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The Public Policy Institute

The Comeback Trail:1998

Section 4

How to institutionalize a stronger New York

In perhaps the most fundamentally important way imaginable, New York State has clearly changed: Our state's leaders now recognize that, as the Public Policy Institute said in The Comeback State four years ago, "It takes employers to provide employment."

That's shown in the bipartisan support for cutting business taxes in two successive gubernatorial election years. It's shown in the 1996 victory for workers' comp reform, even in the face of bitter opposition from the wealthy trial lawyers' lobby. And in the Public Service Commission's decisions to provide the largest electric rate reductions to major industrial plants. And in action on unemployment insurance costs, in a much-improved regulatory climate, and a number of other areas.

Until recent years, New York's political opinion leaders said actions such as those were not important because they amounted to nothing more than doing something "for business." These days, however, enacting tax cuts or other helpful laws "for business" is not reflexively seen as a bad thing.

Having lived through the loss of more than a half-million jobs just a few years ago, New Yorkers—and their elected leaders—have a greater appreciation for what "business" really means. It means jobs, the chance for individuals and families to fulfill their dreams, a chance for our young people to stay in their home state rather than go elsewhere for opportunity, and of course the tax revenues that pay for the schools, parks, health care and other things we need and want.

Completing the turnaround—completing the comeback of New York State—will mean continuing to make this state a better place in which to do business. We've made tremendous progress. But our competitors haven't been standing still, either.

Aside from cutting taxes further, doing more to reduce energy costs and making further progress on other "traditional" business issues, New York's leaders must take action sooner, rather than later, on three major areas. Each of these affects employers directly, but each is much more important than that. And each of these issues will require our elected leaders to overcome deeply entrenched special interests in Albany.

Table 8
Selected Costs For Employers Who Create Jobs, 50 States
State Average Cost Per
Kilowatt-Hour,
Retail Usage, 1997
Employer-Paid Health-Care
Expenditures Per Job, 1994
"Tort Tax": Liability Costs
Per Capita, 1996
Alabama 5.35 $2,529 $461
Alaska NA $3,725 $623
Arizona 7.54 $1,740 $619
Arkansas 6.15 $2,230 $505
California 9.48 $3,646 $574
Colorado 6.05 $2,649 $680
Connecticut 10.53 $3,758 $966
Delaware 6.96 $3,143 $812
Florida 7.16 $2,471 $709
Georgia 6.43 $2,662 $542
Hawaii 12.12 $2,996 $839
Idaho 3.88 $2,235 $462
Illinois 7.69 $3,040 $619
Indiana 5.41 $2,623 $492
Iowa 5.98 $2,316 $489
Kansas 6.52 $2,487 $484
Kentucky 4.03 $2,485 $516
Louisiana 6.06 $2,503 $679
Maine 9.46 $2,645 $470
Maryland 7.35 $3,096 $661
Massachusetts 10.16 $3,197 $802
Michigan 7.11 $3,010 $547
Minnesota 5.54 $2,676 $651
Mississippi 6.01 $2,179 $419
Missouri 6.11 $2,590 $554
Montana 4.72 $2,115 $479
Nebraska NA $2,322 $519
Nevada 5.94 $2,407 $740
New Hampshire 11.57 $2,795 $674
New Jersey 10.5 $3,529 $971
New Mexico 6.76 $2,335 $509
NEW YORK 11.13 $3,631 $787
North Carolina 6.53 $2,511 $536
North Dakota 5.63 $1,979 $443
Ohio 6.3 $2,698 $520
Oklahoma 5.56 $2,518 $488
Oregon 4.69 $2,560 $557
Pennsylvania 7.96 $2,857 $643
Rhode Island 10.48 $2,715 $759
South Carolina 5.67 $2,437 $466
South Dakota 6.18 $1,920 $474
Tennessee 5.24 $2,483 $483
Texas 6.16 $2,777 $635
Utah 5.33 $2,279 $486
Vermont 9.85 $2,578 $555
Virginia 6.09 $2,797 $532
Washington 7.5 $2,868 $590
West Virginia 5.21 $2,398 $623
Wisconsin 5.25 $2,473 $492
Wyoming 4.31 $2,394 $463
U.S. avg. 6.86 $2,622 $616
NY above avg. 62.2% 38.5% 27.8%
Sources: Edison Electric Institute; Tax Foundation/Bureau of Labor Statistics; The Public Policy Institute

The lawsuit explosion

One of the best-financed special interests is the state's trial lawyers, who have been successful at blocking action on one of the biggest long-term issues facing the Empire State: our outmoded liability system.

