How Spitzer Can Help N.Y.C.
GOV. Spitzer resumes a New York tradition broken by upstater George Pataki: Most of the state's modern governors, from Al Smith to Thomas Dewey to Nelson Rockefeller to Mario Cuomo, were born and raised, or at least built their careers, in New York City. What can the latest Gotham governor do for his home?
First, note that some recent "pro-city" policies have had the opposite effect. In the 1960s, for example, Rockefeller "helped" Gotham by signing a law that allowed the city to levy its first-ever municipal income tax on residents. Those funds helped foot the bill for the city's huge public-sector workforce and growing social programs - allowing it to spend so freely that it nearly went bankrupt in the next decade.
Rockefeller also "helped" New York City by funneling more state money to it, enthusiastically embracing new federal programs like Medicaid. And he launched all kinds of economic-development schemes meant to help the urban poor - all of which failed. To pay for all this urban spending (the feds only pick up half the cost of Medicaid), Rockefeller hiked state taxes - paid in large part by middle-class and upper-class city residents.
Cuomo, two decades later, never had such an ambitious urban program as Rockefeller - but he also hiked state taxes to pay for increased social spending on programs like welfare, much of which went to the city.
Today, some city pols, including Mayor Bloomberg, hope Spitzer "helps" Gotham again by providing it with yet more state money - this time for things like billions more in public-school spending.
But that "free" state money largely comes out of the pockets of middle-class city taxpayers and their employers, who already pay more than their fair share. In fact, when the state hiked income taxes three years ago, Gothamites footed half the bill. So directing more state money is hardly the best thing Spitzer could do for the city.
Instead, the new governor should focus on something that will win him fewer early accolades: Fix the broken parts of state government that disproportionately hurt the city.
First, Spitzer should pledge to put the Metropolitan Transportation Authority's finances in order. The MTA runs the subways so vital to Gotham - but it's state-run. For the last 12 years, Pataki quietly hurt the MTA by papering over its fiscal shortfalls with billions of dollars in debt - debt structured so that the MTA wouldn't face the bill until after Pataki left office.
As a result, the MTA will have to double the amount of money (relative to its revenues) that it spends on debt payments over the next decade. That will leave it less cash for things like maintaining tracks and cars - and New Yorkers will suffer.
Spitzer should direct his MTA appointees to begin to control some of the authority's growing debt costs, as well as other costs like future pension and healthcare benefits for its workers, so that the city's priceless underground assets don't deteriorate.
Second, Spitzer should begin working with Bloomberg to rein in the massive costs the city faces in the form of Medicaid for poorer New Yorkers and future pensions for municipal workers. (Bloomberg announced last week that he'll work with the state on ferreting out Medicaid fraud, but catching crooks isn't enough - the state's $45 billion program needs much deeper fixes.)
The laws that drive up New York's Medicaid costs (and much of its pension woes, too) are written in Albany, but the city pays much of the bill. Medicaid and pensions now drain nearly 20 percent of the city budget; they're behind Gotham's high taxes as well as its projected future budget deficits.
But cutting future Medicaid and pension costs would also mean cutting state spending - leaving Spitzer some room to cut state taxes, too, helping the middle class statewide, and especially in and around the city.
Once he's done some real fiscal fixes, Spitzer should examine the mandates and regulations that don't directly cost taxpayers money, but that nevertheless disproportionately hurt Gotham.
Most obvious is state regulation of rents in the city (put in place by Dewey, another of Spitzer's urban predecessors). Rent regulation is already on course to gradually expire, as more and more apartments reach the $2,000 regulated-rent "ceiling," so that landlords will have more incentive to invest in their properties. The new governor just needs to make sure we stay on that course.
But one of the worst mandates Gotham faces right now doesn't come from Albany at all, but from Washington: The Sarbanes-Oxley (SOx) act, signed into law by President Bush nearly five years ago, aims to prevent corporate frauds like Enron and WorldCom.
SOx imposed heavy new costs on companies that trade their securities on American stock exchanges: To meet the law's requirements for certifying their finances, they collectively spend as much as $20 billion a year. The extra money spent on accountants and auditors costs small- and medium-sized firms as much as half a percent of their gross revenues - which translates to a significant hit on bottom-line profits. Yet, as the independent Committee on Capital Markets Regulation put it, "the precise quantification of benefits" from such spending "is uncertain."
For those uncertain benefits, SOx poses a disproportionate cost to Gotham's economy. It has sent companies fleeing to stock markets in friendlier regulatory climates like London.
Federal regulators made a few tinkers to Sarbanes-Oxley late last year, but not enough. Spitzer should prod the state's delegation to Congress to take up SOx reform this year, to make sure the costs to Gotham's finance-dependent economy don't continue to outweigh any real benefits from the law.
As a governor with his heart in New York City, there's much Spitzer can do for Gotham.
This piece originally appeared in New York Post
This piece originally appeared in New York Post