Mr. DiNapoli is the Comptroller, despite being having been called “unqualified,” and it is now his burden to prove the critics wrong. Unlike the Governor or the media it is not his technical qualifications that trouble me. Experts can be hired to provide information and advice, although the person doing the hiring must have enough knowledge to evaluate that advice, which often conflicts. My concern with a former member of the Assembly serving as Comptroller is different — conflict of interest. Our incumbent elected officials, those who work for them, and the small number groups that support them, have become an insular tribe with overlapping interests that conflict with, and have been given priority over, those of most current and all future New Yorkers. As Comptroller, Mr. DiNapoli will oversee three functions — financial reporting, auditing of state agencies and local governments, and pension administration. In each of those functions, doing an honest job would require him to show, for all to see, who the winners are, and who the losers are.
Given the way the state has been run, even if such information were provided without judgment or embellishment, a fair reporting and analysis would put the Comptroller in the position of laying bare the downside of all past decisions, including decisions he himself participated in as a member of the Assembly. An unfair reporting, on the other hand, could focus solely on the downside of any proposed changes to current arrangements and priorities, including those Governor Spitzer has proposed and might propose. In other words, Comptroller DiNapoli could choose to lie, to merely tell the truth and nothing but the truth (which is as far as even the best of our politicians tends to go), or to also tell the whole truth. He could use selective truth to hide the tracks of the winners, and criticize any attempt to help the losers, or to secure the future.
Let’s look at the three functions in turn.
For financial reporting, the Office of the State Comptroller is the state’s chief aggregator of information on the revenues and expenditures of local governments throughout the state, and has the potential to greatly expand on this role. In general, the OSC only presents this information for a single year, or just for a single class of governments, or over time just in the aggregate. Often, data is presented with New York City excluded. Or, data is presented on property taxes alone, rather than for the entire tax burden. A comparison between last year’s taxes and spending with this year’s taxes and spending includes an implied value judgment — that the current set of priorities is the “base” against which future decisions must be made. This locks in the winners and the losers. And that is what we usually see.
When I compile data on state and local government revenues and expenditures, which I have posted here on Room8, I get most of it from the U.S. Census Bureau — which in New York State gets it from the New York City and State Comptrollers. First, I aggregate data by category for all local governments, and make some adjustments for the division of responsibility between state and local government in different places (and, in some cases, between government and the private sector). Then I adjust the figures for population, income, and the cost of living — making the data for different places more comparable. Then I compare local government revenues and expenditures by category in different parts of New York State not only with prior years here, but also with the national average and local government in other states. This as well, implies a value judgment. Just because it is the national average doesn’t make it right, but large differences from the national average, in either direction, ought to at least be explained. Making a comparison with the national average and other places lets the winners and losers, relative to those places, know who they are.
The Office of the State Comptroller is in a position to do a far better job of this than I can — if it were willing to reorganize its data into Census Bureau categories (using a crosswalk which the Bureau would provide) and then add details the Bureau’s classification system doesn’t have. First of all, its data is timely. It could compare U.S. local government revenues and expenditures for FY 2005 (when it comes out) not only with New York data for 2005 but also with New York data for FY 2006 and estimates for FY 2007. In fact, using some assumptions and projections, it could show how the comparison between local government in New York City, Nassau County and Chemung County might compare with the U.S. average under the Governor’s budget proposal and legislative alternatives, as I proposed when running as a legislative candidate here.
The Comptroller’s office could also do more adjusting for local conditions. It is hard to compare fire protection and sanitation expenditures in different places, for example, because some places have volunteer and others professional fire departments, and some have public sanitation workers, some contract out, and some do not provide public garbage pick up. The OSC could compare like with like, at least within the state.
How might a full and fair comparison affect state and local politics? Well, everyone who has gone through the data I have prepared over the years has become very mad at the state government. Over a period of 15 years or so, seeing the priorities and how they change, always in the same direction, I became mad enough to run, with no chance of winning, against an incumbent state legislator, just because I felt I couldn’t let this go on in good conscience without doing something, to try to stop it. Part of it is a matter of presentation. It is one thing to say New York State has a lot of debt. It is another thing to tell people to divide their income by 100, and that is the extra taxes they pay with no public services and no benefits for the less well off just to cover the debts stuck on them by the greed of the past. And why do public schools in Upstate New York hire as 2 ½ times as many non-instructional public school employees per 100,000 residents as New York City? Etc, etc., etc. A full and fair comparative accounting makes many of Mr. DiNapoli’s friends look very bad, and past decisions very unfair.
