Bacon's Rebellion

Democracy Thrives in Sunlight

Collapse of the Blue State Governance Model: New York Update

—

by

James A. Bacon
in

The Empire State capital building

Yeah, Virginia legislators do a lot of stupid stuff, I can’t deny that. Without question, the commonwealth’s governance model is critically flawed. But, to tweak Winston Churchill’s immortal words about democracy, Virginia’s government is the worst in the world — except most of the others.

The situation is worse in New York — a lot worse. States a recent article entitled, “Deficits Push N.Y. Cities and Counties to Desperation“:

Even as there are glimmers of a national economic recovery, cities and counties increasingly find themselves in the middle of a financial crisis. The problems are spreading as municipalities face a toxic mix of stresses that has been brewing for years, including soaring pension, Medicaid and retiree health care costs. And many have exhausted creative accounting maneuvers and one-time spending cuts or revenue-raisers to bail themselves out.

No, that’s not right-wing spin from FOX News, National Review or the Cato Institute. That comes straight from the New York Times.

A state oversight board seized control of Nassau County’s finances last year, while neighboring Suffolk County has declared a financial emergency. Buffalo is approaching financial failure and Rochester may not be far behind. Moody’s downgraded the debt of Yonkers and Long Beach last year and the debt of Rockland County and Utica last month.

Public pensions are a big part of the problem. Three percent of New York property tax collections were used to pay pension costs in 2001; by 2015, pension costs are expected to eat up 35 percent of property tax collections. You thought Virginia’s General Assembly was reckless? Syracuse Mayor Stephanie A. Miner blamed state government for passing unreasonable costs such as pensions on to municipal governments. “Unless Albany changes its policies,” she said, “we will be dead.”

Remember all those wonderful government services that were supposed to contribute to a higher quality of life, attract human capital and support a stronger, more vigorous economy? They may not last. Said a Rockland County executive: ” “I think you’ll see a dropping off of the programs that many counties now view as important — law enforcement, economic development, parks and recreation. Those kinds of programs will disappear. Counties will become welfare and Medicaid managers.”

Collapse of the Blue State Governance Model: California Update. Michael J. Boskin and John F. Coogan write in the Wall Street Journal: “California’s economy, which used to outperform the rest of the country, now
substantially underperforms. The unemployment rate, at 10.9%, is higher than
every other state except Nevada and Rhode Island. With 12% of America’s
population, California has one third of the nation’s welfare recipients.”

— JAB

Share this article

ADVERTISEMENT

(comments below)

ADVERTISEMENT

(comments below)

Comments

  1. larryg Avatar
    larryg

    municipalities don’t work like corporations. A county/city that goes “broke” does not do it like a company that goes broke.

    Also, portraying cities and counties as having most or much of their revenues devoted to welfare and medicaid is pretty questionable.

    Many cities/towns simply have too many employees and the employees they have are paid more than can be afforded.

    we’re talking about less firemen, less policemen, less school employees, more potholes, longer lines for city hall permits and in general, degraded infrastructure and services but taxes will still be levied and collected and employees paid..and potholes fixed…albeit at a slow tempo.

    a big deal is made about Social Securities “scandalous” “unfunded liabilities (a totally bogus concept by the way).. yet what about good old Virginia’s unfunded liabilities ..and yes.. we are one of the “better” states…. but we STILL have unfunded liabilities. Is George Soros going to repossess Virginia and turn it into a “privately operated” state?

    maybe in some right wingers wet dream.. but not in the real world.

  2. James A. Bacon Avatar
    James A. Bacon

    Larry, municipalities in New York don’t go “bankrupt.” But they can wind up under state control — and state executors are none too delicate about cutting costs. It’s not a predicament you want to find yourself in.

  3. larryg Avatar
    larryg

    who says “state control” is any better than “local control”?

    how does that work?

    is there an implicit assumption that the state will do a better job of managing a municipality than the local government?

    what happened to the “government that governs closest to the people is the best governance”?

    questions. questions. have we got answers?

  4. James A. Bacon Avatar
    James A. Bacon

    I’m just guessing, but I would conjecture that the logic of the state is this: The municipality screwed up so royally and had demonstrated such an inability to straighten things out that someone from the outside had to step in and restore financial order. Who else would do the job but a state oversight board?

  5. DJRippert Avatar
    DJRippert

    Losing population is a financial killer. Even if you can cut headcount to match the population decrease you still have to contend with the pension funds from the days of old when the population was bigger.

    Of the 366 MSAs in the United States, 42 lost population between 2000 and 2010. 40 of the 42 were in North Eastern and Mid Western states. Four were in NY. Two were in the south. One in Georgia (Albany) and one in Virginia (Danville).

    So, how is Danville doing? Not so well.

    http://www2.wsls.com/news/2012/jan/06/danville-schools-faces-big-shorfall-ar-1593015/

    Upstate New York is dominated by the four shrinking MSAs of Buffalo/Niagra Falls (-2.96%), Elmira (-2.46%), Binghamton (-0.24%) and Utica-Rome (-0.17%).

    Nassau County is another demographic basket case. There were 1.428M residents in 1970. There are 1.340M today. The 80s and 90s were times of serious decline. However, the last 20 years have been slightly up. Apparently, Nassau County had been in the habit of borrowing money to grant tax refunds.

