In his final State of the State address last week, Governor Pataki called for a wide array of tax cuts. While overdue and necessary, tax cuts alone are insufficient to cure what ails the Empire State. Real fiscal reform means trust-busting "Albany Inc.," the special-interest conglomerate that has been running-and ruining-the state's economy.
New York's political class taxes, spends and borrows far more than the national average, consistently ranking at or near the top of the list in every measure of the burden governments impose-ranking first or second among the 50 states since 1970.The state budget has expanded 28% since the spring of 2001 - a period that saw the worst downturn in tax collections since the Depression. Over the next few years, state spending is set to climb another 23%, much of it going to debt service. So despite a recent rise in tax revenues, Albany faces multi-billion-dollar budget shortfalls as far as the eye can see.
This public-sector bloat has had predictable effects on New York's economic health. Between 1979 and 2004 - during two sustained U.S. economic booms - New York created new jobs at less than half the national pace. New York's share of total U.S. personal income dropped by nearly 10% during that period, and our share of all states' economic output dropped by 12%.
The malaise is not confined to upstate. While Mayor Bloomberg touts rising real-estate values and tax revenues as proof of a revival, Gotham is no longer a hothouse of economic growth. The city's manufacturing sector is nearly gone. During 2003's supposed economic recovery, the city shed jobs in advertising, computer services, construction, and management consulting.
What passes for job growth has mostly been concentrated in subsidized health care and social services-which redistribute wealth, but don't create it. States across the Northeast and Midwest have had similar problems. But New York's problems have been far worse. There's something else at work here - something that drags down New York like an anchor. That something is government. Empire State government has become an industry run for the benefit of the few, rather than in service to the many. Efforts to reduce New York's government sector are fiercely resisted by the interest groups - public-sector unions, trial lawyers, health-care providers, and other state-subsidized industries - that have become most adept at gaming the system in Albany.
These groups exert influence the old-fashioned way. They buy it, through tens of millions of dollars in campaign contributions and lobbying expenditures during every two-year election and legislative-session cycle.
Favors, ranging from direct subsidies to regulatory preferences, flow to the biggest contributors of campaign cash and get-out-the-vote manpower. For example, after Mr. Pataki, Assembly Speaker Sheldon Silver, and Senate Majority Leader Joseph Bruno added $1.8 billion in health-care entitlements to the 2002 state budget, the health care-union chief, Dennis Rivera, obligingly endorsed Mr. Pataki for re-election and funneled $281,200 to Mr. Silver's campaign committee, and $230,350 to Mr. Bruno's.
In countless deals such as this, the Capitol cabal has ramped up taxes, spending and public debt. Little wonder that New York voters see lawmaking in the state capital as strictly a pay-to-play game.
Meanwhile, lured by more lucrative opportunities elsewhere, New Yorkers have been voting with their feet. From 1995 to 2004, New York lost nearly 1.7 million residents to other states. New York's rate of emigration was the worst of any state from 2000 to 2004, according to census estimates. The relative loss of residents has been severe enough to cost the state 10 congressional seats since 1980.
There is a limit to what New Yorkers will put up with, as Buffalo-area politicians are learning. Reeling under the burden of continued high spending on schools and local governments, residents of Erie County in early 2005 erupted in a full-fledged taxpayer revolt. Through talk radio, the Internet, and newspaper editorial pages, taxpayers forcefully said no to a proposed increase in the county sales taxes. Local politicians retreated, forcing the county instead to cut county employment and services.
Can voters in other counties live with spending and service cuts? The answer, surprisingly, is yes. As a new Manhattan Institute poll, released yesterday, indicates, New Yorkers think spending cuts are the best way to close budget deficits. The poll also finds that two-thirds of registered voters favor a state constitutional amendment to limit government spending increases to the rate of inflation.
What's more, the poll finds that New Yorkers want political as well as fiscal freedom. Three out of four voters support a non-partisan commission to redraw legislative districts, while two-thirds support term limits to end the reigns of legislators-for-life already installed by absurd gerrymandering.
These and other reforms - like limits on state debt - would go a long way to breaking Albany Inc.'s stranglehold on the Empire State.
Mr. Pataki's call for tax cuts may be a response to the populist outrage we've witnessed in Buffalo. Unfortunately, the largest city and county in upstate New York had to be virtually bankrupt before citizens and local leaders awoke to the real source of the problem - just as occurred in New York City in the mid-1970s. The entire state could face the same fate, unless more is done to disrupt the cozy deals that grease the wheels of Albany Inc.
Adapted from "Albany Inc.," a new report from the Manhattan Institute, where Mr. Mone is president (www.manhattan-institute.org).