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Observation: Governor Cuomo and the Budget Culture in Albany January 2011

Governor Cuomo and the Budget Culture in Albany

By Robert B. Ward
Deputy Director/Director of Fiscal Studies, the Rockefeller Institute of Government

Robert B. Ward

The late Daniel Patrick Moynihan once wrote that he pursued a seemingly eclectic mix of liberal and conservative ideas because he knew that “it is culture, not politics, that determines the success of a society” — yet he also believed that “politics can change a culture and save it from itself.”



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Robert B. Ward is deputy director of the Rockefeller Institute, where he heads research on state and local finances, and is author of New York State Government, Second Edition. An earlier version of this commentary appeared in the New York Post.

The daunting challenges facing New York’s new governor, Andrew Cuomo, are centered in the area where politics and culture intersect. Governor Cuomo accurately depicts New York’s culture of government as one that delivers the nation’s most generous spending but pays relatively little heed to the tax burden, long-term sustainability, or programmatic results. Only highly effective political leadership can change that reality.

An examination of the Empire State’s budgetary culture starts with expenditures on education, Medicaid and other programs that are far higher than those in most states, not only in absolute terms but relative to residents’ needs for public services. A 2006 study by the Urban-Brookings Tax Policy Center and the Federal Reserve Bank of Boston found that New York’s “expenditure need” – reflecting population, citizens living in poverty, school-age children and other measures – was almost precisely the same as the national average. By contrast, New York’s “expenditure effort” was 39 percent higher than average, far above those in states such as Massachusetts, New Jersey and California.[1] Other studies in previous years have reached similar conclusions.

To pay for comparatively high spending, the tax burden on New Yorkers is by far the highest in the country, the Urban-Brookings study shows. Its authors use the concept of “tax effort,” which measures actual collections against the ability of the state’s economy to generate tax revenues. (Other measures, such as overall taxes in relation to personal income, also show the Empire State near or at the top of the list.)

Despite those high taxes — and a level of debt that is also high compared to other states — Albany repeatedly fails to achieve structural balance between revenues and spending. Of course, all of the states struggle during recessions, even downturns that are less severe than the most recent. But New York is unusual in that, for more than two decades, it has begun almost every annual budget cycle with a projected gap. That’s because each adopted budget produced a secure financial plan for at most 12 months — rather than ongoing, structural balance.

The Empire State’s budgetary culture is similar to other states’ in one significant way, though. Like most of the others, New York does little to measure whether its expenditures produce the desired results, or to redesign services based on such performance indicators.

Anyone who pays attention to activity at the Capitol in Albany understands that spending and taxes are high partly because powerful interest groups push the Legislature in that direction. For example, the hospital workers’ union and Greater New York Hospital Association have repeatedly used multi-million-dollar, political campaign-style attack advertisements to scare elected leaders away from changes in Medicaid. (Governor Cuomo is trying a new approach of including some of those union leaders on a team charged with developing cost-effective reforms.) The teachers’ unions, too, exert broad influence in the state’s largest center of expenditures, education.

But interest groups are not the only players driving high spending. Many New Yorkers simply like it that way. The state’s political culture is ideologically more liberal than most. We gave Barack Obama 63 percent of the vote in 2008, compared to 53 percent nationwide. Despite universal complaints about property taxes, voters choose each year to approve overwhelming majorities of school budgets.

Since Al Smith created the strong governorship in the 1920s, every chief executive has faced the challenge of balancing spending and revenues. Albany’s modern budgetary culture, which creates governing headaches Smith never confronted, came later. It was born with Nelson Rockefeller’s heady commitment in the 1960s to meet every major social need with state (and local) tax dollars. The current culture matured in the following decades as public-employee unions built their power, the Legislature enhanced its institutional ability to negotiate with the executive, and baby-boomer attitudes emphasized services over affordability.

The product of that culture today is round after round of budgets that leave large gaps in the out years, and thus force repeated searches for new revenues and reductions in planned spending. Those searches, in turn, typically fail to produce recurring improvements in the financial plan, instead concluding with gimmicks and deferral of costs into future years. The cycle continues unbroken.

