The Magazine

The Meltdown State

New York's pathetic economy.

Mar 15, 2004, Vol. 9, No. 26 • By WILLIAM TUCKER
Widget tooltip
Single Page Print Larger Text Smaller Text Alerts

As a result, New York will spend $42 billion on Medicaid this year, more than California ($25 billion) and Texas ($15 billion) combined, even though together those states have three times New York's population. New York City alone will spend $4.5 billion on Medicaid--more than the entire municipal budget of every city in the country except Los Angeles and Chicago. Even then, politicians are wildly expanding the program. After September 11, Governor George Pataki created Family Health Plus to extend Medicaid to working families. Not to be outdone, Mayor Michael Bloomberg has been running his own recruitment effort--the logic being that more enrollees will help pay the bills in New York City's $1 billion municipal hospital system. In two short years, New York City's Medicaid rolls have leaped 50 percent, from 1.6 million to 2.4 million--one out of every three residents. The city only receives 3.4 million tax filings. Within a decade, the number of Medicaid beneficiaries could easily exceed the number of taxpayers.

Outside New York City the situation is even worse. "Every penny of the Erie County property tax goes to Medicaid," says county executive Joel Giambra. In Broome County, only a 37 percent tax increase over the last two years prevented Medicaid bills from going above 100 percent of real property tax receipts. Yet the state continues to force new mandates on local governments. "When the state can bring in new constituents at 25 cents on the dollar, there's no incentive to curtail the program," complains Bob Gregory, executive director of the New York State Association of Counties.

Much of the problem grows out of Albany's petrified political culture. Although state legislators are the longest-tenured lawmakers in the country, they play almost no role in budget-making. By long-standing tradition, the entire negotiation is carried out between: (1) the governor, (2) the speaker of the assembly (Democrat Sheldon Silver), and (3) the majority leader of the senate (upstate Republican Joe Bruno). Once the leaders have struck a bargain, party members fall in line. In these close quarters, the state's powerful municipal and service-workers' unions wield enormous strength.

The system is finally being challenged. Nassau County Executive Thomas Suozzi, a liberal Democrat, is leading an effort to unseat legislators no matter what their party affiliation. "It cannot be that all municipal officials, regardless of party or geography, are high-taxing, reckless spenders who have no regard for taxpayers on fixed incomes and are intent on preventing new businesses from locating in our communities," says Suozzi. "There must be something we share in common. It is New York state government."

Still, there is little chance of Suozzi's effort generating much heat. Ballot initiatives--the premier instrument of tax revolts in other states--are not permitted in New York. The state constitution does require voter approval of bond issues, but Governor Nelson Rockefeller learned to circumvent this long ago through quasi-private authorities. New York state now has more long-term debt ($40 billion) than any other state, and New York City has more debt than New York state.

Still, the forces of dissolution are not resting. Only two weeks ago, Local 1199 of the Services Employees International Union (hospital workers)--in conjunction with the immensely powerful Greater New York Hospitals Association--proposed Heal New York, essentially a blood transfusion to the hospitals from the small-business sector. Eager to have their bills paid, Local 1199 and the Hospitals Association want the state to require every business with more than 25 employees to provide health insurance--or pay a $3,000-per-head tax to cover yet another expansion of Medicaid.

If the mandate passes, New York--already at the bottom in most job-generation indexes--will probably fall off the edge of the continent. At best it will develop an underground economy more reminiscent of Italy than America. Yet Local 1199 president Dennis Rivera, the most powerful political actor in the state, is likely to get his way. Social services employment already exceeds Wall Street employment, and almost half the metropolitan area's 25 largest employers are hospitals. When Big Health talks, Albany listens.

To quote John Kerry's supporters, when you say union yes, you get an economy that looks like New York's. So yes, John Edwards, lets have one America. But not one that looks like this state.

William Tucker is a New York writer and fellow with the Discovery Institute.