Kudos to Gov. Andrew Cuomo for encouraging the state legislature to complete its work in a timely fashion. Of course, the governor made it clear that he would use the political cudgel — euphemistically called the “extender” — unearthed during the David Paterson administration. The extender gives him the executive authority to implement his executive budget if the legislature fails to act in a timely fashion.
The new budget is filled with positive achievements. First, total spending (federal and state revenue combined) remains flat at around $132.5 billion for the second year in a row, with state-funds spending up only 1.9 percent. Second, Medicaid growth is capped at around 4 percent, well below double-digit figures experienced in recent years. Third, school aid, now tied to the growth of New York’s personal income, increases $800 million in the 2012-2013 budget or around 4 percent.
Fourth, the budget deficits for last year’s and this year’s budgets, projected at $25 billion, are now only $2 billion, a 92-percent reduction. Most importantly, the reduction was achieved without the usual fiscal gimmicks or any borrowing for operating expenses. Fifth, property taxes continue to be capped at 2 percent, unless 60 percent of a locality votes to override the restriction.
Sixth, the governor and legislature have committed to relieve county and municipal governments from rising Medicaid costs. While the change doesn’t begin until next year’s budget, local governments can now plan that future Medicaid growth will be borne by the state. Seventh, Gov. Cuomo continues to push a redesign of how state government functions by consolidating programs and streamlining operations, even while controlling any growth in the number of state employees.
Eighth, the governor is focused on building a public-private, $15 billion infrastructure fund to maintain and develop the state’s bridges, highways, parks, wastewater treatment plants, and flood-control projects. And ninth, he has also wisely set up regional councils to compete with innovative projects for state funds that are tailored to the needs of each region.
In summary, Gov. Cuomo gets high marks for reining in the historic spendthrift mentality and substantially slowing the growth of state-government spending, without the usual legerdemain. He expended some political capital by taking on the state’s public-employee unions to freeze their pay and reduce the size of government, which translates into fewer union members and reduced dues. When compared to his predecessors over the last three decades, except for a few years of the Pataki administration, the governor has acted forcefully to put the state on a sustainable, financial footing.
But has the governor put the Empire State on a competitive path “… to remind the world that New York is ‘Open for Business,’” as promised in his executive budget presented on Jan. 17? Of this, I’m less optimistic.
First, Medicaid and school-aid together represent more than 56 percent of the all-government-funds budget. Total federal, state, and local Medicaid spending represents an expenditure of $54 billion, with the state committing $15.5 billion. New York spends more than twice the national average ($2,604 per-capita) on Medicaid and more than California and Texas combined. The cost is tied to the generosity of the program benefits and to the fact that New York has enrolled 5 million residents, up 84 percent just since 2000 while the population has remained static. The governor has given no consideration either to limiting the benefits or to restricting Medicaid enrollment.
Second, school-aid represents an expenditure of nearly $21 billion, the largest single item in the state-funds budget, representing 30 percent of all state funds expended. While some will applaud the slower growth of the program, New York public schools spend on average $18,126 annually per student, 73 percent above the national average. No one claims that New York students are brighter because of the higher cost; still, higher-education is looked upon as a sacred cow whose funding can’t be reduced. To his credit, Gov. Cuomo had budgeted $250 million in grants to improve performance in the public schools based on achievement, but settled for $50 million, while the remainder was simply sprinkled by the legislature among all of the school districts.
Third, I find no effort in the new budget to reduce the ballooning state debt, which now consumes $6.362 billion in annual interest payments, an increase of 7.2 percent over last year. The interest payments only represent debt incurred directly by the state, with at least twice as much debt incurred by state agencies and carried off the state’s books. Perhaps a repayment program is buried somewhere in the budget, but I see no program to tackle the state’s debt over time.
Fourth, the governor campaigned for office on a pledge not to impose new taxes to fix New York’s budget problems. This promise lasted until December of last year when Gov. Cuomo signed-on to the millionaire’s tax. His new budget anticipates $2 billion in additional revenue, much of which is transferred to the “middle class” as a tax credit. The governor is fully aware that higher taxes on millionaires tends to drive them out of the state and never produces the anticipated revenue. In this case, politics trumped logic.
Fifth, what happened to transparency? Gov. Cuomo campaigned against government conducted by three men in a room. The 2012-2013 budget still emanates from three men in a room negotiating behind closed doors. The minorities in the Senate and Assembly only find out what’s in the budget when they read about it in the media. So much for openness in government.
Sixth, the governor punted when it came to pension reform. He boldly proposed a Tier-6 level for new state employees that would increase employee contributions, offer a defined-contribution option, raise the retirement age from 62 to 65, prohibit early retirement, decrease the final average salary from 60 percent to 50 percent, and exclude overtime and other payments from the formula used to calculate final average salaries for pension allowances. Gov. Cuomo projected a savings of $80 billion over 30 years.
Despite the fact that New Yorkers will spend $13 billion this year to fund state pensions, nearly 10 percent of the entire budget, Gov. Cuomo agreed to raise the retirement age by only one year, limited the defined-contribution plan to a few non-union employees, and gave up on cutting the workers’ annuities by up to 16 percent. In short, the governor rolled over for the unions on pension reform, knowing full well that as soon as the economy recovers, organized labor will pressure its legislature allies to raise the pension benefits.
Final grade: B-.
To raise his grade, Gov. Cuomo needs to take on pension reform. His model should be Gina Raimondo, the state treasurer of Rhode Island, who spent months convincing her fellow Democrats that serious reform was needed now for the present work force, not for some time in the future. The new Rhode Island law shifts all workers from a defined-benefit plan to a hybrid plan consisting of a modest annuity and a defined-contribution plan. The plan also raises the retirement age from 62 to 67.
Gov. Cuomo also needs to attack the basic problems of Medicaid enrollment and its overly generous benefits along with the extraordinarily high cost of public education, not tied to performance improvement. Slowing the rate of state funding in New York is not enough; we need to lower the total cost now by spending less.
And finally, until Cuomo institutes a plan to reduce the state’s debt obligations, the Empire State is not set on a path to prosperity. If we want the world to know that New York is truly open for business, there is still much for the governor to do and more political capital he needs to expend.
Norman Poltenson is publisher of The Central New York Business Journal. Contact him at email@example.com