Question For Eliot Spitzer and Paul Francis: Are Your Planning on Hitting Up the Same Victims Again?

Newsday has reported that Governor Eliot Spitzer and budget director Paul Francis are “engaging the public as we determine our priorities for how to best use the state's limited financial resources, while minimizing the burden on taxpayers and keeping our business climate competitive.” If by “the public” they mean those with the greatest sense of entitlement and the most hooks into the state legislature, then all they have to do is choose the same victims to pay more or get less as in the early to mid-1990s and early 2000s. That is the “humble” thing to do, since it is the path of least resistance in the state legislature, and the path least likely to generate reputation-tainting opposition advertisements. If that is the path they choose, however, the Spitzer Administration will have failed the people of this state to an unimaginable extent. My suggestion, if they wish to “engage” with it, is to do the opposite. Reduce spending in categories and places where it is high, not where it is low. Raise revenues by eliminating tax breaks, even popular ones, rather than raising rates. And stop destroying the common future in order to curry favor with those with the greatest sense of entitlement in the present. For health care and aid to local governments, the details are below. And they assume a much more difficult fiscal environment than has been admitted thus far.

Let’s start with state education finance. Long term readers of my posts know that New York City’s public school spending had long been very low by national standards, once a cost of living adjustment is imposed, while spending in the rest of the state had been sky high. And, the city’s share of state education assistance has not only been far lower than its share of public school students but also lower than its residents share of state income tax payments, meaning the city’s children would have been better off if the level of state education assistance was zero.

Even so, in 1995-96 the state cut education assistance to the city while increasing it to the rest of the state, reducing the city’s share to 29% even though it had 37% of the students and its residents paid 37% of the taxes. In fiscal 2002-03, in the wake of 9/11, the city’s share of state education assistance was again cut by reductions in school aid that was called school aid, which the city gets some of, combined with increase in school aid that is called school tax relief, which the city gets little of. In the latter case, state education assistance to New York City $250 million net while assistance to the rest of the state, funded by a state income tax increase that hit NYC taxpayers hard, rose $86 million. In the former case NYC’s state school aid fell by $248 million while aid to the rest of the state rose $357 million. And that is what state legislators from the rest of the state will want to do again. In fact, my Assemblymember Jim Brennan has predicted this will happen as aid to the city is deferred while suburban school tax breaks are increased, according to The Daily Politics. If so, are you going to vote “no” on the state budget this time, Assemblymember Brennan?

The state has had a 20-year policy of rewarding excess spending by local governments outside New York City by providing more state assistance the more they spend, because their property taxes are too high. The predictable result is massive increases in spending paid for, in part, by residents of New York City. As the attached spreadsheet shows, local government employment was 108,000 (20.7%) higher in the rest of New York State in September 2007 than in September 1990, while in New York City it was 20,100 (4.3%) lower – even though the city saw population increases, and the rest of the state stagnation, over that time. (Note, however, the relatively small gain in the Elmira MSA which has the state's lowest state and local tax burden as a share of income, and in the Syracuse MSA which has been doing better than Rochester and Buffalo in attracting jobs lately).

While some of that additional hiring purchased gold plated services New York City residents could never dream of, much of it is the equivalent of a very lucrative workfare program for those unable to find as good a deal in the private sector. According to Newsday, Francis said “with troubles on Wall Street leading to decreases in projected revenues, we need to find ways to do more with less.” New York City has been forced to do more with less, the same with less, and less with less every time money has become tight for 35 years. Others have never economized at all. Local government employment kept soaring in the rest of the state right through the last two recessions, right up until the last month or two.

