responsibility for management and delivery of service should be shifted from centralized bureaucracies to the neighborhood level wherever possible. This concept, which enjoys nearly universal support in the abstract, is exceedingly difficult to implement—partly because central bureaucratic interests are so deeply entrenched, and partly because city officials have seldom been willing to do the hard work required to make neighborhood-based services a reality.

Fifth, the city and state must develop a new approach to the rational pricing of public services. New York’s elected leaders automatically equate public service with free, or at least massively subsidized, service. But a government that would rather let its bridges rot than impose tolls on them, would rather cripple the Staten Island ferry than raise fares, would rather gut New York Technical College than raise tuition for CUNY graduate students, is not demonstrating its commitment to social justice—only its stupidity.

Finally, the goal of this exercise is not simply to save money. By establishing a better balance between resources and responsibilities, we hope to allow the city to discharge essential functions more effectively. A city government that educated all our children well, especially those of the poor and the growing immigrant population; that kept our streets safe; that built and maintained the infrastructure needed to keep the city livable and its economy viable; and did little or nothing else at all would serve its people better than they are being served today by a government that pretends it knows no bounds, yet can’t seem to do anything right.

What New York faces today is not just a fiscal crisis. It is, to borrow Arthur Schlesinger’s phrase, a crisis of the old order. We cannot afford to keep paying for New York’s governmental sprawl—nor should we want to. The government of New York as it has existed for the past several decades has been a source of great good, but also of great folly. We should honor its achievements, but we should not mourn its passing. It is time to build something else.

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