What would the change in fiscal structures and priorities I have outlined thus far mean for the economy of the one part of the state whose economy people talk about: Upstate New York? It would mean the ability to have a much lower cost structure, provided Upstate was willing to live with lower public expenditures, by localizing decisions about revenues and expenditures on the margin. Upstate could choose to go on spending more if it wanted, but without draining Downstate to pay for it.
Consider the school aid formula I suggested. It would allow Upstate New York – everyone in every part of it – to have a national average level of public school expenditures per student with little or no local tax burden. Zip. Nothing. And, since incomes and spending are higher Downstate (whether that buys a higher quality of life is an open question), a substantial share of the state income and sales taxes used to fund that education Upstate would be collected outside the region, in Downstate New York. Meaning an average level of spending would cost Upstate a below-average level of state and local taxes. Even if spending were increased to 25% more than the national average, state taxes would still cover 80% the total, keeping local property taxes low.
Of course, most school districts in Upstate New York spend more than 25% more than the national average. They do so, in part, to provide jobs. The required local taxes, however, reduce spending power Upstate, costing jobs in the private sector, and transfer of state funds from poor New York City children denies them a sound basic education. If my proposal were implemented, this level of spending would carry a penalty.
The Medicaid formula I suggested would work the same way. Upstate could have a fairly generous level of health care reimbursement – at the level of surrounding states in the higher-spending Northeast – with no local tax contribution. Nothing. Nada. For custodial care of the elderly I proposed using federal and state funding exclusively for assistance for those who take care of their own relatives and friends at home, and who put off nursing home care as long as possible. The data suggest most of those in Upstate do so, and thus there would be little local tax burden for those services as well. Some of the state funding for Medicaid would also be paid for by Downstate tax collections, given the fiscal situation described above. Meanwhile, Upstate would no longer have to pay state taxes to cover the excess portion of the very high Medicaid reimbursements and very common Medicaid services for the elderly in Downstate New York. Downstate could continue to choose to spend more on Medicaid, but with its own local taxes and federal taxes rather than state taxes collected Upstate.
Now let’s move to the revenue side of the ledger.
I observed that New York tends to provide tax exemptions to senior citizens, existing companies threatening to leave, and large corporations dangling the temporary presence of a branch plant. Meanwhile, past generations of New Yorkers have deferred pension costs, and run up debts, to burden a future they didn’t care about. The burden of both the debts and the pensions is greater in Downstate in general, and in New York City in particular, but it is present in Upstate New York as well. Declining older cities and towns, where influential people moved out and left such burdens behind to be paid for by a smaller, poorer populations and tax bases, are particularly harmed by the burdens of the past.
In effect, having voted themselves extensive benefits and/or lower taxes in the past, many of those in Upstate New York are looking for someone to move in and accept higher taxes, and diminished benefits, to pay for them. And then, people Upstate worry about a declining population, with the young people moving away.
Are Upstaters really concerned? And if so, are they prepared to make any sacrifices to turn things around?
By eliminating all tax breaks up front, and skeptically examining each and every one allowed back in, I propose reducing tax rates. This would benefit new people (including existing young people forming new households) and new businesses throughout the state, since these tend to get fewer tax breaks than average.
I also proposed cutting “base” taxes – state income, local property, unemployment insurance – to the level required to fund public services and benefits today, and only that level. Separate “excess debt” and “early retirement” surcharges on those taxes (and in some cases fees) would be used to pay for interest on debt in excess of that typical elsewhere in the country, pension contributions required to pay for providing public employees with retirement before age 65, added pension contributions required because the pension funds are currently in the hole, and public employee retiree health benefits that are not pre-funded.
In Downstate New York, victims continue to arrive to pay taxes for these burdens from the past, and would probably continue to do so even when they could see them. But in declining areas Upstate, the disincentive to live there, to invest there, to open a business there, are apparently too great – even though the debt and pension burdens are in fact lower than in New York City. New people and new businesses didn’t benefit from those debts, those pensions and retiree benefits, and pension under-funding, and are apparently unwilling to pay. They shouldn’t have to.
Therefore, I propose than any new business establishment, and any new person, arriving in any Upstate area with declining population and or employment would be exempted from the “excess debt” and “early retirement” surcharges. Their taxes would go solely to the services and benefits of today, not those of the past. The burden of the past would fall on existing residents of those areas, the growing suburban areas that people moved to nearby, and the rest of the state. Instead of taxing the new to subsidize the past, the new would be exempted from past burdens and encouraged to create a future instead.
These fiscal changes, while simplifying the rules, cutting costs, and eliminating unfair school funding for New York City schools, would also provide important fiscal benefits for Upstate. In effect, they would allow Upstate to choose a less expensive government structure, paid for in part by Downstate New York. They represent an alternative to the current policy of putting everyone on the public payroll, handing out tax breaks to declining industries, and trying to make New York City sacrifice to pay for it all. The fiscal changes, however, are unlikely to be enough to turn the region around unless people Upstate are unwilling to pursue new economic objectives in new ways. That is the subject of the next post.