Cut Public Spending To Save New York
As the U.S. financial markets froze, two front-page New York Times stories about how retirees were faring made a jarring contrast. One, on Sept. 23, painted the picture you'd expect of worried seniors squeezed between eroding 401(k)s and skyrocketing property taxes on homes they believed safely bought and paid for.
The other, two days earlier, reported that almost every recent retiree from the taxpayer-subsidized Metropolitan Transportation Authority's Long Island Rail Road division had successfully claimed disability benefits from a special federal fund for railway workers after they had retired, so that former train engineers still in their 50s were raking in up to $170,000 a year. Their purported disabilities entitle them to free use of state recreation facilities: a mordant page-one photo showed a youthful and healthy-looking taxpayer-supported LIRR retiree enjoying a complimentary round of golf on a taxpayer-owned Long Island course.
This rip-off, which the state attorney general is investigating, is an almost comically extreme case of a scandal now so widespread that we hardly notice it: public-sector employees living better than the private-sector workers who struggle to pay the ever-rising taxes that support their supposed servants.
The average public-sector worker's wages are more than a third higher than his private-sector counterpart's, as Steven Malanga has reported in City Journal, and with fringe benefits like health care and retirement thrown in, his total compensation swells to almost half again as great as the private-sector average. Unlike most private-sector workers, whose 401(k) retirement plans shift all risk to them, public-sector workers have guaranteed pensions, which kick in earlier and are much richer than the few remaining defined-benefit private-sector pensions, and they boast automatic cost-of-living hikes to boot.
Economist Herb Stein famously remarked, "Anything that can't go on, won't." The current credit mess is one spectacular case in point: When Congress pushes banks to give mortgages to borrowers of doubtful creditworthiness, when banks find they love doing so, when outfits like Fannie Mae (nyse: FNM—news—people ) package the loans into bags of a lot of nothing that together supposedly add up to something, and when million-dollar-a-year 30-something Wall Street quants claim to have a formula for putting an exact dollar value on that something, the whole house of cards is bound to collapse.
Another case in point is the public sector's house of cards. Since public-employee unions, along with government-subsidized social services and health care outfits, have become the new powerhouses of our city and state politics, elected officials, dependent on their financial and campaigning support, have gladly showered other people's money upon them, especially for pensions, which won't have to be paid out until the pols are only names on some pork-barrel stadium or hockey rink. One by one, businesses and individuals (like today's hard-pressed private-sector retirees) decide they won't or can't pay the taxes, and they leave. The collapse comes in slow motion, but inexorably: once-legendary cities—Baltimore, Buffalo, Detroit, Philadelphia—fade into ghosts of their former greatness.
New York has escaped that fate, thanks to the political genius of former Mayor Rudy Giuliani and the bonanza of Wall Street's second Gilded Age. But that's over—with the suddenness, almost, of 9/11. Mayor Michael Bloomberg, taking office just after terrorists blew a hole in the heart of Gotham's financial district, let pass the opportunity for radical reform that comes only with extraordinary crises.
Now that somber opportunity has come to him again. He can tell New Yorkers that, with the city's major industry and wealth generator in ruins—with the five great investment banks that seemed so solid having melted into air overnight—the public spending that ballooned on his watch like a financial bubble can't go on and so won't. He can say that, with 40,000 Wall Streeters losing their jobs, the city workforce will shrink as well. He can say that, with their incomes cut, New Yorkers will not face higher taxes to support needless borough presidents' offices, a redundant civil rights commission and thousands of other unnecessary "services."
If ever the time called for a heroic leader, it is now. But as Mayor Bloomberg has already suggested a 7% property-tax hike and a 2.5% spending cut, God help Gotham.
This piece originally appeared in Forbes
This piece originally appeared in Forbes