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.

The Power of the Purse

Newspapers Tell Us:

Throw the Bums Out,

But Who Will Do It?




Today is Primary Day. The polls will close shortly. If you have not voted yet, do so, particularly if you are thinking of running for public office someday.

We do not advise people for whom to vote. We do call to your attention to two remarkable headlines on page one of the Daily News and the Post.

The Post's headline, on the block, which means in huge type, is BUMS AWAY.

The sub-head is: Vote today to boot the scoundrels.

The News' block type says THROW THE BUMS OUT! In smaller type, we read: "The News Says: Go to the Polls and… " before its imperative. On the side, we read "Today's Primary Is Your Chance to Change Things - Don't Blow It."

The story on p4 is headed READY FOR CHOOSE-DAY. There is an editorial on p20 which lists six legislative races in which The News has made recommendations.

On p5, the Post reports at length, with an illustration in Bat costume, of the Caped Crusader (sans Robin, the Boy Wonder). The 81-year-old Adam West, who played Batman in a 1960s TV series, is quoted as saying: "I know a thing or two about keeping Gotham City safe. Sean [Coffey] is an independent voice who wants to fight those villains in Albany."

Never before have we seen newspapers on Election Day so critical of public officials. Yet for all the roaring, there are few specific decisions the voters can make to rid the legislature of the officials who are so openly criticized.

That is the anomaly we face today. Received opinion dislikes incumbents, but to defeat them one needs strong rivals who can overcome the name recognition enjoyed by people who have held office, with all its privileges, for many years.

The public does distinguish between candidates, but is more likely to do so at the top of the ballot than at the bottom. And candidates for the state legislature are usually found in the nether portion of the scroll of elected officials, commensurate with the perceived importance of the offices they hold or seek.

In fact, state legislators do hold significant positions in government. Just because most are usually obeisant to their leaders does not mean that they could not act independently if they had the courage to risk their legislative careers by incurring the leader’s displeasure. It is true that the leader is the servant of the caucus, and will tend to follow positions they support, but he is the master of the individuals who comprise the caucus, who dare not act in consequence for fear of political termination, which has taken place in the not-too-distant past.

State politics is trapped in a vicious cycle of futility and greed. Lobbyists exert power because they give politicians reasons to support their clients. Jack Abramoff was not the only practitioner of his trade, merely the most successful.

In politics, 'reasons' is often equated with 'dollars', as if parties were having conversations on a telephone wire they believe to be tapped. Many of the gifts lobbyists make are in fact perfectly legal, as long as the recipient does not put the cash in his freezer, as former Congressman William Jefferson of Louisiana did.

Money in an envelope ($11,200) has been left in a New York City taxicab, as Carmine DeSapio, the former Democratic leader, did in 1957, or in a private car, where Vice President Hubert H. Humphrey misplaced $100,000 left in a briefcase in 1968, allegedly a gift from Dwayne Andreas of Archer Daniels Midland.

The annals of corruption extend far beyond New York State. Think Afghanistan, where the government itself is a corrupt entity. Some people think of public office, whether elected or appointed, as a pathway to riches. Often they win elections, in part by using their ill-gotten gains. The struggle for decent, honest government is perpetual, and provides a constant test of human strength and weakness. But just when the bad guys become too powerful, the public rallies and throws them out. Then it is up to the good guys, who often waste the good will they enjoyed with spasms of self-promotion and sanctimony.

This is a time in local political history where the public is disgusted by the antics of its officials, and the privileges they have visited on public employees because of the strength and political influence of their unions. Anyone who runs for governor of a state with an impending budget deficit of $16.7 billion must either be foolhardy or have an untested plan to solve the problems. Arnold Schwarzenegger couldn't do it in seven years in California, in great part because of an intractable and recalcitrant legislature, some of whose members should have been incarcerated and others committed. Time will tell whether the Empire State will be able to achieve what the Golden State did not.

There is one other difference; Andrew Cuomo was born in the United States.

Paterson Channels Polonius

Albany Skirmish

Over Borrowing

Day 78 without a state budget.

78 is the speed of some old records, in rpm, the atomic number of platinum, and the number of chromosomes in a dog's DNA (39 pairs). We have 23 pairs.

We have not written since last week about the state budget and the contortions now under way as the legislature and governor try to reach agreement. It is not clear how hard they are trying, but we believe they are making a serious effort to come to terms. Governor Paterson's threat to shut down state government alarms incumbents who do not want to be blamed for any of their constituent-contributors not receiving their paychecks.

