Andrew Cuomo ran his gubernatorial campaign on a platform that promised to address New York state’s looming pension crisis, its public sector wage burden, and high and rising taxes. Earlier this week, Daniel DiSalvo of CCNY and Josh Barro of the Manhattan Institute published a smart, detailed op-ed for The Daily News on how Cuomo can deliver on his promises. First, DiSalvo and Barro outline the scale of the fiscal challenges facing the state:
Fiscal policy in New York has been wildly out of step with reality. From 2000 to 2010, state government spending grew 70%, about twice as fast as personal income. The anti-growth tax policies that finance this spending have undermined job growth: from 1993 to 2008, New York’s job base grew at one-fifth the national rate. And when the Great Recession battered state revenues, lawmakers raised taxes again to the tune of nearly $4 billion per year, making New York City’s top income tax rate once again by far the country’s highest. As a result, New York sank to last place in the Tax Foundation’s annual ranking of state business tax climates. Public sector unions that consistently favor higher taxes and more spending are at the root of the problem.
Medicaid, DiSalvo and Barro argue, is the biggest source of potential savings:
New York accounts for 14% of the country’s Medicaid spending, despite being home to just 6.4% of people and 8.7% of Medicaid recipients. We spend 25% more on Medicaid than California, even though California’s program has twice as many participants.
Just closing half the gap between New York’s per-enrollee Medicaid costs and the national average would save $5 billion a year – enough to close half the budget gap.
Excessive Medicaid spending is driven by the Service Employee International Union’s (SEIU) local affiliate 1199, the health care employees union, which has cut deals in Albany with Republicans and Democrats alike. High Medicaid spending benefits the union’s members, so the union can be counted on to fight any cuts tooth and nail.
DiSalvo and Barro then tackle public sector compensation:
Public employee wage levels in New York are high, including the country’s highest teacher salaries, according to the National Education Association. Cuomo’s call for a freeze on state workers’ wages and for them to pay a larger share of their health insurance premiums will be met with stiff resistance – as will a property tax cap, which would put downward pressure on municipal and school payrolls. (Notably, New York’s largest teachers union declined to endorse Cuomo.)
But the single most alarming area of spending increases is in retirement benefits. The state’s required contribution to the main employee retirement system is likely to more than double from $1.3 billion in 2010 to $2.7 billion in 2014. Even larger pension bombs will fall on local governments. Current employees’ benefits are constitutionally protected and thus off-limits.
Cuomo’s only option is to propose a new pension scheme for new hires – and here, his proposals are both too timid to produce the necessary savings and too radical to please the unions.
That is an awkward spot, and path of least resistance will be to embrace George Pataki’s strategy of capitulating rather than staring down the state’s public sector unions. If anything, Cuomo will have to be more aggressive than New Jersey’s Chris Christie. Though we haven’t seen any evidence that Cuomo is capable of that just yet, remember that Christie surprised us as well. And the benefits of being Christier than Christie are clear, as DiSalvo and Barro explain:
The biggest advantage of a more confrontational strategy – one Cuomo, a politically savvy operator, cannot be blind to – is that it promises to earn him a national reputation as a reformer. It would place him in the small coterie of Democrats who’ve shown they can navigate the new age of austerity.
This would be excellent news for fiscal conservatives, for the obvious reason that constructive stinginess should be a bipartisan cause.