Again, this is a business issue—and much more.

Taxpayers in New York City are spending nearly $300 million this year to pay liability claims. (Trial lawyers in the city have gone so far as to create a private corporation to keep track of potholes and broken sidewalks, to make lawsuits easier to file.)

Our liability system hurts vital community services, ranging from ambulance companies to youth athletics. In Colonie, outside Albany, a youth baseball league and its volunteer officers were sued for $600,000 by a teen who was not assigned to the team he wanted.

A study by The Public Policy Institute earlier this year found that the lawsuit industry in New York adds some $600 to the cost of having a baby, and $400 a year to the cost of insuring a car. (4)

Municipalities and employers in New York suffer because lawyers often target them as "deep pockets" to pay up to 100 percent of damages in a case where a jury finds a company only 1 percent responsible.

Volunteer organizations, taxpayers, motorists, businesses and others would be better off with real changes such as those endorsed by New Yorkers for Civil Justice Reform. Those changes include eliminating the doctrine of joint-and-several liability, which says a party that has a minor degree of liability can be forced to pay all the damages; limiting non-economic damage awards; and creating a time limit for product liability cases.

Texas Governor George W. Bush has pushed through sweeping reforms in the liability laws of his state, increasingly a key competitor for New York. And he did so in the face of a trial-lawyer lobby that is, if anything, even more boisterous in Texas than in New York. Strong leadership can accomplish the same in New York.

The high cost of state mandates

Another cross-cutting issue, affecting taxpayers as well as the effective operation of our municipal governments and school districts, is that of state mandates. Through numerous mandates, Albany tells counties, cities, school districts and other local units of government what they must do, and how they must do it.

One notorious example is the Wicks Law, which mandates multiple contractors on public construction projects and drives up taxpayers' construction costs by an estimated $400 million a year. (That estimate is several years old, and, especially given the large amount of public construction expected in the next few years, probably significantly understated.) Other, even more harmful mandates include our hugely expensive Medicaid system and other social services-related items; and various labor-related mandates such as the requirement that local governments engage in binding arbitration when police and fire union contract negotiations break down.

The most obvious problem with mandates is their cost, reflected in our local tax bills. Our high property taxes described above could be reduced substantially through a determined attack on mandates.

And other, often even more important, problems arise from the way mandates interfere with government's ability to do a good job. The entire system of public employee labor relations based in the state Taylor Law makes it difficult for public administrators to deploy staff where they are most needed, to fire workers who don't perform, to reward exemplary work, or to do other things that promote efficient services.

The biggest victims in such cases are those who most need effective government services from the police, firefighters, teachers, and others—especially in our cities, which tend to feel the mandate burden more onerously than the suburbs. In other words, the primary victims are not well-off New Yorkers, but the poor and working poor.

Table 9
Percentage Change in State-Funded Welfare Spending,
FY 1996-98
Rank State Percent Change Rank State Percent Change
1 Colorado - 44.5% 26 Vermont - 5.7%
2 North Dakota - 37.5% 27 Virginia - 5.5%
3 Illinois - 33.7% 28 Nevada - 5.2%
4 Wisconsin - 29.3% 29 Arkansas - 4.9%
5 New York - 26.9% 30 Mississippi - 4.5%
6 Oregon - 25.3% 31 Connecticut - 2.5%
7 Michigan - 21.9% 32 Rhode Island - 0.5%
8 Arizona - 21.2% 33 Tennessee - 0.3%
9 Oklahoma - 20.9% 34 Wyoming + 2.5%
10 Montana - 20.3% 35 North Carolina + 3.8%
11 Delaware - 19.4% 36 Missouri + 4.8%
12 Idaho - 19.3% 37 West Virginia + 6.3%
13 Utah - 17.1% 38 Kentucky + 7.4%
14 Texas - 16.6% 39 Kansas + 7.9%
15 New Mexico - 15.3% 40 South Dakota + 11.3%
16 Maryland - 14.3% 41 Louisiana + 11.5%
17 Massachusetts - 13.4% 42 Washington + 19.6%
18 California - 12.4% 43 Minnesota + 26.4%
19 Iowa - 10.3% 44 Hawaii +32.2%
20 Georgia - 10.3% 45 Indiana + 33.4%
21 New Jersey - 8.0% 46 Alabama NA
22 Ohio - 8.0% 47 Alaska NA
23 New Hampshire - 6.9% 48 Florida NA
24 Nebraska - 6.3% 49 Maine NA
25 Pennsylvania - 6.1% 50 South Carolina NA
U.S. overall average: -13.8%
Source: Fiscal Survey of the States, National Association of State Budget Officers