In the last months, the courts have shot down the governor's planned furloughs and layoffs as part of the judiciary's ever-expanding sense of its own responsibilities (see Citizens United v. Federal Election Commission). It was a Federal judge who ruled, in Donohue v. Paterson, that the governor could not impose a four-day work week, pursuant to the next to last prohibition of Article I, Section 10 of the Constitution. For those of you who may not recall the section, we reprint its relevant first paragraph:

"No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any title of Nobility."

In the past, Speaker Sheldon Silver has won many political battles by delaying a decision until the last minute, and then making a proposal which could not be refused. He is the most proficient politician in the Albany swamp, and his skills should not be underestimated. Some of his strength comes from the fact that he is responsive to his base (the Democratic Assembly caucus) and tries to protect his members, although a few of them are felons.

Silver is responsible for two major appointments made by the governor: Lieutenant Governor Richard Ravitch and Chief Judge Jonathan Lippman of the Court of Appeals. Both men are competent. Judge Lippman persuaded a bare majority of the Court of Appeals to sustain the appointment of LG Ravitch, a decision that may well have been in the public interest, although it would probably not have been the correct answer in a law school examination.

The decision certainly blindsided Attorney General Cuomo, who took the opposite position, but he has recovered nicely. He awaits the opportunity to choose Judges of the Court of Appeals himself, and will use his wits to avoid being boxed in by nominating committees which substantially limit his power of appointment by minimizing the number of papabili from whom he must choose.

The story today was that Governor Paterson said he would rule out borrowing, which is in direct contrast with the Ravitch plan, which calls for two years of borrowing, limited by the imposition of strict fiscal controls by a financial control board. If Paterson sticks to his guns, more layoffs will be required.

We expect some sort of flim-flammery to be proposed, which means borrowing billions from somewhere without calling it that. Raiding the pension funds is one possible scheme, vaguely justifiable because it is the swelling pension funds which got us into this trouble in the first place. Any more state borrowing, however, will further increase the interest on the public debt, which must be paid before one begins to provide for vital services like police, fire and education.

Paterson's problem is somewhat mitigated by the fact that President Obama, Governor Schwarzenegger and many other public officials have the same difficulties. The national debt today is about thirteen trillion dollars, or $13,000,000,000,000. We left off the number of cents so as not to appear to exaggerate the number of zeroes (12).

The problem at all levels of government, in many countries around the world, is that public expenditures exceed revenues. This can lead to devaluation of the currency, which makes debt less burdensome, and at the same time destroys people's savings. New currency was issued in the Democratic People's Republic of Korea (Pyongyang), and resulting public dissatisfaction led to the execution (by the regime) of two officials held responsible for the decision, and the demotion of others.

Living in a more gracious and gentle system, our economic blunderers go off to academia and think-tanks of like-minded souls. They are replaced by others whose views are just different enough to convey a sense of change. The first TARP program was enacted under President George W. Bush and Treasury Secretary Hank Paulson, former chairman of Goldman Sachs.

When Mr. Bush was asked why he had approved such a substantial bailout in view of his generally conservative economic views (but not practices, he was a mega-spender), he replied in effect that he did not want to go down in history as being President of the United States when the economy collapsed completely. The shade of Hoover was in his mind, and that was an image he urgently desired to avoid, and for the most part successfully did, although the subprime crisis and market collapse took place in 2008, and led to the defeat of the McCain-Pain ticket.

Every cloud has a silver lining.

Californians Rebuff Parties

California Voters
Approve 'Top Two'
Primary Elections
Both Parties Fought

Day 72 without a budget.

While paralysis prevails in the highly partisan scene in Albany, we cross the continent to California to report good news for independent and moderate voters.

By a convincing margin of 54 to 46 per cent, Californians approved Proposition 14, which mandates non-partisan elections in the nation's most populous state, starting in 2011. Under the Golden State's new plan - sometimes called the "Top Two" system - all voters would receive the same primary election ballot for nearly every elective office except for President. Candidates would be given the option to self-identify with a political party on the ballot or to leave that space blank. The two candidates receiving the greatest number of votes in the primary would then appear on the general election ballot regardless of party.

Prop. 14 was supported by Governor Arnold Schwarzenegger and Lieutenant Governor Abel Maldonado. It was opposed by most elected officials in the state. Out of 58 counties in California, the Proposition carried 56. It lost only two counties, Orange, considered right-wing, and San Francisco, considered left-wing.

