It is time to talk common sense about New York State and New York City -- two big issuers who are always in the news, and whose fortunes right now seem worse than most in the municipal market.
And if readers say they don't care, because it's New York, then they don't care about most issuers who get into trouble, because the problems of the state and the city are the same problems most issuers are facing, writ large, of course. New York never takes halfway measures.
Putting aside for the moment liberal and conservative jeering, New York State right now faces a sizable deficit. Let's call it $1 billion for the current fiscal year and another $3 billion next. The state also is in some political disarray, with legislators and Gov. Mario Cuomo, who may or may not be running for President, at loggerheads.
Simply stated, New York's revenues and expenditures are not in line, in a big way, and they have not been for some time now. To redress the situation, the state has typically resorted to one-shot revenue raising measures, a spring note borrowing, ever-higher taxes, and overestimations of tax revenues. This is what is happening, and this is all that is happening.
Yet there seems to be a peculiar leitmotif of hysteria right now, as some observers question whether the state and its politicians have the will to make politically unpopular spending cuts. Others even see default in the cards.
Judging from the comments of some observers, in fact, one would swear that New York will either somehow explode, grind to a halt, or sink into the Atlantic. In fact, however, the things we are hearing about New York now are pretty much the things we heard about Massachusetts just two years ago.
And of course, none of those things happened to Massachusetts. What is happening in Massachusetts, and what will happen in New York, as difficult as it is to believe, is that traditional liberal redistribution of income will have to stop -- at least for now.
If its citizens are at all lucky, the state will return to what James Grant, editor of Grant's Interest Rate Observer, has called the doctrines of creditworthiness: liquidity and individual responsibility. I may not bet on this, but at some point, the elected officials will have to realize what Paul Cellucci, the lieutenant governor of Massachusetts, said recently: "Government is not the engine that drives the economy."
The last thing New York needs now is ideologues spouting syllogisms, or partisan posturing, or union leaders vowing to shut the place down if they don't get their way. Nor does it need reformers and saviors shouting about "sweeping reforms" and "massive restructuring."
The things it needs most are, it turns out, conciliators. As William Bulger, president of the Massachusetts Senate, said at the Municipal Bond Investors Assurance Corp.'s recent conference, "The timely payment of the Commonwealth's debt transcends all political considerations."
Tone Down the Battle
The message the credit markets were sending Massachusetts -- with downgrade chasing downgrade and interest rates rising on new debt offerings all the time -- was that the state's pols must show a united front and tone down the battle, he said.
Ponder this. And then consider that New York's state budget was 50 days late this year.
It is a fairly easy matter to spell out exactly where New York cut, and what New York must do. Here is what Gov. William Weld said of Massachusetts when he took office in January: "We've outdone ourselves in an attempt to be the most generous state in the nation. I think we've gone beyond providing for the needy, down on their luck, to the notion that human services benefits have become a middle-class entitlement."
One can crack numbers any which way to prove a point. But the fact is that New York's budget over the past decade grew more than 100% at the same time that inflation grew by something like 30%. In the words of the Wall Street Journal, other urban states share many of the same problems as New York, but "they don't seem to have New York's impulse to lavish public money on them."
I wrote an article in Barron's on the subject of Massachusetts's comeback, in April. The long-term solution, I said then, was to cut the size of government and make some reforms in that state's tax system. "The inevitable result will be the scaling back of the state's welfare programs, as well as a fundamental cut in subsidies that go to the middle class."
In that article, I cited a study of Massachusetts by John Nuveen & Co., suggesting that the real reason for the state's fiscal woes was over-centralization of power at the state level.
"It could be argued that lower levels of governments everywhere in the U.S. are in financial trouble because politically ambitious state governments, like the federal government itself, refuse to treat lower levels of democratically elected government like equal partners in public sector management. The power to tax, it seems, remains the power to spend."
As with Massachusetts, so with New York state. And so, too, with New York City. The latest issue of NY The City Magazine, discusses how to save the city, and comes to pretty much the same conclusions.
One article of interest to readers of this publication, "Where the Money Goes" concludes that the city "is in a class by itsel in its level of municipal spending" -- not for the public services that make any city livable, but primarily for welfare and Medicaid. "New York's excessive spending $3,000 per capital compared to around $2,000 for 10 other cities] is due almost entirely to the simple fact that, alone among the cities studied, New York City has undertaken to run its own welfare state."
As the editor of the magazine points out in a piece titled, "How to Save the City," people have to remember "that the list of important jobs city government can do is fairly short."
Cynics will argue, and they must, that in flush times, issuers spend like mad, and in lean times, they are forced to cut back. In boom times, they return to fiscal irresponsibility. And they may be right. But if New York, the city and state, is to tap the credit markets, it must shake off the perception that its government is broken down and paralyzed and instead is making a serious effort to cut spending.