Zack Hutchins
Director of Communications

For Release — November 29, 1999

Reforming State Mandates for Medicaid, Construction, Other Programs Could Save Taxpayers $5 Billion a Year, Study Says

ALBANY— Local taxes in New York State—far and away the highest in the nation—could be cut by at least $5 billion a year if Governor Pataki and the Legislature reform costly state mandates on municipalities and school districts, a new book from The Public Policy Institute of New York State says.

Relieving local officials of the red tape created by state mandates would improve education and other vital public services, the Institute says in its book, The $163 Lightbulb: How Albany's Mandates Drive Up Your Local Taxes.

"State government's approach to municipalities and school districts has remained the same as its traditional approach to businesses: Impose heavy costs, stifle innovation with bureaucratic red tape, and ignore the damage that well-intended policies from Albany create out in the real world," the Institute says. "In effect, Albany treats local government officials—and, by extension, the voters who elect them—as errant stepchildren who can't be trusted to do the right thing. It's time for a change."

The book by Robert B. Ward, director of research for the Institute, is the product of a year-long study. The Institute's researchers met with local government and school leaders around the state to seek their ideas on which mandates are most costly to taxpayers, and most damaging to public services. The Institute is the research affiliate of The Business Council of New York State Inc.

"New York jobs, particularly Upstate, depend on reducing the mandate burden," the new book says. "Local taxes in New York are the highest in the nation, by far, and more than double the national average. Those taxes make it harder for businesses to create jobs here, and they drive residents to move away in search of opportunity."

Enacting mandate relief sufficient to reduce local taxes by $5 billion could generate an additional 225,000 jobs across the state, the Institute says.

"New York's new generation of political leadership is sympathetic to the problems caused by oppressive state mandates," the book says. "Governor Pataki and the Legislature have enacted some measures that have cut costs for local taxpayers, mainly in the social services programs that are partly funded by county governments and New York City."

However, it adds: "The progress has left untouched most of the state mandates that make local government services both more costly and less effective."

And there are still troubling signs that leaders in Albany see no need to reduce taxes at the local level, the Institute says. Fully 70 members of the Assembly have filed bills that would make the state's prevailing-wage rules more costly and complex, and other lawmakers have introduced proposals to increase local utility or other taxes.

The title of the book refers to a case in which prevailing-wage rules forced one city to pay a contractor $163 to change a bulb in a traffic light.

The $163 Lightbulb outlines these ideas to cut government costs and improve public services: 

Medicaid and other social services

County property taxes across the state could be cut by two-thirds or more through reform of New York's "overwhelmingly expensive social service mandates," the Institute says. The book identifies "sensible reforms," such as reducing Medicaid costs and eliminating overlapping administration, to cut social-services expenditures by $2.3 billion a year. Such savings would also allow major tax cuts in New York City.

"Sensible reform does not mean slash-and-burn dismantling of taxpayer-funded medical care, as the pro-spending establishment says whenever any cost savings are proposed," the Institute says. Local-government costs for social services in New York are now 286 percent above the national average—more than double the cost in any other state except California. The book's proposals would reduce that level to roughly 186 percent above, or nearly three times, the average of all states.

Studies in Monroe County, Erie County and other communities have found that property taxes could be cut sharply if social-service costs were reduced to the levels of those in competing states. "Clearly, that could make a big difference in the competition for jobs," the Institute says.

The social-services burden on New Yorkers' local taxes is not because state government's share of the cost is low; Albany's own spending on social services is higher than the combined state-and-local costs in 44 other states. State leaders have imposed high costs on counties and New York City because the overall costs of Medicaid, welfare and related programs are out of control in the Empire State, the Institute says.

Governor Pataki and the Legislature achieved some success in reducing Medicaid costs in 1995, the Institute says. However, the 1999 legislative session "represented a step backward," it says. Counties, New York City and the state itself were forced to pay additional costs of $134 million when cost-saving reforms temporarily expired during negotiations on the 1999-2000 budget.

"It's essential for both state leaders and those at the local level to keep in mind the only real solution to the Medicaid problem: Cut the cost," the book says. "Cost-shifting is not the answer."

The Institute estimates that administrative restructuring alone could reduce Medicaid and welfare costs statewide by $500 million or so. It cites previous studies by respected organizations such as the Office of the State Comptroller, the Citizens Budget Commission in New York City, and the Center for Governmental Research in Rochester for the estimate.