For those New Yorkers for whom the adoption of nonpartisan elections appears impossible, take note that 21 of the 25 largest cities in the United States currently have some system of nonpartisan voting in local elections, including Los Angeles, San Francisco, Chicago, Boston, and Seattle.

Mayor Bloomberg has advocated nonpartisan elections since he was elected in 2001. In a referendum in 2003, New York City voters defeated a proposal for nonpartisan elections, 70 to 30 per cent. The issue has not been submitted to the voters since, nor has the City Council taken it onto itself to overrule the vote of the people.

Francis Barry describes the history of nonpartisan elections in "The Scandal of Reform" (2009). New York's 2003 referendum proposed "hybrid" nonpartisan elections, allowing candidates, if they wished, to identify themselves by party, similar to the system just passed by California, and those already in use in Jacksonville, Florida and the states of Louisiana and Washington. The current Charter Revision Commission, chaired by CUNY Chancellor Matthew Goldstein, will consider placing some form of nonpartisan elections once again on the ballot. If they do so, 2010 would be a better year than 2011 because there will be a larger turnout when state-wide offices, the Senate and Congress are on the ballot. 2011 is the off-year in the quadrennial election cycle.
Nonpartisan elections would erode but not eliminate the influence of political parties, which are basically hierarchical, self-serving aggregations of mostly decent, honorable people, led by others whose motivations may not be so pure. Political parties are often controlled by powerful leaders, called bosses.

As in military, religious, or criminal organizations, the person at the top can exert enormous influence over the decisions of the group, which the members must respect if they want to remain in good standing in the organization and eventually rise to power themselves. Faithful members of political clubs are often rewarded for their service by nomination to public office, including the judiciary. When that happens, judges can show their appreciation for their positions by responsiveness to the political leaders who selected them for the bench.

There are benefits to parties. They can unite people in support of a common program. They can defend and protect their communities from dangers, real or imagined. Parties are protected by freedom of assembly and association; voters have a right to join any legitimate group they support.

The main problem with political parties, however, lies in the power of their leaders to select candidates for public office. In one-party areas, which constitute the majority of legislative districts in New York City, the candidate selected by the dominant party is almost automatically elected. In turn, the elected candidates tend to bear unwavering allegiance to the party officials who put them in office. The interests of these officials are often not the interests of the general public, but the interests of lobbyists and contributors to the party, or to the individual who was so helpful.

Historically, the party system has led to corrupt political machines under leaders like Bosses Tweed, Kelly, Sullivan, Croker, Murphy and most recently Carmine De Sapio, who was overthrown in 1961, by which time, through a reform DeSapio, to his credit, sponsored, district leaders were subject to direct election. Previously, district leaders were elected by county committee members, who were generally political apparatchiks at the lowest rung of the ladder. Insurgencies were much more difficult to mount.

Political machines were also powerful in the suburbs, where the Nassau County Republican organization once ruled, and in New Jersey, where Boss Frank Hague ruled Jersey City as mayor from 1917 to 1947. His enduring contribution to political thought was the phrase, "I am the law", which at the time was not inaccurate. In some rural and urban areas, political parties are strong enough to control local governments, a practice similar to the warlords who control portions of some foreign countries.

Party primaries, closed to independents and non-members of the party holding the primary, encourage racism and extremism by the candidates and polarization of the electorate. Candidates hew to the right or the left to win primary voters, who are often more intense in their ideological views than less active members of the party.

To appeal to this base, one risks alienating the midstream. This requires a change of message between the primary and the general election. It is hard to discern, after all this, what the candidate really believes in, if anything, apart from his/her own election. Moderate or centrist candidates are particularly disadvantaged by closed primaries, since a disproportionate number of their supporters are ineligible to vote.

Opponents of Proposition 14, which include the heads of both major parties in California and many third-party devotees, have vowed to sue in order to prevent the referendum from taking effect, but their efforts are unlikely to succeed if precedent is to be followed by the Supreme Court of the United States.

In 2008, in a 7-2 decision, with Justices Scalia and Kennedy dissenting, the Supreme Court upheld a similar nonpartisan electoral system passed by the voters of Washington state. Writing for the majority, Justice Clarence Thomas said that overturning Washington’s system would have been an "extraordinary and precipitous nullification of the will of the people."

