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December 6, 2009 - 8:21pm

Gov. Paterson on NY's Fiscal Crisis

posted by C. M. Barons in new york, Paterson, Budget Crisis.

Letter via e-mail from Gov. Paterson's office

Dear New Yorker:

Earlier this week, the Legislature concluded an Extraordinary Session that I convened to address New York State’s worsening fiscal crisis. While the deficit reduction legislation passed by the Legislature provides needed savings, it falls well short of what is necessary to put New York on the road to fiscal and economic recovery.

Although the Legislature failed to join me to adequately address this crisis, we were able to achieve historic reforms that make government more accountable to taxpayers.

This week, we enacted the most important reform to our State’s pension system in more than 25 years, creating a new “Tier 5” that will substantially reduce the cost of government for the long-term. Public pensions have been allowed to grow at an unsustainable rate for a generation – with rising costs for local governments passed on to New Yorkers in ever-increasing property taxes. Thanks to this legislation, New York finally has a rational pension system that provides a secure retirement for hardworking public employees, while controlling costs for property taxpayers.

With Tier 5, we have achieved true structural reform that changes the way the system works. This is not a short-term stopgap. It is long-term reform that will help us operate government more efficiently, control costs, and address the property tax burden that is weighing down New York’s families and businesses.

Pension reform is just one piece of my agenda to change the way Albany works and reduce the property tax burden.

Also this week, we enacted landmark reform of our State’s public authorities. Public authorities are critical to promoting economic development, but for too long they have operated without sufficient transparency. The new law provides the tools needed to root out any waste, fraud or abuse in the system and to reduce costs.

The objective of these measures is simple: cuts costs and provide tax relief.

For too long, we have tolerated a culture in Albany that pays out special interests at the expense of New York’s taxpayers. Decades of overspending by Albany has left our State more vulnerable to the effects of a national recession. High unemployment has depleted the taxes the State depends on and the collapse of Wall Street has taken away New York’s greatest economic engine. This culture of overspending must end, which is why I convened the special session of the Legislature.

Unfortunately, the deficit reduction plan passed by the Legislature does not fully address our current-year budget deficit. It does not solve our severe cash-flow crunch. It does not address our long-term structural imbalance.

As Governor, I have a fundamental responsibility to keep our State solvent. Everyday New Yorkers know that they simply cannot spend money that they do not have, and our State government should understand that as well. For decades, Albany has refused to take the necessary steps to control spending, and has too often put off until tomorrow what should have been done yesterday. I will not allow this to continue on my watch.

Because certain legislators are unwilling to stand up and control spending for fear of the political consequences, I will move forward and implement the tough choices they were unwilling to make. In the coming days, I will direct the Division of the Budget to reduce State aid payments administratively in order to balance the budget and prevent New York from running out of cash.

I do not take this action lightly, but there is no other responsible path. If the Legislature will not do what is necessary, I will take the difficult actions that are needed to restore our State’s fiscal integrity.

