Wednesday, December 22, 2010

Cuomo's Massive Challenge

We have been writing about the challenges that the new governor faces when he takes office next month-and no one does a better job at laying these out than EJ McMahon. Writing in the NY Post, McMahon highlights the public employee pension problem:

"Defenders of public employee pension systems often make the case that pension benefits are not all that generous. The outrageous cases you see on the news — Long Island police retiring in their 40s with pensions in excess of base pay, administrators “retiring” with six-figure pensions and then going back to work with another government agency, one ex-FDNY firefighter running marathons on his $86,000 “disability” pension — are the exceptions, they say.

The data, however, tells a different story. According to the Census Bureau, the average New York retiree receiving a corporate or union pension — a retiree from the private sector — was receiving an annual benefit of $13,100 in 2009. For state and local government retirees, that figure was more than twice as high: $27,600. And that average figure includes retirees who were part-time workers or only spent part of their careers in government; full-career retirees often do far better."

The picture in New York is particularly a stark one: "What the calculator will show you is that New York pension benefits can be extremely rich for typical employees. Consider a teacher in Albany County, retiring at 59 after a 37-year career, with a final average salary of $89,000. That teacher is eligible for a pension benefit starting at $62,745 (70.5% of final average salary) with an annual cost-of-living adjustment."

And that isn't inclusive of the health care benefits that go with the pension: "These calculations don’t include the value of retiree health-care benefits. While health benefits for retirees are nearly unheard of in the private sector, New York public employees may keep their same health insurance in retirement nearly for free — or absolutely for free in many cases, as workers can use accumulated sick time to pay their share of the premiums. This is a benefit worth approximately $14,000 per year for family coverage."
Incredibly, this pension time bomb-as real as it is-may not be the biggest challenge for a hemorrhaging state budget. After all, the pension obligations are shared with local governments. But it is Medicaid that might be the actual poison pill-as the Foundry web site points out:

"But as bad as government union contracts and pensions are, they are not the real driver of state insolvency. Medicaid is. Already, Medicaid is the second largest item on the average state budget at 21% (education is first at 22%). But according to the Centers for Medicare and Medicaid Services (CMS) that is all about to change very soon thanks to Obamacare. Remember, more than half of the health care coverage expansion under Obamacare is attained by placing Americans on Medicaid. CMS projects that state and local spending on Medicaid will increase 41.4% between 2010 and 2011."

This has more than just a bit of irony since New York legislators were pretty much gung ho behind ObamaCare-with little thought being given to the collateral damage to NY's finances: "Heritage policy analyst Brian Blaze warns:

If state Medicaid spending increases by 41 percent as projected by CMS, then by next year Medicaid could end up consuming nearly 30 percent of the average state budget. Medicaid would greatly exceed all other state priorities, including education, which tops state budgets at about 22 percent. In fact, state spending on education would experience certain cuts next year.
Presumably, the state spending increase is so high because the enhancement of the federal Medicaid match will expire at the end of 2010. CMS projects that federal spending on Medicaid and the Children’s Health Insurance Program will decrease 7.1 percent between 2010 and 2011. The loss of federal funds will drive most of the increase in state Medicaid obligations."

What this means is-as Governor Christie said on Sixty Minutes-that we are facing a day of reckoning; and there is no more stimulus cash to paper over the severity of our deficit: "The focus was the looming (or present) financial crisis some states are facing - spending more than they're taking in, and living on federal stimulus funds that will run out, failing to meet obligations and maintain a safety net for people in need."

So Andrew Cuomo may soon regret what he wished for-but it is up to all of us to look for ways to work with him so that NY State is able to avoid insolvency-and there will be terrific pressures on him to raise taxes to cover the growing shortfall. But from the very beginning of his campaign for governor, Cuomo has made clear that raising taxes is not on his agenda-and would be the worst thing in the middle of the current recession. Therefore, all of us who represent businesses-big and small-need to stand strong with the new governor, and encourage him to find creative solutions that reduce the pain of reduced services, but get the state back on the road to fiscal health.

We have been underscoring the need for a grand coalition to bolster the governor's agenda-and a good start is already being made: "Business groups on Friday fired back at criticism of incoming Gov. Andrew Cuomo's property-tax cap plan, saying a cap is needed to lower expenses in New York. The groups' effort is a sign of things to come. Business leaders across the state are forming the Committee To Save New York to act as a counterweight to unions and other special interests during the upcoming budget fight. The committee plans to raise more than $20 million next year in its media push to boost Cuomo's agenda, said an organizer Kathryn Wylde, president of the Partnership for New York City, a business group."

Now we need to expand the business group to include the state's small business organizations-the true job creators that will help lift NY out of its current morass. In addition, homeowner and civic groups must also be part of the effort-the real working families of our state: "But Wylde said the committee, expected to be formally introduced early next year, is looking to broaden its membership to include unions, good-government groups and civic organizations."

Make no mistake about it, we have been left with one gigantic fiscal mess-as the past administration, helpless and feckless, was content to kick the budget can down the road. But with an engaged citizenry to support him, Cuomo at least will have a fighting chance to straighten out the mess he is inheriting. For all of our sakes, we hope that he can be successful.