State leaders have an immediate opportunity to reduce Medicaid costs by hundreds of millions of dollars, by reducing the "temporary" health-care taxes imposed by the Health Care Reform Act of 1996. The Medicaid program pays more than $800 million a year for graduate medical education; about half the doctors trained with funding from New York taxpayers leave the state to practice elsewhere. The Legislature is expected to consider the HCRA taxes during a special session in December.

The book's suggestions for other sensible reforms in social services include requiring middle- and upper-income families to pay more of their own costs for nursing homes and other long-term care.

"Reforming Medicaid will not be easy," the Institute says. "The health-care lobby in Albany is well-funded, and it's simple to portray cost-saving reforms as mean-spirited and hard-hearted attacks on Mom and Grandma." Yet enacting such reforms, the book says, would not only allow reduction in high local taxes—it would help solve future state government budget gaps that Comptroller McCall projects at $4.6 billion.

Improving New York's public schools

Interference from Albany means that school leaders have too little authority to allocate resources of money and teachers' time, and to make sure that teachers and administrators are qualified and committed to excellence, the book says.

"While school districts in New York spend far more than those elsewhere, school resources are still finite," it says. "Locally appointed school boards, and their appointees who run the schools, face daunting restrictions on how they use those dollars."

The Triborough Amendment to the state's Taylor Law requires that all salaries and benefits, including salary increments, continue after a union contract has expired—a provision that is unique to New York. In one case, unionized teachers refused to agree to a new contract for six years, starting in 1992. For that entire period, the school district was forced to continue paying salary increases averaging 3 percent a year, while employees negotiated nothing in return. Health-insurance premiums rose by $2,300 a year per employee over the same period; taxpayers were forced to pay every dollar.

"Perhaps the district could have used those dollars to hire more teachers, to purchase new textbooks, to reduce taxes, or for any number of other purposes," the Institute says. "The Triborough Amendment mandate from state leaders in Albany took that decision out of the hands of the locally elected school board members."

The book also argues for reforming tenure laws, to make sure that school principals and teachers—not only students—are held to higher standards.

Tenured teachers in New York can be removed through a hearing process that is so complex and costly for school districts, only a fraction of 1 percent of public school teachers statewide go through it annually. The book says an American Federation of Teachers survey of its members found that some 5 percent of teachers nationwide are rated "poor" by their peers.

The Institute also suggests consideration of reforms to special education, as proposed by Governor Pataki and the Board of Regents. And the book quotes one school official who suggested Albany "make every school a charter school," by freeing all public schools from the costly and counterproductive mandates enacted in recent decades.

Reforming public construction


"Of all the costly mandates the Legislature has imposed on localities, one of the most frequently criticized is the law that, in effect, forces local officials to pay union wages for construction projects of any size," the Institute says.

Albany's laws and rules regarding "prevailing" wages were the subject of complaints from municipal and school leaders during virtually every one of the Institute's forums around the state. One city official told of having to pay a contractor $163 to change a traffic light bulb (leading to the title of the new book), as a result of prevailing-wage requirements. The Village of Johnson City, Broome County, saw the cost of a new library roof rise from $9,800 to more than $20,000 because of prevailing wages.

Federal laws, and those in many other states, result in prevailing wages being imposed throughout the country. But New York's law is regarded as among the worst anywhere, the Institute says.

The book says state leaders could consider reforms such as exempting all projects below a certain cost; and defining the "locality" in which prevailing wages are to be found, rather than including entire regions covered by union contracts.

Rewriting prevailing-wage rules, and reforming the Wicks Law as Governor Pataki has proposed, could reduce the cost of public construction statewide by $1 billion or more a year, the Institute says.

Liability laws hurt taxpayers

In the town of Clifton Park, Saratoga County, a volunteer ambulance squad was sued for $5 million because emergency workers spent a few minutes trying to stabilize a patient who had suffered an epileptic seizure, before driving to the hospital. A jury ruled that New York City had to pay more than $100 million in damages to two men who climbed over a railing, jumped off a public pier into shallow water and suffered paralyzing injuries.

New York State's liability laws encourage such suits against municipalities, as well as businesses and other organizations that trial lawyers think of as "deep pockets." Reforming those laws would save taxpayers hundreds of millions of dollars a year, the Institute says.

The book also says state government could create strong incentives for local officials to reduce costs by publishing comparative data on municipal taxes and spending, and by designing aid programs to reward localities that decrease taxpayer costs through competitive contracting.

"The effect of all these changes would be an immediate, major improvement in New York State's competitive standing," the Institute says. "That, in turn would lead to more growth, and more jobs. If there is any mandate that voters have given leaders in Albany, that's it."