As I reported, based on Census Bureau data, last spring, by FY 2005 New York City’s public school revenues and expenditures per pupil were 10% above the national average, even after a modest cost of living adjustment was applied, although this is offset by the greater needs of the city’s students and the higher share of spending going to retired, rather than active, teachers. But as New York City’s spending has gone from low to average, spending in the rest of the state has gone from high to ridiculous, part of a seeming deal that the gap between the city and the rest of the state must be maintained no matter what. Need I go through all the data again? For one thing, according to the Bureau in 2005 national spending on public schools equaled 4.63% of the personal income of U.S. residents, compared with 4.28% for New York City and 6.46% for the rest of New York State. State and local taxes absorbed 10.7% of the personal income of U.S. residents, compared with 15.7% for New York City and 13.3% for the rest of the state. And Eliot Spitzer’s “historic” investment in education would leave the city even worse off, as increased education “tax relief” elsewhere would leave the city’s share of the pie unchanged at a level below what its taxpayers will have to pay the state to get it.


I’ll pay additional city taxes to increase spending on the city schools if that is required, in the hopes that the next generation of New York City children will be provided with the decent education my own children’s generation was ruthlessly denied. But at the state level, I want education assistance – including “tax relief” assistance – frozen at current levels. What? Someone who has been calling for state school aid increases for NYC for years wants it frozen? That’s right, because the state will never help NYC’s children, only leave them further behind. According to The Daily Politics, the Campaign for Fiscal Equity and the Alliance for Quality Education find it “absolutely inconceivable” and “shocking” if the city didn’t receive more funds, but I know that if the fiscal situation is bad enough that is the best-case scenario. A more likely scenario is more money for the rest of the state and devastating cutbacks for the city once again, because those 108,000 additional “workers” in the rest of the state count for much more than NYC’s children.

Rather than increase spending in the city, now that it is higher, how about cutting spending elsewhere? All those districts spending significantly more than NYC on a cost of living adjusted basis should be required to freeze their spending at current levels (reducing them in real dollars by the rate of inflation) or have their existing “tax relief” aid taken away on a dollar for dollar basis. That’s right. I didn’t say limit the increases in all school districts (including NYC) to 4% per year to make the gap in spending permanent (as has been proposed by others), on pain of losing additional state funding. I said limit the increase in high spending districts to zero on pain of losing existing state funding, until some level of reasonableness is restored. The freeze in state aid should continue as long as the state has fiscal problems, and in high spending districts, the penalties for per child spending increases should continue until people stop complaining about their property taxes and expecting someone else – perhaps someone who has a local income tax in addition to property taxes -- to pay.

Even without a budget crisis, the Spitzer Administration cut off general aid to New York City last year, a $400 million loss, while increasing it virtually everywhere else in the state, including those places (the majority) where the poverty rate is lower and the median earnings lower than in New York City. Note that I said median not mean. The New York City mean is pulled up by a small number of really wealthy people in Manhattan, people who pay plenty in state taxes. The rest of the city is not nearly as well off, yet has been forced to pay taxes and subsidize part of the state that are better off. Spitzer promised to restore the city’s general aid next year, but is likely to break that promise. Fine. What I want is general aid to also be eliminated for any locality that has a lower poverty rate or higher median earnings than NYC. Rochester, Buffalo, Syracuse, and dirt poor rural areas in places like Allegany County I’ll sacrifice to subsidize. Bruno, Skelos, Sarland and Brodsky’s districts, on the other hand, could make it on their own by shrinking down some of those extra 108,000 local government employees.

New York City has been treated horribly by the rest of the state on education, transportation, and taxation, in ways that are unforgivable and should be recognized and admitted over and over again for all time. But New York City has a state drainer of its own – Medicaid. And other than general aid to New York City, Medicaid is the only category of spending the Spitzer administration tried to cut last year. Tried unsuccessfully because the state legislature desperately wants to keep the existing deal – excess Medicaid spending in the city in exchange for the city being ripped off in every other way -- intact. Well, the state’s choices in a recession are to borrow billions illegally to spend far more than is taken in, raise taxes massively, or freeze education aid while cutting Medicaid. I say, as a person who is in favor of far greater government funding for things than the average American, that the right choice is to freeze education aid and cut Medicaid.

