Wednesday, March 11, 2009

With Houses Divided

And Revenue Reduced,

How Can Legislature

Agree on Any Budget?

Henry J. Stern
March 10, 2009

Each day provides additional evidence of our country’s slide into what is now being called the Great Recession.

The economic downturn affects people very differently. If you lose your own job it is a tragedy, if you do not it is an inconvenience, and possibly an opportunity to buy or rent a home or a car for less money. The pain of the recession is not universally shared. It is more like a plague which infects some people and spares others.

One area of the economy that has been relatively immune to the recession is government. While millions of jobs have been lost in the private sector, and layoffs of thousands of workers are announced every day, government employment has remained relatively untouched. New hires are necessary to conduct new programs to fight the recession. Existing employees are well protected by the triple firewall of labor contracts, civil service rules and, above all, politics.

How could a corporation survive and prosper if its board of directors and CEO were chosen not by its shareholders but by its employees?

One effect of the government steadily assuming more responsibilities is that a greater percentage of the labor force works directly for the city, state and federal governments. Of the three levels, federal employees are in the safest position. Their employer, the United States, is unburdened by requirements for a balanced budget which have been are imposed upon states and cities. Budgetary circumvention has, however, become a fine art.

Our direct concern is with the city and state, which, like other areas, have been subject to increasingly dire fiscal forecasts. An underlying local problem is that the heart of our recent prosperity was built on the FIRE sector – finance, insurance and real estate – and you all know what has happened there. The wordsmiths tell us the city should now rely on the ICE sector of the economy – information, culture and education. An alchemist could transmute fire into ice, but in our world it is extremely difficult, if at all possible, to make that transformation in the absence of Rumplestiltskin.

The city’s public hearings for the Fiscal Year 2010 budget began yesterday. Under the City Charter, the fiscal year begins July 1, 2009 and the budget must be agreed to by the mayor and the council by June. The city enters the budget process in much better shape than the state of New York, whose legislature has consistently demonstrated not only dysfunction but fiscal irresponsibility. Mayor Bloomberg and the Council have set funds aside for a rainy day for the past two years. They did not, however, anticipate a deluge.

We once believed that Governor Paterson would be a restraining influence on State expenditues, but his unfortunate and gratuitous statements on a variety of topics have diminished his stature as a figure to be taken all that seriously. He assumed office just about a year ago, and began with a high popularity rating, since he was not Eliot Spitzer. New Yorkers welcomed what appeared to be a stable, rational figure succeeding a man who left in his wake a trail of shattered relationships and inappropriate words and actions. Unfortunately, since the untimely departure of his guru, Charles O’Byrne, there seems to be no rein on what the governor says, much of which appears to reflect what he has most recently heard.

The inability of William Cunningham, a political professional who had been sent from Basil Paterson’s law firm in Nassau, to supervise the governor’s staff and presumably guide his public utterances, occurred in part because Cunningham lacked the close relationship with Paterson that O’Byrne had built up over the years.

Unfortunately, the executive branch of state government is now in a beleaguered condition, worse even than the classically dysfunctional legislature. The assembly majority is both numerically dominant (109-41) and cohesive under Speaker Sheldon Silver and his professional staff. The Democratic margin in the Senate is the bare minimum (32-30). For Malcolm Smith even to be elected majority leader he had to make major concessions to the so-called Gang of Three, Senators Carl Kruger; Ruben Dias, Sr., whose son is about to be anointed Borough President of the Bronx; and Pedro Espada, Jr.

With the Senate Republicans now furious at the dismissal of most of their staffs, it is highly unlikely that there will be Republican votes for unpopular Democratic initiatives. The Republicans’ priority is to regain control of the Senate in 2010. Their strategy is to make the Democrats appear ineffective. It is likely, given the Democrats’ behavior thus far, that they will not frustrate the Republicans’ strategy.

The new Secretary to the Governor (the No. 2 position in state government) is Larry Schwartz, who was Deputy County Executive of Westchester for ten years. The position of secretary is an extremely important job. It has been held in prior administrations by William J. Ronan (Rockefeller), Robert Morgado (Carey), Michael DelGiudice and Gerry Crotty (Cuomo), Bradford Rice and John Cahill (Pataki). They were very able people, respected in both the private and public sectors. We will soon learn whether the hitherto little known Mr. Schwartz has the ability and wisdom to do the important job well, and the authority to enforce Governor Paterson’s decisions.

DIGRESSION: I learned through many years in government that you don’t really have to obey anybody unless they have the ability to fire you or to get you fired. Many people will give you orders, purporting to speak for the mayor. If they invoke his name, chances are they lack the power to injure you themselves, and are relying on intimidation.

Standing up to these petty tyrants is the right thing to do. The problem is that you only have to be wrong once, and it may be over. Executive branch politics does have that aspect of Russian roulette. But if you give in to the creeps who threaten you, it becomes impossible for you to do an honorable job. The people who interfere with your work have their personal agendas, which are usually not the mayor’s. My attitude was always that if he wanted me to do something, he would tell me, and I would have to do what he said or resign. Fortunately, in fifteen years under two honest and decent mayors (Koch and Giuliani), it never came to that. END DIGRESSION

We see Albany as one or two months away from a massive collision of interests. The Democratic Assembly has a veto-proof majority, but the Senate Democrats may not even be able to agree on enough matters to pass a budget, and are certainly unable to over-ride Governor Paterson’s veto. This spring will be a fascinating season to observe the legislature in a major conflict. If no budget is agreed upon, and appropriations carry over from last year, the revenues available will be substantially inadequate, even to support existing programs.

Who then will decide what will be cut? If the two houses of the legislature cannot agree, the issue will be left to the governor. In the past, he has spoken about the need for substantial reductions. What will he do if he gets the power to implement them? Our guess is that Paterson will do his best to reduce expenditures. He will never get the support of the budget-busters next year since his rivals will be free to promise them more than he can. He has already been trashed by the hospital unions and management for proposed budget reductions. We observe that when labor and management agree, it is usually in order to take advantage of the general public.

Paterson should know that his rivals in 2010 will promise them more than he can. Is he wise enough to realize that, and to say 'No' to spending beyond revenue?

Our suggestion: “It is better to be hanged for a wolf than to be hanged for a sheep.”


#541 03.10.2009 1310 wds

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