A worthwhile forum was held Wednesday morning at Baruch College's School of Public Affairs. The topic was "Declining NY Revenues; What to Do?" The meeting was chaired by Presidential Professor Steve Savas of Baruch, an expert on privatization who is a former federal and city official. There were three panelists, E.J. McMahon of the Empire Policy Center, a project of the Manhattan Institute; Ronnie Lowenstein, director of the city's Independent Budget Office, and Charles Brecher, executive vice president and director of research for the Citizens Budget Commission. All four are highly regarded in the field of public administration.
The topic is timely, considering that the recession we are now in or near is expected to adversely affect tax payments to the city, particularly income taxes generated in the FIRE (finance, insurance and real estate) fields, taxes on the assessed value of real property, and taxes on property transfers and mortgages. . It was generally agreed that the most sensible way to respond to falling revenue was to reduce expenditures. Saying that, however, is far easier than doing it, and does not solve the problem of where to cut..
We start by discussing the remarks of Professor Steve Savas, who moderated the panel.. Dr. Savas, a Presidential Professor at Baruch College, may be the only person to have been appointed to senior positions by both John V. Lindsay and Ronald Reagan. He was first deputy city administrator for Lindsay (I know because I was assistant city administrator at that time-1967.) Fourteen years later, Savas was named assistant secretary for policy of HUD (Housing and Urban Development) policy in the first Reagan administration. He is best known for his books on privatization - government services delivered by private firms under contracts obtained by competitive bidding...
The views of the three speakers, Ms. Lowenstein, and Messrs. McMahon and Brecher, will be presented on subsequent days. Fear not, all views expressed will be reported. They are part of a wholesome dialogue on an important but relatively dry subject.
Professor Savas described seven methods which governments use to balance a budget. The ones he suppports are those he regards as financially responsible. He is a fiscal conservative, if by that one means someone who favors balanced budgets, opposes expenditures he deems wasteful, and prefers tax reductions to tax increases. He believes that tax increases would make New York State even less competitive than it is today. It is a fact that New York State plus New York City taxes are among the highest in the fifty states.
The first way to approach a balanced budget, said Savas the sage, is by fiscal trickery, such as the postponement. of expenditures. During the fiscal crisis the city's teachers were due to be paid on June 30. By delaying the payment one day, to July 1, Mayor Beame was able to defer millions of dollars into the new fiscal year. No money was actually saved by this maneuver, but it put a much better face on the old year's expenditures. Another example Savas cited was the sale, under the Cuomo administration, of the parking lot at a downstate race track from one agency to another.
A second option is borrowing money. A thirty-year bond defers payment for a generation. The bonds issued at the time of the fiscal crisis (1974-75) have been replaced by new thirty-year bonds expiring as late as 2038. Debt service, which is a charge to the operating budget, increases with rising interest rates and rising public debt. The opposite of leaving assets to your descendants is leaving your debts for them to pay. This negative inheritance is New York State's gift to its future citizens, if they choose to stay in New York and pay it. Many do not.
A highly touted way to save money is through the reduction of fraud, waste and abuse. Savas said that while “F, W,& A” are usually small (for example, Congressional earmarks squander only one per cent of the federal budget, New York State provides
rich opportunities for scammers. Medicaid fraud is said to run as high as $20 billion per year and could be significantly reduced by more vigorous enforcement. One must also calculate the cost of enforcement, which offsets the savings to some extent. Nonetheless, there is no question that abuse, fraud and waste are bad things, and we should do our best to eliminate them. How much money will actually be saved by this is, however, hard to calculate in advance.
Fourth is raising taxes, which Savas defined as plucking the most feathers from the goose, while eliciting the least hissing in response. Of course, one must be careful not to actually kill the goose, for she lays the golden eggs one by one, and you will not find a trove of Faberge in her stomach or her uterus..
New York State already has one of the highest tax rates in the nation, and New York City taxes add to the burden. These taxes are paid by intelligent people, and if these people can save enough by moving, they will depart, many already have. Savas particularly cited the Unincorporated Business Tax, which he called the successor to the commuter tax, as particularly burdensome.