Particularly Medicaid in categories and places where employment and spending are far higher than is typical. And as I have shown, that is the hospital industry and at-home care for senior citizens in New York City. That is where the excess spending is. That is where the excess employment is. That is probably where the fraud is. And that is where the political power is. New Yorkers elected Eliot Spitzer to take it on, not to detail Joe Bruno’s helicopter travels. If he backs down on the former after screwing up the latter, he will be the worst Governor New York has had since George Pataki.

Need I detail the extent of New York City’s health care, senior care and Medicaid excesses yet again? In 2006 the city had 1,914 private hospital industry workers per 100,000 residents, compared with a national average of 1,452, and 488 full time equivalent public hospital workers per 100,000 residents, compared with a national average of 177. The city had 1,933 workers in private social assistance organizations per 100,000 residents, compared with a national average of 727, and while some of this is explained by a greater number of workers providing services to the poor, offset by the city’s high poverty level, a sky-high number of aides providing at-home non-medical care to senior citizens is a far greater factor.

Not surprisingly, therefore, New York State, with 6.7% percent of the nation’s population, accounted for 16.3 percent of Medicaid-financed in-patient hospital expenditures in 2004, 23 percent of Medicaid financed home health care expenditures, and 18.7 percent of Medicaid financed at-home “personal care” expenditures. In the case of personal care expenditures, New York’s spending per recipient was nearly triple the national average. And 76.5 percent of New York State’s Medicaid hospital expenditures, 82 percent of its home health care expenditures, and 84 percent of its personal care expenditures are in New York City.

It is true that city taxpayers bear much of this burden themselves, through a requirement that local taxes fund 25 percent of Medicaid spending in these categories. In categories where spending is high in the rest of the state, nursing home care and family health plus, local governments only 10 percent. It is also true that in the hospital category spending per recipient is not as out of hand as it was – now 30 percent higher than average, once double the national average. That’s why I would say that excess school spending in the rest of the state is a bigger burden now than excess Medicaid spending in NYC. But too many New Yorkers – not to mention people from elsewhere – are receiving too much hospital care – rather than preventive care from the state’s underpaid physicians – funded by Medicaid in New York. And seniors are receiving home health care and personal care services in New York City that are cared for by family members or get by without assistance elsewhere, because all that additional at-home care hasn’t reduced NYC Medicaid-financed nursing home expenditures. Those are still high.

Early on last year, Spitzer budget director Paul Francis proposed a crackdown on personal care, but it was excluded from the final proposed budget, prompting extensive gratitude from the agencies that dispense such care and the advocates for the elderly (and against everyone else) they fund. But Francis was right. Spitzer needs to take another crack at Medicaid, including asking the tough questions about at-home care, both as a general policy matter and as an individual fraud matter. Either services prone to excess like this will eventually disappear, or everything else will, unless the abuse is stopped.

Medicaid and education are directly linked. Why hasn’t New York City spent more of its own money on its public schools? Because its taxes are already high, and are diverted to Medicaid and pension costs mandated by Albany. Want to increase education funding in New York City, where there is need, without also increasing it in the rest of the state, where it is too high? Have the State of New York assume the same share of Medicaid costs for hospital, home health care and personal care expenditures that it does for nursing home care and family health plus, leaving the local share at 10 percent. That would save New York City $1.1 billion, which the state could require be used for the schools, while saving some money for counties elsewhere, which the state could require be used for lower property taxes.

That, however, is a policy for an improving fiscal situation. In the next year or two, the battle will be to prevent schools in the rest of the state (via school aid that is called school aid or STAR) and Local 1199 and the Greater New York Hospital Association from grabbing more, even as New York City’s public schools get less, perhaps hundreds of millions less. That is what happened in the past. If it happens again, then nothing changed on Day One. To hell with Troopergate and immigrant licenses. This is what matters, the temptation for Spitzer to improve his personal standing with the winners, the entitled, the insiders at the expense of what is right. So what is it going to be?

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