Conundrum

Mayor Runs the City Government

But Even He Cannot Print Money.

Nationwide Deficits Raise Public Debt,

Making it Harder to Balance Budgets

Writing about city government is, to a large extent, writing about the mayor. The City Charter provides for a strong mayor, in direct control of the executive branch and with power of appoint over much of the judiciary.

To estimate the relative authority of elected city officials crudely and arbitrarily, the mayor can be judged as having up to ninety per cent control of city government, the Speaker of the Council nine per cent and the rest of the council one per cent. We omit the five district attorneys, who are fast becoming lifers, and the comptroller and public advocate (formerly council president), who primarily devote themselves to becoming the next mayor. Those borough presidents who think of themselves as papabili ply their trade around the five boroughs; the others aim at spending their twelve years in dignity and comfort.

Having watched city government for over half a century (forty years as a participant and thirteen as a pensioner-observer), I can say that the seven men who have been mayor since 1954 varied widely in intelligence, integrity and industry. They were all elected, but different candidates appealed to different constituencies.

The sea change in city government came, not from a new mayor, but from an old mayor who changed his base. In the 1961 Democratic primary, Mayor Robert F. Wagner, regular turned reformer, decisively defeated State Comptroller Arthur Levitt, candidate of the Democratic county leaders. The political power of the Democratic organizations (Tammany Hall in Manhattan, the other four had no particular names) was sharply diminished, and in time the labor unions, particularly those comprised of city employees, succeeded the politicians as powers behind the throne.

The primacy of employee unions was established in January 1966, when a twelve-day transit strike that followed Mayor Lindsay's January 1 induction ended with surrender by the new administration, which was motivated by an economy collapsing in the absence of public transportation. This was the opposite of the events of January 20, 1981, when the Iranian ayatollahs freed 52 Americans the day Reagan succeeded Carter. In New York, the city was held hostage from the day that Lindsay succeeded Wagner, and no one knew when it would end.

The basic problem with employee dominance over management became apparent over the years. No entity can prosper if its CEO is selected by its employees rather than by its shareholders. The interests of taxpayers are basically widely divergent from the interest of employees. People who work for the city want to get all they can in salaries, benefits (which are no longer fringes but range up to a third of salaries), and pensions (which over the long run, are comparable to salaries). Benefit costs have grown substantially in the last few years for three reasons: 1) Lower rates of return in both equities and fixed income assets; 2) People are living longer; and 3) They are getting more and better medical care before they die.

This is also basically true on the federal and state level, as well as with regard to cities, counties and other nations. On the federal level, the imbalance in entitlements (social security, medicaid, medicare, employee pensions) is added to the the costs of numerous wars, which include weapons development, a field in which the United States appears to be the world leader, as has been demonstrated in periodic wars and other occasions requiring the use of force.

In cases, such as the United States government, the State of California and to a lesser extent New York State, the bicameral legislature is divided between political parties and the fiscal situation is even more complex. Former Governor Schwarzenegger was unable to resolve the problem in his seven years in office. His four referendum proposals were defeated by the voters in 2005, and he seems to have largely given up after that setback.

We do not know of any state or local government that is following a straight path to eliminate its deficit, although some are doing better at that task than others, like Indiana under Governor Mitch Daniels. The underlying financial issue is that people want more services than they are willing to pay for, and employees want more jobs, higher salaries and sweeter pensions than the state or city can afford to provide out of tax revenues.

The elected officials, dependent on labor union support in money and volunteers, are caught in a vise. They will give the employees everything they can, except for the fact that they are past the point where there is anything left to give. The usual outcome is layoffs, which reduce the delivery of services, cause additional unemployment, and impede economic recovery. The greatest burden falls on younger employees, who are in the stage of marrying and starting families. They are a particularly vulnerable population, and so are the middle aged (people over fifty are unlikely to get another job, certainly not a position at a comparable salary).

An aggravating factor with regard to employment is that, due to technology, it now takes fewer people to do the work society requires than it did years ago. Even if the economy were not in recession, there would be substantial unemployment. Economists know that and most people sense it. You can't cure ingenuity, nor should you try. Sadly, no one has figured a cure-all for joblessness. Public works create jobs, but even worthwhile projects exacerbate the debt problem since the government must eventually pay the cost of labor and materials, plus interest. Requiring union wages (union scale) results in far fewer jobs for the same government expenditure.

Various states have taken action to deal with budget shortfalls, with different degrees of effectiveness. In order to have impact, a new law, a labor agreement, or a change in retirement age or benefit terms must have continuing effect in order to reduce the structural budget deficit. The sale of a state asset for privatization is a one-shot revenue which cannot be repeated. Too often governments have relied on one-shots, like requiring a tax payment to be made in July of one year and June in the next, so the double payment will fall in one fiscal year. That may sound like an odd maneuver, but it has been done repeatedly as an artifice to balance state or city budgets.

What we have done in this column is to try to define the problem of chronic structural financial deficits and report early steps that have been attempted. We will discuss more comprehensive solutions in another article. Unfortunately, there is no magic bullet to resolve this problem, and any solution will require significant pain-sharing. For people who are used to gain-sharing, this would be a reversal of fortune.

Can these problems be resolved, or significantly alleviated, without the application of external force to recalcitrant elected officials, who seek to escape personal responsibility for any hardship that may be involved in attaining fiscal sanity? Time will tell.