Death of A State

by Herbert I. London
July 5, 2010 at 5:00 am

http://www.gatestoneinstitute.org/1395/death-of-a-state

The sound you hear on Wall Street at noon is not bells chiming; it is the death knell for New York State. The once proud Empire State that was the engine for capital investment across the country is gasping for breath. Wall Street, that paid the state's bills, is a shell of its former self. A combination of the 9/11 attack and a credit meltdown have left Wall Street a different and less vital place. Goodbye Lehman Brothers, Bear Stearns, Merrill Lynch. Yes, this is a different place.

Upstate is no better, perhaps worse. The only economic activity in cities like Elmira can be found in state-run hospitals and prisons. The citizens of these towns are ostensibly wards of the state. Taxpayer levies keep these towns afloat as there is no sign of private enterprise.

That is an understandable condition wrought by extortionate taxes and onerous regulations, which strangle wealth creation. I have yet to meet a young entrepreneur who, in assessing investment opportunities, decides to put his capital in New York. With the capital-gains rate near the highest in the country, you cannot afford to invest in New York, live in New York or die in New York.

What you can do is use the political system for personal advantage. Sheldon Silver, leader of the Democratic led Assembly, or Al D'Amato, former Senator and registered state lobbyist, have milked the system for personal gain and advantage. If you wish to promote the interest of a municipal union, you see Silver. If you want a state construction contract, you see D'Amato. Both men have become enormously wealthy feeding at the public trough. Of course, they are not alone, the officials in Albany have an array of ties to law firms, accounting organizations, construction companies, consultants, etc.

The recent scandal involving a gambling casino in the Aqueduct Race Track is merely the tip of the corruption iceberg. There is scarcely a political figure in the state capital who is unblemished by sub rosa deals. Mr. and Mrs. John Q. Public shake their heads in despair, but there is little they can do about it.

A political force of enormous power has emerged, based on municipal employees. Between New York City and New York State there are approximately 625,000 public service employees. Assuming that there is at least one other voting member in their families (a conservative estimate), the 1,250,000 means, in effect, that this voting bloc controls two-thirds of an election, as it is estimated that two million votes are needed for a statewide position. This bloc invariably votes for the party or candidates that will extend public benefits and raise taxes. The reality in New York is that the extension of public expenditures has driven private capital out of the state and possibly out of existence. While it is assumed the Democratic party is culpable of fiscal irresponsibility, a claim that is clearly justified, the Republicans under Governor George Pataki and the majority in the State Senate, have been just as irresponsible.

If the next governor decides to take on the municipal unions and the lavish pension system, and follows a fiscal program outlined by E.J. McMahon among others, the state may be back on track for solvency. But I would not place a bet on that scenario. Financing the debt accounts for a substantial portion of the annual budget. Reducing state jobs would exacerbate the economic environment in areas already suffering from blight and joblessness. Moreover, political reality makes it unlikely anyone outside of New Jersey's Governor Christie will attack union benefits.

New York State government has for decades engaged in a seduction of its residents until almost everyone is sucking on the public breast. Medicaid sustains grandma in a nursing home. The state version of the Community Reinvestment Act allows workers with modest assets to buy homes they can ill afford. The State health plan relieved small business owners from the burden of providing healthcare for their employees. John and Mary attend public institutions of higher learning where tuition is a fraction of what it would be at private universities like Columbia or NYU. The list goes on until everyone is touched by the long arm of government even when they do not realize it.

There is no doubt that New York State has extraordinary assets: an educated workforce, potable water, cheap hydro-electric power, magnificent scenery. But these assets have been surpassed by manipulative leadership, profligate spending, and the appeasement of municipal union demands.

The once magnificent Empire State is now the Vampire State, with the Albany government sucking the blood of working men and women who are trying to eke out a living. It is not surprising that the average municipal worker with salary and benefits has an income of $97,000 -- and he is being supported by a worker in the private sector with an income at $51,000.

This is not a sustainable arrangement. Until we address it, the death rattle will be heard around the state.

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