When Going Gets Tough, Albany Gets Nowhere

"It was embarrassing, to say the least," State Sen. Diane Savino remarked Nov. 19, a day after the Special Session of the Legislature never actually took place because Governor Paterson could not convince legislative leaders to accept his proposed $2 billion in budget cuts or propose serious alternatives.

The prime culprit, according to the Governor, was Senate Majority Leader Dean Skelos, who figures to lose that position in January when the Legislature's upper house shifts from Republican to Democratic control.

The biggest chunk of the Governor's planned cuts — in health care and education funding — would have come at the expense of unions that have been strong supporters of Senate Republicans. And so conventional wisdom has it that Senator Skelos concluded that there was no point in antagonizing his allies when he could defer that chore to the new Democratic majority in January, thus improving the chances of regaining GOP control in the 2010 elections.

Delay Only Makes Cut Deeper

Senator Savino, a Democrat representing Staten Island and a slice of Brooklyn, said unions and their members — delegations of whom had flocked to Albany to campaign against the proposed cuts — should not regard the delay as a positive development; that it only meant the eventual cuts would have to be more severe.

HOLE WILL GET DEEPER: State Sen. Diane Savino, union financial consultant Allen Brawer and Correction Officers Benevolent Association President Norman Seabrook have differing views on how to fix the Albany budget crisis, but they all agreed that the problem will worsen because of the failure of legislators to agree on some reduction measures last week.

"Everyone who breathed a sigh of relief yesterday hasn't quite gotten a grasp of just how bad the situation is," Ms. Savino said. "There's the possibility we could run out of money by April."

It's unlikely to come to that, but there are no appetizing solutions. Even as she was speaking, the Governor was in Washington seeking some additional help and being told to come back after President Obama takes office and the new session of Congress begins. He was getting that news more politely than the heads of the Big Three automakers, Moe, Larry and Curly, who each had the bright idea to take their private jets from Detroit to Washington that morning seeking a bailout, and seemed to think any sacrifices their companies made should not include cuts in their own salaries, which run as high as $22 million.

By the end of the day, the Dow Jones Industrial Average had plummeted to its lowest point in five years, and Mayor Bloomberg was declaring, "There's an awful lot of the 300,000 municipal employees who have got to start worrying about their jobs."

That last comment might be regarded as shock therapy, meant to soften the ground for unions to offer concessions rather than seeing their memberships gutted. Even so, few people view it as empty hype as the economic problems both nationally and statewide wreak havoc with the budgets both here and in Albany.

Allen Brawer, a financial consultant to the Municipal Labor Committee whose clients also include the United Federation of Teachers, the Uniformed Sanitationmen's Association and Teamsters Local 237, said, "The problem is you don't know how deep the fiscal trouble is and when it will turn around. You don't know how many jobs will be lost on Wall Street."

The lack of any reliable gauges on the timing further complicates the political dealings in Albany. Chief executives generally look to make tough fiscal decisions soon after they take office or early in a new term, figuring that with three or four years before facing the voters again, they have enough time to solve the problems and recapture their good will. (Examples of those taking a different course and paying for it start with the first President Bush, who having been elected on a promise that he would not raise taxes, put off doing so until breaking that pledge, combined with a faltering economy, made him ripe for defeat in 1992.)

Less Recovery Time Than Mayor

But where Mr. Bloomberg, whose real-estate tax increases early in his second year in office helped lower his approval ratings to George W. Bush-like levels, saw his popularity skyrocket once the city's economy revived and he was able to offer both a $400 rebate and improved quality of life, Mr. Paterson, having inherited the governorship 15 months into the term of Eliot Spitzer, has been operating under a tighter timetable, Mr. Brawer said, and he "doesn't have that luxury because he's running in less than two years."

The Governor's proposed cuts were the first step in closing a budget hole that is projected as at least $13 billion over a 16-month span covering the remainder of this fiscal year and the one that starts next April.

Given that the state's operating budget is roughly $62 billion, Mr. Brawer said, "he's talking about a 20-percent cut."

Ms. Savino noted that total spending counting the state's capital budget is $126 billion, or double what it was a decade ago. And so a day of reckoning would have come even without the national slump and the meltdown on Wall Street, she said, asking, "How do you sustain that level of spending? We've lost our entire industrial and manufacturing economy — we've become primarily a service economy."

Even if help is forthcoming from Washington early next year, it shouldn't be used to patch the holes in the budget, she continued, asserting, "Any stimulus help has to go toward job creation."

Labor's Vote: Tax the Rich

Working Families Party Executive Director Dan Cantor, in an op-ed piece in last Wednesday's Daily News, voiced the sentiments of more than a few labor leaders when he said that the missing element of the Governor's budget plan was a tax increase on wealthier individuals. He proposed a two-tier increase, the smaller bite affecting those making $100,000 or more, with a bigger hit on those making at least $500,000.

Several political veterans differed on whether the timing was right to push such a proposal, but they all believed that some tax increase targeting wealthier New Yorkers would be an inevitable component of the budget plan.

Ms. Savino contended, "I don't think that the political will exists among the population to simply look for deep pockets to pick." An additional concern, she said, was that "if we don't use the opportunity to address the budget imbalance in this state, [a tax hike] will only buy us a couple of years."

But political consultant George Arzt, who covered the mid-1970s fiscal crisis as the City Hall bureau chief of the New York Post, said, "I think you do have to go after wealthier people to gain a foothold with the middle class, who are going to be suffering from the budget cuts. Everyone knows there's going to be more cuts" beyond what the Governor has already sought. "Everyone is braced for it. You're also going to see several taxes proposed."

