Author: Larry Littlefield

My previous posts on Upstate concerned the portion of the region that is too far away to receive any economic benefit from proximity to Manhattan, the area roughly north and west of State Route 10 and, in the mid to northern Adirondacks, Route 30.  South and west of there, in the eastern Adirondacks, the Catskills, and the Hudson Valley, the economic conditions are different, and so is the issue.  The issue is over-development, and the loss of the natural and rural attributes that draw people to the area to begin with.  When I was a child, my parents took me to northern Westchester County to pick apples.  We brought our children to Northern Dutchess County to do the same.  Projecting current trends forward, our grandchildren will have to head for Washington County to find the first pick-your-own orchard.

I exited college during the severe recession of the early 1980s, making graduate school seem attractive, and then exited graduate school during the housing bubble of the late 1980s.  Having had a housing markets class in graduate school, realizing the bubble (like this one) would burst, but unsure how long it would take, my wife and I had a plan.  We would live as cheaply as possible, save our money, and then move to a metro area in reasonably-priced Upstate New York, where we had attended college and actually liked the cool summers, lovely falls, and snowy winters (we won’t talk about March, April, and May).  For a variety of reasons – our increasing ties to the city and the end of the bubble here included – it never happened.  But one factor was we found that none of the Upstate metro areas had a large and diverse enough labor market to allow us to have careers.  Perhaps we could get a job, but it might be the job, and it would be very difficult to get another one without moving.  In other words we didn’t move to Upstate New York, in part, because none of the Upstate Metro areas, by itself, is a significant place anymore.  That is a problem Upstate will have to overcome.

How does this sound for an economic development slogan:  “Upstate New York, we’re just like everyplace else, except we’re older, we’re colder, we have lots of toxic contamination left over from the industrial era, we have high taxes not for services but to pay for the debts and pensions of the past, and we are highly unionized and expect higher pay and more restrictive work rules than other parts of the country.”  Well, that’s the truth isn’t it?  It isn’t the whole truth, not by a long shot.  But if Upstate New York continues position itself in the economy based on being “just like everyplace else,” it is the only truth that matters.

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.

The September Current Employment Survey data from the New York State Department of Labor is out, and with the kids back in school and the schools staffed up we can now look back on the Pataki era in public employment in full.  And here is something you won’t read in the New York Post or the New York Sun, that won’t be analyzed by the Manhattan Institute, and that won’t be brought up by Republican candidate for Governor John Faso.  Nor will it be mentioned by the New York Times, analyzed by the Fiscal Policy Institute, or pointed to by Democratic candidate for Governor Eliot Spitzer.  From September 1994 to September 2006, local government employment in the portion of New York State outside New York City rose by 93,600.  This in the face of a much-discussed stagnation in population and private employment there.  This includes a below-average gain of 2,300 from September 2005 to September 2006.

Economically efficient taxation includes a low tax rate spread over a wide tax base. In New York State, on the other hand, politically efficient taxation includes high tax rates spread over a tax base narrowed by exemptions, privileges, deductions, and tolerated tax evasion. Preferential treatment, tax and otherwise, was clearly on the minds of New York State leaders at a more enlightened point in our state’s history. Consider Article 3, Section 17 of the New York State Constitution, which prohibits "granting to any person, association, firm or corporation an exemption of real or personal property." It also forbids "granting any person, association or individual any exclusive privilege, immunity, or franchise whatever." Then there is Article 16, Section 4 which states "there shall be no discrimination in the rates and method of taxation between such corporations and other corporations exercising substantially similar functions and engaged in substantially similar businesses within the state." But it doesn’t matter. Whenever the economy is good, more special tax deals are enacted as added revenues come in.  And whenever the economy is bad, rates are raised.  Sometimes they are rolled back, and sometimes not.

If you have been paying attention, you have read that I recommend changes to New York State’s Medicaid program to create incentives to reduce spending.  I propose similar changes in incentives to reduce spending in the state’s public schools outside New York City, partially balanced by increased spending in districts where spending is low, particularly New York City – but a smaller increase than proposed by the plaintiffs in the Campaign for Fiscal Equity case.   The tax surcharge-based disclosure of the cost of retiree health benefits, pensions, and debts I have suggested are intended to limit, in the long term, the hidden growth of employee compensation and the interest burden of excess debt.  One might conclude that my proposals would lead to lower taxes.  And in the long run, when state and local taxes are combined, that could be the case.  But not in the short run for state taxes alone.

New York State’s politicians have found a magic way to reward their supporters lavishly without everyone else noticing how much they are being hurt:  they borrow the money, and put off the cost to a future they don’t care about.  Every year the debt rises, and our future is diminished.  It may be that the state budget wouldn’t pass otherwise, because it is only by finding an unseen victim that everyone who matters can be more-or-less satisfied.  But New York’s debts have grown so large that at this point current New Yorkers aren’t much better off at the expense of the future, they are simply less worse off as a result of the past, as the result of borrowing more.  The bomb has been timed to go off during the next administration. 

From Wikipedia, the free encyclopedia:  a statistical artifact…where studies on the remaining population are fallaciously compared with the historic average despite the survivors having unusual properties.  Mostly, the unusual property in question is a track record of success.

It is a mantra among conservative commentators, when pushing privatization and other business provision of public services, that private businesses are more efficient than government agencies.  Let’s leave aside the fact that, based on my experience with the matter, one of the things private businesses do efficiently is rip off the taxpayer.  The presumption of private sector superiority is based on survivorship bias.  Certainly Enron, and the hundreds of thousands of other private companies that go out of business each year, are not more efficient and competent than the typical public agency.  While some such companies can do a lot of damage prior to bankruptcy, however, eventually that damage ends, leaving more efficient and competent businesses as the predominant type operating at any one time.  Private sector efficiency, therefore, is not a result of inherent competence, but of trial and error.  In the public sector, and in certain private industries that rely on public funds, on the other hand, organizations and their employees are presumed to have a right to their current situation, regardless of the value they produce for others.  Since most of the services and benefits produced by the public sector are necessities, rather than mere wants, the least competent and efficient organizations grow, using more resources over time, in an attempt to get the necessary work done.

As I wrote here whether the government is hiring public employees or companies, it faces what I call the “dilemma of discretion.” Allow public sector managers to hire and fire whoever they please, and the government runs the risk of having their brother-in-law – or the brother-in-law of a politico who is in a position to threaten them – hired, and good employees fired.  But bind those managers with all kinds of rules, to hire those who score highest on a civil service test and only fire an employee after a complicated series of steps, and you create a legalistic playground for those who seek to get paid to do a job without actually doing it.   The civil service system and bidding rules, by making personnel and contractor arrangements non-voluntary, eliminate reciprocity in the employment and contracting relationship. Once a test is passed or a contract is won, the employee or contractor owes as little as he can get away with. Management often seeks to do as little as possible for the employees in turn. The result is ongoing, petty conflict over rules, a poisonous work atmosphere, and low productivity and quality – the government is a lousy place to work, and many firms refuse to do business with it.