Second, what about audits? Unfortunately, most of these tend to be in the publicity-seeking “gotcha” category, which is fine as a deterrent for illegal activity but doesn’t really change things. At worst they can be used as a political weapon against change, focusing on the costs (but not the benefits) of any proposed change in priorities. For example, the Comptroller could release a report pointing out that some people might be less well served if a hospital closes, without having previously reported that New York spends far more than average on hospitals, and seeking to find the reason. Or he could release a report finding two or three incidences of waste in the New York City public schools, without having previously shown that schools elsewhere spend vastly more, even adjusting for everything. Or, the Comptroller could release a report pointing out that by spending the money designated for capital improvements on operating expenditures, the MTA could keep fares low, pay higher salaries, and provide more service in the short run — without pointing out the effect of past similar decisions on fares, service, and employees today. Those who read the newspaper know these are not just hypothetical examples. In other words, whereas the appointment of a Spitzer supporter as Comptroller was rightfully described as potentially producing a Comptroller who failed to criticize state policy and management, the appointment of a legislator could have a similar effect.
To me, the scope and subject of audits should be guided by the comparative financial reporting described above. Is a place spending far more on something than other places in the state or country? That is a reason to find out whether it is because they are getting a less good deal, and could improve, or because they face different conditions. Is a place spending far less? That is a reason to find out whether it is getting a good deal, or public services or benefits are comparatively poor. Such audits don’t just have to be “gotchas,” but could also identify opportunities to improve. Inevitably, however, someone benefits from the current unimproved state of things, so demonstrating that potential also carries with it an inherent political value. Generally, the beneficiaries are those within and/or connected to the political system. How much will a member of that system, Comptroller DiNapoli, be willing to challenge itto provide a fairer deal for everyone else?
Then there is the pension system. As I wrote here, the most important decisions the Comptroller has to make are:
1) What is a reasonable rate of return to assume, and 2) How much risk should be taken to achieve that return?
These aren’t just technical decisions about numbers. They are about values — the value of workers in the public sector compared with the private, and the value of the present compared with the future.
Assume a higher rate of return, and all those pension enhancements the legislature likes to hand out can suddenly be afforded with no admitted increase in cost. If, in the long run, that rate of return proves to be unduly optimistic, the result is layoffs, huge reductions in public services, higher taxes, and perhaps even the collapse of the pension system and the loss of benefits for younger government workers. But that is the future, and the New York State Legislature has proven it doesn’t care about the future. That’s why at the time when a huge pension enhancement went through at the top of the 1990s stock market bubble, the future rate of return was raised from 7 percent to 8 percent — making both the enhancement and all the money that the state and its local governments hadn’t bothered to put in during the 1990s “free.” We have yet fully experience how “free” it is.
Of course, it’s hard to assume an 8 percent turn when treasury bonds are yielding 4.5%, if that’s where your investments are. So across the country, pension fund managers have decided to gamble by investing in far riskier assets such as hedge funds, derivatives, and lower tranch mortgage backed securities. You put the money in and assume a higher return, without bothering to adjust that return for the higher risk. And if, as a result of the risk, the pension system faces a financial disaster in the future, well that is the future. For example, the head of the most sophisticated pension fund in the nation, CALPRS, said yesterday that hedge funds were bad investments because they yield unspectacular returns in the long run, when added together, at vastly higher cost. But CALPRS continues to increase its investments in hedge funds because that allows it to assume a higher return going forward, providing short term budget relief. Like deferred maintenance of the infrastructure and stock options for CEOs, this is like a huge off-the-books debt no one has to tell the bagholders about until later, when the winners have taken their winnings and left.
What if Comptroller DiNapoli were to insist on a more reasonable assumption of, say, 3 percent more than the inflation rate, for the pension system’s future annual rate of return? Then the money actually required to fund pension promises would be due today, forcing his pals to charge today’s voters with that cost — and showing them how much they pay for an early and secure retirement they won’t be getting themselves. That would create questions, and increase conflict, whereas deferring costs smoothes things over in the short run. Will he do so? What do his friends want him to do?
His friends! By all accounts Mr. DiNapoli is Comptroller because of his ability to get along with, and be popular with, those around him. But most New Yorkers are not around him. Future New Yorkers are not around them. Kindness and responsibility are virtues, but for decisionmakers they often conflict. Irresponsible kindness toward those you can see is cruelty to those you can’t and who are “inevitably” sacrificed to pay the cost, a particular temptation when particular benefits today can be combined with uncertain and diffused costs tomorrow.
What value do the rest of us have, Comptroller DiNapoli? What value does the future have, and the children, grandchildren and great grandchildren who will live in it? Equal value to those in the legislature and those organized interests who lobby there and contribute funds? My discount rate is zero (at most); what is yours? Decisions about money aren’t technical decisions; they are moral decisions.
This, and not credentials, is my worry when it comes to the new Comptroller.