Best,


David A. Paterson
Governor of New York State
 
Jeff Allen
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It was a forgone conclusion that Tier 5 would be coming, but I think it is disingenuous to say that the pension system is a long term problem on New York State. Tier 1 and 2 pensions are the ones that have the most advantages and open-ended costs. This problem was already addressed with the enactment of Tiers 3 & 4. The fact of the matter is that given the timeframe of hiring for tiers 1 & 2 and the small percentage of the system they still make up, coupled with their age(apologies to tier 1 & 2 retirees), they are not a "long term" drain on the system. Tiers 3 & 4 put so many restrictions on retirement earning and health benefits, that I can't imagine what a tier 5 retirement must look like. Chipping away at future pensions is just going to drive more talent away from public service in New York State and in most cases away from New York State since the private sector is not much more attractive.
Maybe Jeff, but that is what all of us in the private sector have to deal with. The days of healthcare for life and pensions that actually amount to anything are gone. I have to fund my own retirement, pay about 40% of my healthcare contribution, plus pay outrageous taxes! Even with this Tier 5, most new public employees will still enjoy more cost effective benefits that their private counter parts! I somewhat agree that it will not entice many people to join the state's employ, but this state's population declination is a trend that govenrment has not kept pace with. More and more leave and the rest of us are asked to pick up that slack. All the while the state government grows. I heard the Governor do an interview last week and he pretty much said that this state needs to cut across the board. I agree. If and when that will ever happen is probably slim, but maybe it will take this state going bankrupt for those changes to happen.
Charlie Mallow
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No one even has retirement plans in the private sector. Most of us have even had our 401K match taken away. The state has to pull themselves up to the table and dissolve the state retirement system all together.
Jeff Allen
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Charlie, fact check..."No one even has retirement plans in the private sector" Many companies offer retirement plans, some far better than the tier system. I'm not sure how you quantify that statement. "Most of us have even had our 401K match taken away". NYS has never had a 401K match plan.
Charlie Mallow
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Jeff, your right, my blanket statement was incorrect. I’m sure there is some company hiding under a rock somewhere that does but, you would be hard pressed to find a private company with a retirement plan anywhere near what you could get from the state. I know what the major companies offer here and a state like retirement plan isn’t an option. I would like to know what private company offers anything close to a state retirement.
C. M. Barons
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I believe how you fare in the New York Retirement System depends on who you are... Are you a teacher (their retirement system is separate from the New York State Public Employees Retirement System), a prison guard, a policeman/sheriff (law enforcement have different term of service requirements) or a school bus driver? Who is your employer? Were you hired before 1973? ...Before 1976? Are you a Tier 1, 2, 3 or 4 member? If you are Tier 1 or 2, you do not personally contribute to your plan. There are other optional sections. 41j is one such program that allows unused sick time to be credited as time of service. The NYSPERS is not a blue-blood plan, nor is it as meager as as a self-funded Roth account. The funding ratio, tax obligation, investment management, payout options and borrowing options are dependent on state regulation and, to a lesser extent, employee/employer bargaining. Ultimately, this fund is managed (under Comptroller's jurisdiction- which may change) by state government but funded by employer/employee contributions as part of the wage and benefits contract. As with virtually all retirement programs, the assets are invested to generate growth. As for 401k plans, less than half the American work force is enrolled in one. Most of those who are enrolled represent the upper end in wages- utilizing the pre-tax benefits to shield money from the IRS. Which is why the government keeps chipping at who and how much can be deferred. These plans are typically based on risky investments, hence the huge losses following the recent Wall Street collapse. Those whose only option is a 401k should look forward to the new generation of retirement accounts on the horizon.
John Roach
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C.M., Very good explanation of the system. Also, unlike a 401k, the state retirement can not be transferred if you leave state service.
Richard Gahagan
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If you want to know what President Obama’s new style of government-led, Democratic Party economic and political policies will bring to the country, you need look no further than Western New York — and what you’ll see isn’t pretty. (Edward Glaeser wrote an article entitled “Can Buffalo Ever Come Back?” The subtitle was “Probably Not — and the Government Should Stop Bribing People to Stay There.”) Nearly every item in the Obama economic and political agenda — from health care to taxes to unions to gun control to government schemes to spend money to “stimulate” the economy — has already been tried here, but the region remains stagnant and moribund. The economy of Western New York and the cities of Buffalo and Rochester are, for practical purposes, socialist. The private sector is nearly dead, government is the largest employer, and taxes and union membership are the highest in the nation. As a result, economic growth is nil, and the population continues to migrate to the Sun Belt at an alarming rate. According to the Bureau of Labor Statistics, New York State has the highest rate of union membership in the country. Nearly 25% of the workforce here is unionized. Virtually all public sector employees here are unionized, and richly compensated as a result. In 2008, a Buffalo cop caused a stir by milking the overtime and seniority rules to earn nearly $200,000 in his last years on the job, enabling him to retire with a pension of $100,000 per year. Unionized city school district janitors can earn between $70,000 and $100,000 per year. In the private sector, bankrupt auto parts maker Delphi, a major employer in Lockport, is staggering under the weight of its union contracts, and American Axle recently closed a unionized facility in Buffalo. The public sector dominates here. Data from the Census Bureau