The Magazine

The Meltdown State

New York's pathetic economy.

Mar 15, 2004, Vol. 9, No. 26 • By WILLIAM TUCKER
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New York

THE DEMOCRATIC CIRCUS came to New York for Super Tuesday. John Edwards preached about the "two Americas." John Kerry's fans in Buffalo put up a huge sign: "America Works Best When We Say Union Yes. Edwards was closer to the mark: If there is one state going in a different direction than the rest of America, it is New York. But New York's meltdown is the result of exactly the kind of policies Democrats are promising for everyone else.

As usual, New York is dragging itself out of the recession far behind the rest of the country. During the 1990-91 downturn, New York state lost one of every five jobs that disappeared nationwide. While the rest of the country was growing by the beginning of 1992, New York didn't see job growth until 1994.

This time is no different. While the national economy grew at a blistering 7.2 percent in the third quarter of 2003, New York grew 0.3 percent--and politicians were celebrating! Wall Street has revived, but at current rates it will be 2006 before New York City recovers its job loss from the last three years. That's not surprising. Like the Jets and Giants, Wall Street basically uses New York as a business address. Since 1990, 95 percent of the job growth in financial services has been outside New York City.

Still, that's not the real New York story. The unprecedented devastation is found outside the five boroughs--on Long Island and in the "Northern Tier" of industrial cities that once formed the backbone of the state's manufacturing economy. As Fredric U. Dicker, state editor of the New York Post, recently put it, "Albany politicians are fiddling while New York burns." Here's the scorecard:

* Buffalo is so financially weak that Mayor Anthony Masiello has thrown in the towel and asked that the city be absorbed into surrounding Erie County. County officials are wary, however, fearing that consolidation may bankrupt the county.

* Rochester's largest industry, Kodak, has just announced it will cut another 5,000 jobs. Kodak's Rochester employment, which stood at 60,000 in 1981, will now be 15,000. Xerox, the city's other major manufacturer, has cut employment from 16,000 to 8,000 since the late 1970s.

* Syracuse's largest employer, Carrier Corp., announced in October it will close its two manufacturing plants in 2004, moving 1,200 jobs to Georgia and the Far East. Pyramid Companies' efforts to expand a shopping mall in the city also fell apart in the last year.

* Schenectady, once the world headquarters of General Electric, is at the point of financial collapse. The city has borrowed $12 million in short-term notes and illegally transferred $5 million from capital funds to meet operating expenses. State comptroller Alan Hevesi says the city will run out of cash in May.

* Westchester County just lost its AAA bond rating despite an 18 percent increase in property taxes. Nassau and Suffolk counties are in similar predicaments. A recent survey found that Long Island's population of 18-to-34-year-olds dropped 20 percent over the last decade, with 5 percent of the 24-to-35 group leaving in 2001 alone.

* Albany is the one bright spot, with the NanoTech Center at SUNY Albany having just persuaded IBM to build the world's most advanced microchip factory in nearby Fishkill. Sematech, the international semiconductor consortium, has also located its second facility in Albany. (Austin has the first.) These faint signs of life are probably because Albany is the home of one of America's biggest spending machines, the New York state legislature.

Geography and climate obviously play a part in this historical decline. The Northern Tier, originally built along the Erie Canal, has become the Snow Belt, with 20-degree temperatures and four-foot drifts through much of the winter. With opportunity flourishing in the Sunbelt, many people simply won't live under these conditions anymore. Yet other cold climates--Minnesota, Wisconsin, Chicago, Toronto--have experienced slow growth while avoiding utter financial ruin.

New York's disaster can be summed up in one word--Medicaid. While Medicaid is the principal social-services burden in every other state, in New York it is swallowing the entire economy.

The fateful decision was made in 1966, when Congress promised to split the costs of the health care program with the states (50-50 in "wealthy" states like New York, 80-20 in poor states like Mississippi). While most states approached Medicaid gingerly as a potential burden, New York politicians gleefully embraced it as an opportunity to "leverage" federal dollars. Local counties (including New York City's five counties) were mandated to match the state government's spending--even though decision-making largely remained in Albany.