'State Already Not Competitive'

The problem with that, he added, is that "this state is already in an uncompetitive position in terms of taxation."

Correction Officers Benevolent Association President Norman Seabrook proposed soaking a group that traditionally has been a favorite Albany target: consumers of cigarettes and alcohol.

"I think we need to explore the sin tax," the acknowledged smoker said a day prior to making the same proposal before the Metropolitan Transportation Authority in his role as a board member. "I think it will generate hundreds of millions if not billions of dollars."

He also maintained that Mr. Paterson, who has tried to shed the reputation he acquired in the State Senate as a textbook liberal by resisting raising taxes on the wealthy, was eventually going to have to follow the lead of someone who just gained election while pledging a tax hike as part of an economic solution.

"I think he's definitely going to have to come around to it for those making $250,000 or more, as President-elect Obama is going to do," Mr. Seabrook said. He also urged Mr. Paterson to lobby the new President for more Federal aid by citing the wide disparity between what state residents pay in Federal taxes and what comes back in funding from Washington.

Sees Limited Prospects

Senator Savino is convinced, however, that given the Federal Government's financial woes, the state is unlikely to pry loose more than $3 billion in added funding, and so most of the burden is going to fall on Albany and local governments to dig out of the giant budget hole.

"David's stuck between a rock and a hard place," she said. "How do you move a recalcitrant Legislature?"

To some degree, she continued, the answer is obvious. "He knows what his options are where he doesn't need legislative approvals: layoffs." In large-enough quantities, those could make the unions more willing to look at other ways to save money, much as the municipal unions came around to deferring wage increases and using pension funds to purchase billions of dollars in city bonds during the fiscal crisis three decades ago.

That could be a particularly effective tool in dealing with Local 1199 of the Service Employees International Union, which has aligned with the Greater New York Hospital Association in fiercely resisting cuts in Medicaid funding. "We spend more than California and Florida combined on Medicaid," Ms. Savino said in arguing that this could no longer be tolerated.

UFT President Randi Weingarten last week pointed out that aid to needier school districts had been set under a State Court of Appeals order in the Campaign for Fiscal Equity case. Ms. Savino said that the legislative compromise that resulted meant "we were forced to pay ransom to Nassau, Suffolk and Westchester County" to win suburban lawmakers' approval of the sizable increases to the city public schools and other districts where there was evidence that longtime funding discrimination had hurt student achievement.

Says Suburbs Could Stand Cut

"There are some districts as small as 800 students and their Superintendents are paid $200,000 a year — the same as Joel Klein," she said, referring to the city Schools Chancellor. "They come to us and ask for help with unfunded mandates, but you know what they include along with pensions? Salaries and health benefits. Those aren't unfunded mandates — you negotiated those and then counted on [Albany] to cover the tab. We have to get a handle on runaway education spending and health-care spending."

But Mr. Brawer, who was a Fiscal Analyst in the Mayor's Office of Management and Budget when the crisis hit here in 1975, said the unruly political dynamic of Albany made that an imposing task.

"It's so much harder up there than here because of the politics involved," he said. "They're so much more independent up there."

Part of the reason is that the state has a greater diversity of needs and interests than the city. Even with the disparity between rich and poor here, there is a basic consensus on matters like education and public safety being essential components of a livable city. "You don't relate as much to the state's services as you do to the city's," Mr. Brawer said, the one possible exception being the State University of New York.

Can't Use Newspapers As Hammer

And beyond tensions between upstate and downstate and suburbs versus cities, the media market affecting Albany is more diffused; a Governor cannot count on the support of two or three newspapers to exert heavy pressure on legislators, the way the Mayor can with the city's three dailies, Mr. Brawer said.

"It's so hard to see a solution when the magnitude of the problem is so great and you don't have a dominant force," he said. Even with both houses of the Legislature turning Democratic, Mr. Paterson doesn't have the tenure or, to this point, the force of personality to be the leader who can get all oars pulling together.

Mr. Arzt said, "I think it's time for major corporations to loan the state innovative people. It worked [for the city] in '75-'76. Of course, corporations are hurting, too, and they need their brains."

'Time to Cut Months Ago'

But the clock is working against the state, and by extension, the city, he continued. "The time to gain savings was a few months ago, so you wouldn't be forced to make really Draconian cuts six months from now. Plus, you can expect Rudy Giuliani to run against David, so he's got a real political problem."

Mr. Seabrook, who has used his ties to Republicans to good advantage in Albany, rejected the notion that Mr. Skelos's gamesmanship could pay long-term dividends for the GOP, saying that it merely established that "the Senate Republicans [didn't have] a response to the crisis we're in."

It may have placed a burden on a Democratic Governor and his party colleagues in the Legislature to make the tough decisions, Mr. Seabrook said, but it also presents an opportunity.

"Whoever steps up to the plate with solutions and concrete answers are the ones the public is going to trust," he said.

But before they have a chance to reap any of the dividends he foresees, the powers that will be in Albany at the beginning of the new year are going to have to offer some answers.

Laying Groundwork for Tax Hike?

Mr. Brawer said Mr. Paterson may have held off on playing the tax-hike card because he's concluded that "what you've first gotta do is show how difficult the [budget] cuts would be."

Ms. Savino concurred, saying, "Raising taxes on people may be what we come to at the end of this process; it can't be the beginning."

But she is not looking forward to having to clean up the mess that will worsen because it was left untended last week.

"It's not going to be pleasant, I can tell you that," she said of the December reconvening of the Legislature. "It's going to be an ugly, intense fight, but it's a fight we've gotta make. If we ignore reality and simply try to borrow our way out of the mess or look at gimmicky one-shots, it could turn out really bad."

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