in 2004 indicated that there were 95,300 public sector employees in the Buffalo-Niagara Metropolitan Statistical Area out of a total labor force of 547,000; by comparison, only 66,400 were employed in manufacturing and 20,300 in “construction and mining.” Only the category of “trade, transportation, and utilities” produced more private-sector jobs – 102,000 – than government. In 2008, the three largest employers in Buffalo were all in the public sector. The State of New York employed 16,500, the Federal government 10,000, and the City of Buffalo 8,200. Of the top three private sector employers, two — Kalieda Health with 10,000 employees Catholic Health Systems with 4,900 — were hospitals, heavily reliant on state and federal aid. HSBC Bank, with 5,800 employees, rounded out the top three. Health care remains a major employer in the region because the population is aging. Medicare and Medicaid provide substantial funding to the health-care industry. But Medicaid here is out of control. New York’s Medicaid system the costliest in the nation, double that of California’s. Medicaid here pays for just about everything. Several years ago a public outcry caused the state’s Medicaid system to stop paying for Viagra for convicted sex offenders, but it continues to fund abortions. Things are not much better in nearby Rochester. For decades Rochester was a company town, home of the once-mighty Eastman Kodak Co. But Kodak has been shedding jobs for three decades, and in 2006 the University of Rochester, a non-profit educational institution, surpassed Kodak as the city’s largest employer. The high rate of public employment requires a substantial tax burden to support it. A 2008 study by the Tax Foundation found that 8 of the top 10 counties in the nation with the highest property-tax burdens were in Western New York. Niagara County was ranked number one, Monroe County number two, and Erie County number seven. But residents here do not merely pay high property taxes; the combined state and county sales tax in Erie County is a staggering 8.75%, and the state levies an income tax that averages 5% as well. The state even demands that residents pay sales taxes on items purchased by mail or on the Internet and shipped into New York from other states. The state recently raised nearly 100 taxes and fees to meet this year’s budget; even so, Gov. David Paterson is predicting a $15 billion budget deficit for next year. The enormous sums of money flowing into government coffers gives politicians the means to dictate the terms on nearly everything. Almost nothing here is decided solely by market forces in the private sector. Political operatives spend public money at the behest of favored interest groups, and consequently nearly every idea for “economic development” involves some harebrained scheme carried out by socialist-type planning that invariably fails. In 1978, Buffalo began construction on a light rail/subway system. The first portion of the system — which eliminated auto traffic on Main Street — was only 5 miles long and opened in 1984 at a cost of $500 million. The system flopped. Planned extensions of the rail line never materialized, and ridership dropped from 7.1 million on 1996 to 5.6 million in 2006. By 2008, even more public money was committed to re-opening Main Street to traffic. In 2000, some were optimistic about private sector investment when Adelphia Communications Company announced plans for a $125 million office in downtown Buffalo. But by 2002 Adelphia, $2.3 billion in debt, went bankrupt and its principal owners, John and Timothy Rigas, were sent to prison on fraud charges. The next plan, announced in 2004, was to commit $66 million in public money to entice hunting and fishing retailer Bass Pro Shops to build a 250,000 square foot outlet in downtown Buffalo. Advocates of the plan claimed that the store would bring 3 to 5 million people per year downtown and anchor an “economic revitalization.” Nearly five years later, despite the commitment of tens of millions in taxpayer dollars, Bass Pro has not materialized. Equally ridiculous schemes have been hatched in Rochester. Several years ago, city leaders somehow became convinced that residents of Toronto, a city of 5 million with major league sports, theater, and world-class restaurants, were just beside themselves with desire to come to Rochester, a city of 219,000 with minor-league sports and way off-Broadway entertainment. They solicited bids for companies to run a ferry operation across Lake Ontario, and guaranteed sums of public money to construct harbor facilities for the project. The ferry was launched in June 2004 — and went bankrupt by September. The chagrined leaders of the city then decided to use tax dollars to purchase the ferry at a bankruptcy auction for $32.5 million, and contracted with another company to operate the vessel. The project went belly-up for a second time in 2005, forcing the city to sell the vessel at a loss, and pay millions to fulfill other financial commitments related to the ferry. More recently, a plan was announced in 2007 to commit $50 million in state funds to demolish existing structures in downtown Rochester, which would enable PAETEC Co., a telecommunications firm, to move its headquarters about 10 miles from suburban Fairport to downtown. But by 2008 PAETEC’s stock dropped below $1 per share, and the company announced that it was losing millions and would cut more than 200 jobs, putting its new office building plans on hold. Even the highly-touted “green energy” is present here: Niagara Falls has produced “green energy” for over 100 years, but it’s heyday is long past. Today, hundreds of wind turbines dot the hills of rural Wyoming County, but they are not a significant source of either jobs or industry. Despite these repeated gimmicks to stimulate economic growth, the private sector here has failed to prosper, taxes remain astronomical, and the public “votes with its feet.” In 2008, Forbes magazine listed Buffalo as one of the top 10 “fastest dying cities.” Glaeser argued that decades of public spending — on office towers, sports arenas, urban renewal, and the light rail system — failed to halt Buffalo’s population decline from a high of 585,000 in 1950 to under 290,000 today. The surrounding area has not fared much better; census data shows that the Buffalo-Niagara Metropolitan Statistical Area lost 51,000 people since 2000. Ditto for Rochester; the city’s population fell from 328,000 in 1930 to 219,000 in 2000. People who leave the area tend to head for the low-tax, pro-growth, right-to-work states of the Sun Belt, especially Texas,North Carolina and Florida. But at least the people have someplace to go. If the Obama “stimulus” program replicates the same kind of heavy-handed political agenda and tax policies found in Western New York on a nationwide basis, where will the people go then?

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