    As far as the state legislature passing on unfunded mandates to localities – New York has no monopoly on that. Years of the Clown Show underfunding the VRS left that pension fund $24B in the hole. In fact, the state regularly uses a higher rate of return to cook the VRS books than localities are allowed to use when they assess the health of their own pension funds. As usual, there is one set of rules for the political class in Richmond and another set of rules for everybody else.

    And … how will the Clown Show make up for its fiscal incompetence with VRS? Pass on an unfunded mandate to localities of course!

    http://blogs.fredericksburg.com/newsdesk/2012/03/10/legislators-leave-but-will-return-march-21-for-budget/

    As an interesting aside, Nassau County pays the highest property taxes in America. So, incompetence from the state creates unfunded mandates for localities. Check. Localities raise property taxes. Check. People move out of the localities because of high taxes. Check. Fiscal chaos ensues as the tax base collapses. Check.

    Nassau County has the highest propert taxes in the US. Who is #32 (out of 2,922)? Loudoun County. #37? Fairfax County. #39? Arlington County. #589? Henrico County. #614? Spotsylvania County. #2,569? Wise County.

    http://interactive.taxfoundation.org/propertytax/

    We’ll see what the ever escalating property tax rates needed to undo the Clown Show’s incompetence mean with respect to demographics in Virginia.

    The only difference between New York and Virginia is that New York started failing 20 years ago and Virginia has just begun to fail.

  6. larryg Avatar
    larryg

    Governance is people – right? Do we think there is something fundamentally and fatally wrong with governance as a concept or a practice?

    Just because an area shrinks does not mean they are doomed to bad governance and DJ acts like governance cannot succeed if a place does shrink.

    it makes no sense to conflate these things.. it actually just confuses things.

    In terms of upside pensions – that’s not a flaw of governance – either as many corporate institutions have the same issue.

    I don’t think home rule is necessarily a better form of governance than Dillon. How many cities/localities would go broke is they did not have home rule to start with?

    How many Dillon Rule states localities / cities have gone “broke”?

  7. DJRippert Avatar
    DJRippert

    “Just because an area shrinks does not mean they are doomed to bad governance and DJ acts like governance cannot succeed if a place does shrink.”.

    Take a look at the economic situation for the MSAs that shrank between 2000 – 2010 vs those which grew. Reality is right under your nose, LarryG.

    Frankly, I think governance can be hurt by either growing too fast or by shrinking. 34 of the 366 MSAs grew at more than 25%. So, 76 of the 366 MSAs were probably too fast or too slow. The majority were fine.

    “I don’t think home rule is necessarily a better form of governance than Dillon.”.

    Then don’t adopt it in Fredricksburg / Spotsylvania County. Continue to be infants under the constant tutlage of the General Assembly. Your call.

  8. larryg Avatar
    larryg

    How about a blog post on the VRS issue in Va? In particular, the fact that
    we have a 24 billion unfunded liability … and fixing it involves, at least in part, taxpayers.

    the question is – is this a state responsibility or a local responsibility – and why?

    here’s an interesting (truthful) perspective from Chap Peterson:

    http://oxroadsouth.com/2012/03/vrs-unplugged/

  9. Richard Avatar
    Richard

    State and local pensions are a problem for almost every state, not just blue states.
    Pensions are a problem for legislatures (and most companies) because they are long-term obligations requiring long-term commitments and long-term fiscal prudence (which requires not just careful expenditures but regular contributions), but legislatures, creatures of democracy, are focused on the short-term, because that’s what gets the politicians elected. When there is an immediate fiscal crisis, the politicians look to the pension fund either to stop or reduce contributions, to shift the liabilities to someone else, or in some cases to actually borrow from pension funds. When you talk about fiscal imprudence and pensions, these responses are absolutely nonpartisan.

    Companies and unions and dare-I-say entrepeneurs, and individuals, have the same problem.

    There’s a basic human fraility at work here. We used to have “conservative” institutions that served as a counterbalance – such as banks and churches – but not so much anymore. Would you trust your local banker to invest your retirement money? Do churches preach prudence for their flock? I believe that the cult of the individual is much to blame here, and that cult is completely nonpartisan.

    The pension issue is aggravated right now (the short term) because 1. interest rates are down (which increases the current actuarial liability), 2. most pension funds, like everyone else, took a significant hit to their assets in 2008, and 3. legislatures didn’t increase contributions when times were good and now are decreasing contributions when times are bad. 1. and 2. will change – as interest rates and earnings increase, the liaibility will decrease from the current historically high level.

    It is unfair to blame the state employees for these issues. Some may be members of unions, a flashpoint for some, but the issues are the same in union and nonunion states. Promises were made, and most state employees do not receive unreasonable pay or pensions. The promises are being questioned now – in retrospect – only because everyone else’s retirement benefits are such a disaster, and because politicians find it easier to blame public employees than to acknowledge their own responsibilities. There is envy and resentment because state employees have a pension that others do not; but is it so unreasonable to expect a pension of say $30,000 to $40,000 a year after 30 years of work – I don’t have the statistics, but my guess would be that most public employees’ pensions are in that range or less. Instead of complaining about what others get, why didn’t we all take care of our retirement on our own? It’s the human frailty of short term thinking and commitment.

  10. Peter Galuszka Avatar
    Peter Galuszka

    There’s very little relevance comparing New York State and Virginia. The former has a huge, nation-state city and many pockets of decline. Virginia is so much smaller and gets a lot of its wealth by being a DC government suburb.

    Complaining about Empire State debt accomplishes little.

Leave a Reply

Read More