The Constitution of the State of California allows Initiative and Recall elections. That is how Governor Schwarzenegger was elected. New York State gives the voters no such opportunity. Even when vacancies occur, they are filled by the legislature and not by the electorate. We have a long way to go.

Where Have All the Dollars Gone?

Cuomo: A Man With a Plan,

But Where Is the $10 Billion

We Need to Balance Budget?

Day 62 - New York State without a budget

This week appears to be devoted to the Republican State Convention, which should divert some of the parties from considering the overdue state budget. Meanwhile, Governor Paterson is said to be working on a plan for massive layoffs, to take effect January 1, 2011. The reason he gives for not making the effective date July 1, 2010 is that he promised the unions there would be no layoffs in 2010 in exchange for their agreement not to oppose Tier 5, which reduces pension benefits for new employees of the state. Under a decision of the Court of Appeals, once the state employs a person, it is obligated never to reduce his pension rights and privileges, no matter what the state's financial condition may be.

The problem the governor has is that the federal court having invalidated his furlough plan, and with the unions insisting he keep his word on layoffs, there is really no way to reduce state expenditures substantially until after he leaves office on December 31. That is about seven months from now, and it is questionable how the state’s bills will be paid in the interim, considering current levels of revenues and expenditures.

It is possible that when the state runs out of money it will issue scrip, as Governor Schwarzenegger did in California. The scrip was redeemable for cash once revenues came in and the fiscal gap was bridged.

Now that Attorney General Andrew Cuomo has announced his candidacy for governor, we assume he will answer questions about his fiscal plans. Actually, we believe that he was quite right not to answer those questions in advance of his long-awaited declaration, which came the Saturday before the Democratic convention via a 21-minute video. By getting into the mix sooner, he would simply have alienated part of his base, whatever he would have said. Releasing a plan would also have exposed the reality that, not being in office, there is nothing he could do to implement it.

DIGRESSION: WHY TWEED? The symbolism of holding his announcement press conference in front of the Tweed courthouse on Chambers Street eludes us at this point. In his video, Andrew Cuomo said that "Albany's antics today could make Boss Tweed blush." Although it is a distinction for a man to be mentioned in a political announcement 132 years after he died in the Ludlow Street jail, the reference cannot be considered as favorable. In fact, the old New York County Courthouse was never formally named for Tweed.

When its demolition was proposed 36 years ago by Mayor Beame to make way for a mall leading north from City Hall to a new towering Municipal Building, a committee was, inevitably and justly, formed to save the building, chaired by Paul O'Dwyer and Brendan Gill. Congressman Ed Koch was a member of the committee, and when he became mayor in 1978, the matter was settled. The cost of restoring the old building ended up close to $90 million, which was eight times what it had cost the city to build it initially over the twenty years (1861 to 1881) it took to complete. Of course, that cost comparison does not provide for a century’s worth of inflation, but to put it in perspective, the courthouse cost one and one half times as much as the United States paid for Alaska, a contemporaneous purchase.

While the building evolved from eyesore to historic treasure, it was given an informal name to honor the man who had made the most money from its construction. In fact, so egregious were the kickbacks collected by Tammany Hall, that after Boss Tweed was convicted in November 1873 of 204 of the 220 charges brought against him in an unfinished room of the Courthouse, the public's outrage was severe enough to bring construction of the courthouse to a near standstill for five years.

BACK TO THE FUTURE: The substance of Cuomo's financial plan appears to be fine as far as it goes. It does not, however, resolve the problem of what to do about the near $10 billion deficit in this year’s budget or the impending $12 billion in Fiscal 2011, which begins in just 303 days; that is, 365, one year, minus 62, the days this year's budget is late.

Meanwhile, we have heard nothing from the Republicans as to how they would balance the budget, or at least move in that direction. We watch and wait while the political parties contemplate what actions they can take which will give the least offense. Meanwhile, the governor relies on his promise to the unions to take no action while he is still in office. We can understand his reasoning: Cuomo wanted to be governor and so he pushed me out; let him solve the problem of the deficit.

Meanwhile, the longer it takes to start cutting, the deeper the cuts will have to be. The problem has been evident for years, but neither party in either house has taken the initiative. The Senate Democrats, in fact, want to initiate a property tax rebate which would cost the state almost a billion dollars. Albany lives in a "la cage aux folles" of its own making. As the days pass, it digs itself deeper and deeper into a financial abyss.

We'll check back in a few days. But we don’t expect the ice to break before then. The show continues to go on, but what will be the denouement?