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Run, Mike, Run!
by Bruce Fisher
Why he should be Governor Bloomberg before he's President Bloomberg
From 2000 to 2008, the number of public school students in New York outside of New York City dropped by almost 50,000, but local school taxes and state aid alike both rose billions in order to fund Upstate, suburban and rural public schools. At the Buffalo State College Center for Economic and Policy Studies, our ongoing review of school and municipal finances shows that between 2000 and 2008, local school taxes went up by $5.4 billion and state aid went up by over $3.5 billion. In the eight counties of Western New York, the school population fell by more than 20,000 kids, from about 250,000 to just under 230,000 students, but state aid went up by more than $590 million, and local school taxes rose by more than $200 million.
This trend—fewer students, more state aid and higher local school taxes—is a recipe for ever-growing fiscal stress, and for more Upstate political instability as well. With the current $9 billion state budget hole, more of the burden for paying for local schools will hit local taxpayers, because it’s a pretty good bet that school aid from Albany is going to take more of a hit in the coming budget—even if the lieutenant governor’s idea of creating a statewide control board succeeds in closing that gap by borrowing.
So if you live in Williamsville, Cheektowaga, Hamburg, or any of the other suburbs where your school districts have recently pocketed some of that aid from Albany, get ready: You and your neighbors are going to have to start footing more of the bill yourselves, starting in 2011.
State politicians are also going to become unpopular because the giveback program to local property taxpayers known as the STAR exemption is going to shrink or disappear. Thus even more of the true cost of education will start showing up in the monthly mortgage payment or, for homeowners who own their homes outright, as extra numbers on the checks they write. State officials have already pushed the 760 local school districts outside New York City to use their reserves, and to prepare for less aid, but the political impact of this has not yet hit.
Albany politicians will be the target of anger, just as now they are the target of news media attention for widespread allegations of ethical lapses.
But here’s what’s really going on, folks: The co-dependency of government and Wall Street in New York State is getting harder to sustain.
How Albany really works
The traditional deal in many state capitols is that the suburbs get school aid and the cities get big-ticket healthcare aid. But that calculus is breaking down, as more and more of the cost of healthcare becomes a cost incurred by elderly white suburbanites. Beside payouts to those 760 mainly suburban school districts, healthcare spending is the other enormous item in the state budget. The Medicaid bill is approaching $50 billion a year, and yes, it pays for a couple of million poor folks, but Medicaid is as big as it is because it is a feeding frenzy: It has been described, accurately, as New York State’s biggest jobs program. Medicaid feeds hundreds of thousands of workers, and hundreds of hospitals, pharmaceutical companies, equipment-manufacturers, and other vendors to the healthcare industry.
Ignore the ideological posturing of Upstate Republican county executives. It’s because of Medicaid that billions of federal stimulus dollars came to New York’s county governments and balanced their budgets. Between 2009 and 2011, almost $100 million will have come to Erie County alone. (That’s why the Erie County budget is balanced, not because of any industrial process-improvement boondoggle.) The reason why Maggie Brooks of Monroe County may be a candidate for Congress to replace Eric “my story will change in a minute” Massa is the same reason why Erie County Executive Chris “don’t look at my jail” Collins looks like a good fiscal manager: It’s simply because free Medicaid money has rained down from Washington, money that has prevented shrinking, unemployment-riddled Upstate counties from facing the fiscal nightmares that Upstate school districts are about to face.
Meanwhile, every other service of state government is getting squeezed. Anybody who wants to keep studying at a SUNY school, visiting a local library or a state park, or relying on any other state service should be on notice: User fees will be going up, if indeed services will be available at all.
Who would want to be in charge of all of this? Who in their right mind would want to be governor of New York State? With federal stimulus money running out, with 760 school districts clamoring for Albany money that is about to run out, with every interest group under the sun grabbing Medicaid money, and with a politically disheveled president facing the possibility of a hard ideological Republican takeover of Congress in 2010 (you read it here first, folks), who would want to replace David Paterson?