State leaders have proven they can reduce mandated costs for localities. The Budget Division estimates that Medicaid and welfare reforms enacted since 1995 have saved counties and New York City more than $1.3 billion. Counties outside New York City will save an additional $170 million on welfare expenses this year, largely in areas such as income maintenance and foster care and prevention, DOB estimates. Those are dollars that localities can return to local taxpayers, in the form of reduced property taxes. And, indeed, a number of counties have cut property tax rates (although most are still reaping big increases in overall tax revenues as a result of increases in the local sales tax rate, enacted earlier this decade).

New York is a national leader in cutting the cost of welfare, according to a recent report by the National Association of State Budget Officers (see Table 9, preceding page). State-funded welfare spending fell nearly 27 percent from fiscal 1996 to 1998, nearly double the national change. Because welfare costs in New York are split between the state and localities, taxpayer costs declined at the local level, as well.

Mandate relief has not gone further because powerful lobbying groups stand in the way. Binding arbitration and other elements of the Taylor Law exist at the behest of public employee unions. The Wicks Law has survived numerous attempts at repeal because of support from a relatively small group of private-sector unions and contractors. The lack of further reform to our Medicaid system is partly because its long-term care element has come to be considered an entitlement for many in the middle class, and partly because various provider groups strenuously resist any attempt to reduce costs.

Mandates will continue to get in the way of effective public services, and to waste taxpayer dollars, unless our elected leaders make a determined effort to change them.

A third big issue: the workforce

For the long-term success of New York and New Yorkers, nothing is more important than education. We need tomorrow's workers to be even more skilled, more adaptable, and better equipped than today's workers to learn continuously as the workforce changes.

Surveys of employers show clearly that today's schools are failing at this important mission. A Business Council survey earlier this year found that 44 percent of responding employers rated the basic skills of newly hired high-school graduates as "poor" or "very poor."(5) A recent survey sponsored by the New York City Partnership and Chamber of Commerce found even more sobering results regarding the city's schools.

Even more than improving our competitive position, though, we owe it to our kids to make sure that every one has an opportunity for a quality education.

Many of our children are, indeed, so blessed. Others, however, are not. Every year, tens of thousands of children emerge from our public elementary schools poorly grounded in reading — and thus, very likely, cheated of the chance of success in high school, college and the working world. Poor, black and Hispanic kids are hurt especially badly. In 1996, fully 80 percent of sixth-graders in our high-minority schools could not read well enough on their own to fully comprehend a typical sixth-grade textbook. In many (about one-fifth) high-minority schools, 90 percent or more could not do so. (See Table 10.)

We can scarcely think of New York as a great state when we allow so many kids to drift through bad schools, and then to graduate unable to enter a good job or higher education.

Fortunately, Education Commissioner Richard Mills and the Board of Regents are pushing our public schools for real improvement. Those efforts are well-founded and likely to result in a better education, and a better life, for our children in the long run.

And yet, reforms such as strengthening school curricula and requiring that all students pass Regents exams will by necessity take years to be implemented. We can't wait that long. Neither can many students who are in desperate need of a better education now. At some point soon, New York must confront the question of whether the state has a right to force kids to stay in schools that don't perform and don't improve.

Governor Pataki's proposal to create charter schools is one idea that would open the schoolhouse doors and let kids out of failing schools. But both the Senate and Assembly have refused to act on the proposal for two years. And alternative approaches such as use of scholarships for poor students to attend private schools have barely been discussed in Albany.

Both failures are a result of opposition from the education establishment. The state School Boards Association is often the public voice of such opposition. But for many legislators the more important, if lower-profile, player is the state's teacher unions.

Table 10
Sixth-Grade Reading Performance
Public School Results, Pupil Evaluation Program
Percent of Pupils* Scoring at Key Benchmarks
  ABOVE MINIMUM AT "MASTERY" (Grade Level)
  Statewide High-minority** Statewide High-minority**
1990 84% 64% 42% 24%
1991 85% 69% 42% 24%
1992 84% 64% 44% 22%
1993 83% 59% 42% 19%
1994 83% 60% 44% 20%
1995 84% 63% 51% 25%
1996 82% 58% 46% 20%
* Not including pupils with handicaps ** Schools with more than 80% of pupils classified non-white or Hispanic
Source: New York State Department of Education

Competition, which charter schools or private-school scholarships help create, is a proven friend to children who desperately need better schools. In Albany, Giffen Elementary School is starting an intensive new reading program, after years of showing the worst results in the city for teaching children to read. The new program is one of the major changes implemented at the school after a private philanthropist offered scholarships for Giffen students to attend private or parochial schools.