Fifth is reducing spending, which is most easily done by not filling vacancies. This usually results in the agencies that are the most directly service oriented soon becoming understaffed, while those deskbound employees who are lifers because they will never find anything as good, or match the pensions and fringe benefits offered by the state, will remain at their posts until they are ready to cash out with maximum benefits.
This does not mean that the deskbound are necessarily less deserving or less competent than say, hospital nurses. It simply means that they are much less likely to resign from jobs which are indoors and which require a minimum of physical effort. Vacancies that result from attrition are inevitably distributed unevenly, as the more usable and skilled employees are more likely to leave to better themselves.
More precise cuts are difficult to achieve because top officials often do not know exactly where in their agencies money is being wasted. They rely on senior staff, who may or may not be able or willing to tell them the truth. They also fear making voluntary cuts, because every commissioner needs some fat in his agency's budget that can be surrendered the next time their bosses demand reductions. To most agency heads, liposuction is not an option.
Prof. Savas's sixth suggestion was increasing efficiency. One can cut spending without cutting services by improving efficiency, but that takes a lot of political will and effort and often arouses fierce opposition by public employee unions. This strategy is all too rare. For example, the New York Fire Department maintains full scheduling around the clock, even though far more fires occur by day than by night. The streets are also much easier for fire engines to traverse at night, because there are fewer vehicles using them.
Many of these rules have been written into State law, which makes them almost impossible to change, since the legislature is obedient to its paymasters on the Albany equivilent of K Street. Fire Power is due not only to the strength of the unions, but the influence of fire companies upstate who often desire larger engines (Rule 12-B: Boys like toys.) and the wide popularity of the agency's mission: saving lives and property from fire.
Savas' last suggestion was to rethink the role of government. What should government do? To what extent has it drifted beyond the powers granted in the Constitution? What should be privatized? How are earmarks for members of Congress, “member items” for legislators, and slush funds for members of the City Council legitimate government expenditures? Why are grants that are not clearly related to public functions made to community organizations? Should government revert to its core functions?
Alas, if the city is in a budget crisis, major reforms like these cannot be enacted in time to save money. If the city is not in crisis, major reforms are ignored as there is no pressing need to save money. Inertia wins and budgets grow.
A specific suggestion McMahon made would require co-payments by employees who receive health benefits. He also proposed that health benefits for prospective retirees and their families be reduced. These measures would save hundreds of millions of dollars, but it is highly unlikely, and possibly illegal, to reduce benefits for existing employees.
Private management means greater control of the work force, more flexibility in hiring and firing staff, and the efficiencies involving imagination and initiative which are so frequently absent in public agencies. In government, there is far less incentive than in the private sector to save time and money on a project. The employees and their unions rule the roost, but even when they do not, inertia often carries the day with the same results.
There is no doubt that federal, state and local governments have been the instrument of transferring many people from relative poverty to the middle class, which is a great public good. It does cost a great deal of money, which must be paid by all citizens in the form of income, property , business and sales taxes. There is constant political pressure to keep services up and taxes down. This results in the creative accounting, the deferral of costs, the perpetual and increasing borrowing, athe fee increases and the other devices Savas described to conceal deficits.
These are not issues where Democrats and Republicans are primarily split down party lines. Each party is loyal to its funders, and the unions are wise enough to contribute to both, especially when different parties control different houses of the legislature.
Difficult political choices are unlikely to be made on these questions because every other year is an election year for the legislature, and the largest and most powerful lobbies are the public employees unions. Around the country, unionism is in decline, because private corporations must face economic reality or become extinct. Only in the public sector has union membership grown, buttressed by lobbies which both reward and intimidate public officials. They conduct business under the certainty that their employer will never go bankrupt, regardless of how poorly the business is managed, or how much it spends for salaries, pensions, health care and fringe benefits. In some cases, McMahon said that the pensions and fringes are actually more costly than the salaries received by active employees.
This concludes our discussion of Savas’ views. We will proceed in subsequent days to cover the remarks of Ronnie Lowenstein of the IBO and Charles Brecher of the CBC.
#470 5.15.2008 1782wds