Make Mikey do it
The problem is not in our stars, Horatio, but in ourselves. Republicans and Democrats have made New York State’s financial picture even more of a nightmare scenario than it usually is. As we’ve reported before, over 75 percent of the taxes paid to Albany come from the New York City metro area. The largest single geographic source of those funds is Manhattan, and the largest single-industry source of funds is Wall Street.
New York Mayor Michael Bloomberg, who is rumored to be preparing to run for president in 2012, has complained about how much money his hard-working constituents send to dependent, dysfunctional Upstate. He’s right to complain. Bloomberg runs a unified regional government that has one police department, one fire department, and one school district serving 300 square miles of territory; Erie County has 46 governments, 19 police departments, 29 school districts, and more than 900 special-purpose districts. Mayor Bloomberg’s islands and peninsulas attract hundreds of thousands of new immigrants every year; Erie County has no net new immigrants. Mayor Bloomberg’s constituents are so economically diverse and resilient that even the most enduring pockets of poverty are seeing development. Have you seen the South Bronx recently? Meanwhile, Erie County, with its fractured government, gets older, smaller, and poorer.
New York City and its suburbs have seen economic expansion and population growth—fueled in significant part by the great expansion of the financial industry. But the financial industry cannot itself sustain all the spending that keeps the wheels turning in the dependent part of New York State—our rusty Upstate metros and the college towns, dairylands, resort areas and wolf wildernesses that comprise the Empire State.
Bloomberg’s constituents’ money comes Upstate in the form of school subsidies, subsidies to local governments, SUNY funds, and subsidies for public employment. Public employment in Erie County is only 17 percent of total employment, but it is 19 percent or more of total income. Public employment is a big business that is a cornerstone of the regional economy. And it is no exaggeration to say that all the government-funded activities that have become critical components of the New York State economy rely heavily, very heavily, on Wall Street profits that are paid, in part, in the form of the notorious bonuses about which some politicians complain.
Correction: about which politicians once complained. President Obama was an anti-Wall Street populist for about 13 seconds, when he went on 60 Minutes and labeled the latest round of end-of-year bonuses for bond-traders and investment bankers “obscene.” Obama subsequently told Bloomberg News that he didn’t “begrudge” the $26 million in bonuses awarded to Jamie Dimon of JPMorgan and Lloyd Blankfein of Goldman Sachs.
No kidding. He is politically beholden to Wall Street. New York is fiscally dependent on Wall Street.
Now Richard Ravitch, our lieutenant governor from Wall Street, has suggested a way for some more bankers to get bonuses—via a deficit borrowing of about $9 billion or $10 billion. Whoever markets and trades these new bonds will make fat bonuses. Those bonuses will, in the way that oats eaten by horses eventually become sparrow-food, make it into the New York State economy. Ravitch’s idea is to create something like the Municipal Assistance Corporation, the “control board” that got New York City out of its 1970s fiscal crisis by issuing bonds and supervising the budgets that elected officials enacted.
Though potential presidential candidate Bloomberg doesn’t like it, Ravitch’s idea makes sense. Here’s why: The biggest pocket of strength in New York State is still the financial industry in New York City. Putting more paper on the street could help New York City’s economy, which will help us sparrows Upstate.
The Municipal Assistance Corporation of the 1970s was the instrument for helping New York City get over its fiscal hump. But the hump New York State has to get over is the expensive decline of Upstate. And it’s no molehill.
Any New Yorker who wants to be president of the United States is going to have to explain to America why he is big enough to take on America’s problems, but too shy to take on the problem of Upstate New York.
Thus it’s high time for Governor Bloomberg—because there is mounting evidence that, as goes Upstate, so goes America.
The author gratefully acknowledges additional research provided by Joseph Passafiume. Bruce Fisher is visiting professor of economics and finance at Buffalo State College, where he directs the Center for Economic and Policy Studies.blog comments powered by Disqus
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