Charter schools and other alternatives to failing public schools are growing fast in other states; for instance, California enacted legislation this year to increase the number of charter schools by 100. Someday, the recognition that another generation of poor, minority kids is being lost will force action in New York. With good fortune and genuine commitment from our elected leaders, that day should come soon.

Better training for our existing workforce

As our economy improves, a high-skilled workforce becomes an ever-higher priority. When business executives decide that New York can now compete on taxes and other costs, we want to make sure they can find the workers they need.

A new federal law makes it especially urgent that we figure out what we want from our workforce development system—starting with a strong emphasis on industry and employer-specific training. The new federal law, and New York's existing web of often confusing training programs, should provide substantial funding for this pressing need.

Funding for such training should be easily accessible to employers; available for training providers chosen by the employer; and viewed (and designed) in the context of economic development.

Assemblyman Robin Schimminger and fellow legislators pushed for $10 million in this year's state budget for such training, with strong support from employers around the state. The funding was vetoed as part of the Governor's overall effort to restrain new spending. Employers are likely to support such funding again in the coming year.

Don't bash business

Not long ago, state government was dominated by an attitude of suspicion, often downright hostility, to business. This led to all kinds of business-bashing policies: tax hikes, regulatory nightmares, new fees and forms, and mandates that employers do this, that and the other thing unrelated to their real work of making a profit and creating jobs.

The departure of that attitude, at least from the top levels of government in Albany, is one reason we now see major increases in business investment and hundreds of thousands of new jobs.

But we need to be vigilant, still. This past legislative session, for instance, The Business Council fought off a number of measures that would have created new avenues for lawsuits. Another proposal would have required all employers to conduct new studies, implement new policies and begin new worker training related to the possibility of violence in the workplace. Every employer would have had to spend precious dollars and hours on a problem that few will ever face (and in ways that would probably have little effect on the problem anyway).

The new generation of political leadership in Albany understands that it's okay—even worth bragging about—to do things that help employers thrive here. These officials accept the most basic economic verity: It takes employers to provide employment. Electoral candidates, who occasionally face pressure from special-interest groups to attack "rich corporations" (do we want businesses to be able to make a profit in New York, or don't we?), must understand that as well.

And tell the world we're changing

A few months ago, a major manufacturer was considering expanding its operations, in New York or elsewhere. Company executives hired a top corporate site-selection firm to provide expert advice.

Shortly afterward, the executives learned that the consulting firm was unaware of the major tax cuts New York's leaders have enacted in recent years—obviously an important, potentially decisive, factor in the company's deliberations.

If site-location consultants don't know about the changes underway in the Empire State, it's no surprise that many others don't, either. After years of anti-business attitudes and policies in Albany, the news that things have changed will take time to be heard everywhere we need it to be heard. And it will take clear, insistent communications.

A national advertising campaign funded at, say, $10 million would be a great help. That would represent a significant addition to the state's economic development budget, to be sure. But it would be well worth the investment. It would help ensure that those who make decisions affecting billions of dollars in capital know New York is now open for business.

We've made a lot of progress. We need much more.

The progress New York has made in the last few years is truly dramatic. From cutting taxes sharply, to reinventing regulation, to enacting major reductions in the cost of creating a job—the sum of these steps is almost more than we could have hoped for just a few years ago.

And our economy has responded to the changes. We're producing more jobs, seeing more business investment, and making it possible for more New Yorkers to stay New Yorkers. And yet, because we started so deep in the valley, we're not yet to the mountaintop.

We can get there. We can make New York the comeback state. We can start the 21st Century as we began the 20th, the leader in new opportunity among the states.

It's up to our elected leaders, and the people, to see that it happens.


4. 'An Accident and a Dream': How the Lawsuit Lottery Is Distorting Justice, and Costing New Yorkers Billions of Dollars Every Year. March 1998.

5. They were much happier, however, with the quality of students recruited from community colleges and four-year colleges. This illustrates again the strength of New York's system of higher education—and the importance of protecting it.

         

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