When recessions come — as can be expected, though the timing is always uncertain — structural imbalance means the state has little cushion against unwanted, unplanned service reductions or tax increases. Major promises for new expenditures — such as the multi-billion-dollar increase in education aid that Governor Spitzer pushed to enactment in 2007 — go unfulfilled. Investment in infrastructure falters, with damaging impacts on vital elements of the transportation network. The drive for revenues may lead to solutions previously considered socially unacceptable, such as more promotion of state-sponsored gambling.

Taking office in a year when rollover deficits have left a budget gap of $9 billion or more, Governor Cuomo promises to balance the coming year’s budget without new taxes or borrowing. Even experienced fiscal experts are unsure how that goal can be accomplished, especially if “borrowing” is interpreted broadly to include shifting of pension and other costs into future years. What do the numbers show?

Existing law regarding aid to public schools would drive the state’s education spending up by some $3 billion in the coming year. Given that education is the largest element of non-federally funded spending, simple math indicates it must be a central part of any effort to reduce overall spending. However, many legislators will resist cutting multiple billions in education aid, even from trendline growth as opposed to current expenditures.

The new governor’s commitment not to raise “taxes” may not apply to all revenues. Business fees, motor vehicle charges, public university tuition and other non-tax revenues might be increased. Past experience indicates such changes might provide as much as another $1 billion to $2 billion.

New federal aid is unlikely. So eliminating the rest of the projected gap will unavoidably mean significant spending reductions in a wide variety of programs — including the largest cost center outside education, Medicaid. The size and range of savings that would be needed illustrate how changing the state’s budget culture will be both difficult, and essential to bringing about sustainable balance.

It’s worth remembering that, not so long ago, the breadth and cost of modern public programs would have been almost beyond imagining. Who would have thought New Yorkers would take it for granted to send $100,000 annual bills for nursing-home care to the government? That spending in the state’s typical school district would reach $19,000 per pupil? Or that retired public employees would receive pensions commonly worth over $1 million?

Such expenditures are now accepted — no, assumed — parts of the budget culture in New York. That same culture takes for granted that such costs will continue to grow at historical rates, into the future. The task for the new governor — as his inaugural and State of the State addresses showed he understands quite well — is to change the culture. It’s a far greater challenge than merely balancing a budget.

Left unchanged, the current culture will make it impossible for Governor Cuomo to balance even one budget, let alone eliminate years of built-up structural imbalances. Failure to do so would mean not only substantial tax increases, but more debt left for the next generation. (We’ve already sent them the bill for billions of dollars in state expenditures that provided benefits to this generation.)

But in this as in most things, Moynihan was right: the political process can change a culture — and save it from itself.

New York State already has an example to follow. In the early 1970s, a long-established pattern of irresponsible budgets had pushed New York City into what appeared a permanent chasm between spending and ongoing revenues. The political culture barred any corrective action — and the civic culture told voters to look the other way. By 1975, bankruptcy loomed.

A new governor, Hugh Carey, used a combination of official powers and personal vision to solve the city’s immediate budget problems and impose strict controls to assure that the days of never-ending crises would not return.

The specifics of Carey’s achievements are well known. Less appreciated is the extent to which the reforms that he forced into place drove a permanent change in the city’s governmental culture.

Now, when budget gaps emerge, interested parties — the City Council, public-employee unions, budget monitors and others — expect that the mayor will impose budget discipline of the sort that a John Lindsay or Abe Beame would not or could not in the 1970s. Public services overall have improved. The city, not so long ago regarded by Albany as a black hole of fiscal irresponsibility, now has a budgetary culture that the state would do well to emulate.

Politics, well practiced, produced this gift for the city. The question now is whether a new governor can change the culture in Albany.

[1]Yesim Yilmaz et al., Measuring Fiscal Disparities across the U.S. States: A Representative Revenue System/Representative Expenditure System Approach Fiscal Year 2002, Urban-Brookings Tax Policy Center and Federal Reserve Bank of Boston, November 2006.


ABOUT THE ROCKEFELLER INSTITUTE OF GOVERNMENT

The Nelson A. Rockefeller Institute of Government, the public policy research arm of the State University of New York, conducts fiscal and programmatic research on American state and local governments. It works closely with federal, state, and local government agencies nationally and in New York, and draws on the State University’s rich intellectual resources and on networks of public policy academic experts throughout the country.