Thursday, February 19, 2009

From the land of the dole

Dodging the Bullet

Great stimulus, but if Manhattan teeters, New York sinks

The class war is not over. The recession is not over. But Albany is acting as if the New York State fiscal crisis is over.

It may not ever be over—because Wall Street may never again be as rich as it was during the years of George Bush and Bernie Madoff. Last year, before the crash—even though former Republican governor George Pataki had succeeded in slashing income taxes on high-income financiers—Wall Street produced 20 percent of New York State revenue.

Twenty percent of a smaller tax base will be a smaller amount of revenue. New York City has lost more than 240,000 jobs in the past year. The financial sector itself has lost more than 40,000 jobs.

And because the New York metro region comprises more than 60 percent of the population of this state, and even more of the total taxable income of the state, Upstate is dependent upon New York’s economic health for far more of public spending than Upstate puts in.

Yet the governor’s new budget does not really reflect this great and probably enduring historic change.

Instead, the Paterson budget is balanced with the one-time, two-year manna from heaven, or rather Washington, known as the stimulus money.

What stimulus is supposed stimulate

Thanks to House Bill 1 of 2009 and its Senate counterpart, which President Obama signed in Denver the other day, New York State—which until recently had a multi-deca-billion-dollar budget deficit—is getting bailed out.

Most of the money is for Medicaid, which is the medical insurance program for the poor and especially (most especially, in years to come) for the poor elderly who are in long-term care.

Lots of the rest of the money is for people who are broke, like the unemployed, and for those who need Temporary Assistance to Needy Families, or TANF, formerly known as welfare. The economic theory behind providing money for people who would otherwise go hungry is that it is better to help the needy than to let them starve, we being the beacon of freedom, the light unto the nations, civilized, etc. The other economic theory is that these folks spend every last penny of their income, so when the government helps poor people, it helps all the people who sell poor people things like food, shelter, healthcare, and such like.

This really is good economics, despite the ranting of the right. As succinctly put by Eric Lotke (whose blog is at, “The purpose of the stimulus bill is to stimulate economic activity. Putting money into the hands of poor people has immediate economic impact because they are most likely to spend it.”

And then there are the projects—the infrastructure projects that the Republican membership of the House of Representatives decided to vote against when they were voting against putting money directly into the consumer-demand side of the economy.

Worthy projects or “pork”?

Let us provide a guide to the perplexed. We shall take a sober walk through some of the details of the news of what the federal stimulus package is going to buy for our fair community.

First, the good news. There will soon be construction jobs in Erie County, because there will be many construction projects come spring.

Almost $58 million of the new federal money that is coming to the Buffalo area will be invested in making our wastewater cleaner, which means making Lake Erie, the Niagara River, and Lake Ontario cleaner. Raise your hand if you object to clean water.

Forty-two million dollars go to Erie Community College for various projects, including more than $20 million for better infrastructure in the downtown campus. (It’s not the $150 million, three-into-one consolidation that the Giambra administration hoped for, but let us not allow the perfect to be the enemy of the good.)

About $20 million will go to build and repair a bunch of suburban schools; Buffalo schools aren’t getting a lot from the stimulus, but then again, Buffalo schools are in the midst of a reconstruction plan that is already well over $500 million.

UB and Buffalo State will split a few million dollars, and should immediately lobby Albany to take the $6 million for ECC’s new parking structure and put it into our regional intellectual capital instead.

Then there are about $35 million in various road projects, most of it for the Kensington, the Scajacuada, the 400, and the Thruway.

So these are the “shovel-ready” projects that are actually on Governor Paterson’s official list of approved projects.

The last big item on the Buffalo-area list is about $74 million that will be going to the NFTA for new buses. The NFTA chairman wrote an op-ed piece a little while back asking for $200 million for a fleet of new, low-maintenance, gas-electric hybrid buses, but, to paraphrase Meatloaf, one out of three ain’t bad.

What’s wrong with this picture?

To begin at the beginning: We need to be concerned about the economic future of New York City. Several billion dollars of infrastructure spending, plus protect-the-poor, stimulate-demand spending, are praised by most economists, if derided by some few. But we need to understand our dependency on the health of New York City.

Some don’t worry. In a new Atlantic Monthly piece, Toronto’s (formerly Pittsburgh’s) Richard Florida says that New York City is going to come out of the 2008 crash in the financial markets and in the financial industry still being a world-class winner of a city. Florida is not very happy about the prospects for the already-struggling Great Lakes cities.

Even Gotham-begrudgers know why. As former New York City finance commissioner Carol O’Cleireacain told the New York Times, “New York City isn’t like Elkhart, Ind.” She was not slamming that city that President Obama visited recently, just noting that it is small, and that it depends largely on a single industry, recreational-vehicle manufacturing, and that it already suffers unemployment of 15 percent. New York, she said, “is a magnet for talent: for smart, enterprising, ambitious, innovative people, not only from this country but from around the world. Everyone wants to be here, and I think that sets us apart from virtually any other city.”

Correct. But nobody is predicting that the rebound in New York City’s employment will happen quickly. And meanwhile, the structural problems of Upstate New York continue.

At the annual meeting of the New York Association of Counties a couple of weeks ago in Albany, a very capable researcher published a report that reiterated what regular readers see in shorthand here: that Upstate suffers outmigration without in-migration; that our brains drain to places like New York City, Washington, and other places where young people feel that life is more fun and more lucrative; that our local tax bases are shrinking; that the population is aging; that more of the share of local income will be coming from transfer payments; and that this was all happening even before the crash of 2008.

Yet Governor Paterson’s budget does not reflect any awareness of these trends.

There is no real recognition of the widely noticed need for local government restructuring in this budget. Aid to local governments continues as before.

The budget for the State University of New York system is only temporarily restored, and incompletely so, because of the temporary lift of the federal stimulus funds.

There isn’t any restructuring of the huge and growing Medicaid program, despite credible analysis, year after year, that as much as $10 billion of its $45 billion is misspent or wasted outright.

It’s almost as if Albany is saying, “Don’t worry, be happy,” because the budget may be good through the 2010 election. And after that, the reasoning seems to be, it’ll be President Obama who will have to address the problem—his problem, not ours, as we will all be re-elected in 2010.

If I were Obama, I’d ask Albany for a four-year plan. I’d ask about Medicaid, local government restructuring, liveable cities that can start growing again. I’d ask not whether but when Albany will restore SUNY cuts and, yes, I’d ask about what Albany plans to do about not having Bernie Madoff’s phantom profits in its revenue base any more.

Bruce Fisher is visiting professor of economics and finance at Buffalo State College, where he directs the Center for Economic and Policy Studies.

To see the whole list of projects in Erie County, and the whole list for the State of New York, click here.

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