Overview

A State in Disarray

A tour of colonial New York soon after the Revolutionary War is said to have inspired George Washington to describe the nascent state as the “Seat of Empire.”[1] For much of the next two centuries, the Empire State would more than live up to his assessment and would have few serious rivals in global commerce, finance, and manufacturing. Nurturing new enterprise and creating millions of new jobs, New York was truly an economic empire unto itself.

More recently, however, the New York State economy has been far from imperial. Between 1979 and 2004—a period that saw two sustained U.S. economic booms—New York created new jobs at less than half the national pace,[2] underperforming even the “old and cold” states of the upper Midwest.[3] New York’s share of total U.S. personal income dropped by nearly 10 percent during the same period, and its share of all states’ economic output dropped by 12 percent.[4]

New Yorkers, lured by more lucrative opportunities elsewhere, have been voting with their feet: from 1995 to 2004, New York lost nearly 1.7 million residents to other states.[5] New York’s rate of outmigration was well over the northeast region’s average and the worst of any state from 2000 to 2004, according to census estimates.[6] An influx of foreign immigrants and their higher birthrates have kept New York’s total population from dropping, but the relative loss of residents to the rest of the U.S. has been severe enough to cost the state ten congressional seats since 1980.[7]

A microcosm of New York’s economic and policy woes can be found in Buffalo, the once-great industrial city on the shore of Lake Erie. Not long ago, Buffalo was a vibrant symbol of America’s industrial urban might, with thousands of productive and well-paid factory workers helping to shape steel, cars, and the nation’s image as an industrial powerhouse. Buffalo today is peppered with shuttered and decaying factories. The city and the surrounding western New York region are losing jobs and people at an alarming pace. In just three years, from 2000 to 2003, as the nation’s population grew by about half a percent, Erie County’s population shrank by 4.25 percent, or more than 40,000 residents.[8] The region has also suffered steep job losses over many years. From 1990 through 2004, the Buffalo-Niagara region actually lost jobs, with a growth rate of -0.1 percent; the nation, during the same period, added jobs at a rate of 20.1 percent.[9]

But these problems are not confined to the upstate region. While Mayor Michael Bloomberg “touts gains in real-estate prices . . . and increases in tax revenues as signs of economic life, the real truth is that New York [City] is no longer a cauldron of economic opportunity.” [10] The city’s once-mighty manufacturing sector “has shrunk beyond recognition”; Gotham shed jobs in construction, advertising, management consulting, and computer services even during the supposed “recovery” year of 2003.[11]

In the Big Apple, as in most of upstate New York, most of what passes for private-sector job growth in recent years has been concentrated in the heavily tax-subsidized health-care and social-services industries—which don’t create wealth but merely redistribute it.[12]

Of course, long-settled regions in states across the Northeast and midwestern Rust Belt have been affected by similar problems in the last several decades. But to a significant degree, as reflected by economic and demographic statistics, the problems of New York have been far worse than average. There’s something else at work here—something that drags down these already vulnerable regions like an anchor.

That something is, in a word, government. New York’s political class spends, taxes, and borrows far more than the national average, consistently ranking at or near the top of the list in every measure of the burden that government imposes on citizens and businesses.

Empire State government has become an industry run for the benefit of the few rather than in service to the many. This monolithic industry churns relentlessly in Albany to preserve and expand its power over New York’s economy and citizens. Efforts to reduce the swelling in New York’s government sector are fiercely resisted by the powerful interest groups—especially public-sector unions, trial lawyers, healthcare providers, and other state-subsidized industries—that have become most adept at gaming the system in Albany. These groups exert influence in Albany the old-fashioned way: they buy it, through tens of millions of dollars in campaign contributions and lobbying expenditures during every two-year legislative election and session cycle. Huge favors, ranging from direct subsidies to regulatory preferences, flow to the biggest contributors. Close former associates and relatives of powerful officeholders openly trade on their relationships, and the pols themselves reciprocate by embracing special-interest agendas—all lending credence to the impression that lawmaking in the state capital is strictly a pay-to-play game.[13]

These political realities help explain why New York’s state government does so little to address the obvious need for reform. New York’s decline has been enabled, if not accelerated, by a dysfunctional state legislature that asks rank-and-file members to do little, leaves them plenty of time to conduct their political fund-raisers,[14] and—thanks to ubiquitous gerrymandering—rarely subjects them to truly competitive election campaigns.[15]

There is a limit to what New Yorkers will put up with, as Buffalo-area politicians are learning. Reeling under the burden of continued high spending on schools and local governments, residents of Erie County in early 2005 erupted in a full-fledged taxpayer revolt pitting “taxpayers versus tax-eaters.”[16] Through talk radio, the Internet, and newspaper editorial pages, taxpayers forcefully said no to a proposed increase in the county sales taxes—and local politicians retreated, forcing the county instead to make massive spending cuts in county employment and services.

Unfortunately, just as occurred in New York City in the mid-1970s, the largest city and county in upstate New York had to be virtually bankrupt before citizens and local leaders awoke to the real source of the problem. The entire state could face the same fate unless more is done to disrupt the cozy deals that grease the wheels of “Albany, Inc.”

New Yorkers Speak Out—and Move Out More and more New Yorkers are showing mounting frustration with New York’s rising taxes and spending as well as with its sluggish growth in employment and population. Typical is a complaint from C. J. Wilson of Pompey, in Onondaga County: “Every raise I get at work is eaten up by taxes,” Wilson said when asked about a significant school-tax hike. “I cannot easily afford a $100+ increase per month in taxes.”[17] David Lum of Pittsford, in Monroe County, connects the dots between New York’s mounting tax burden and lackluster job growth: “The lack of jobs hurts not only the unemployed but also means higher taxes for those who are employed. These higher taxes (the highest in the nation) drive out existing businesses and halt the move-in of potential employers.”[18] Others decry the role of special interests in undermining New York’s prosperity. “The party politicians, along with the unions, lobbyists and special interests, have decimated the economy and population of Western New York. The status quo doesn’t work. It’s a failure,” says Bill Stetz of Elma, in Erie County.[19] High taxes leave more than a few New Yorkers feeling trapped. “This is . . . the worst-run state in the nation,” declared Ellen J. Manthey of Erie County’s Williamsville. “If I could move I would, and anyone under 50 who stays here will not prosper. Their discretionary money will be eaten by high taxes.”[20] And young people do leave. Michael Krajewski of Amherst urges: “We need to keep [the] highly trained graduates of the area’s universities.”[21] In May 2005, Terrence Davignon of Utica announced his plans to move to Virginia. “My 34-year-old daughter and [her] husband moved to a development south of Richmond rated the 17th-best place to live in the nation,” he said. “Their property taxes are half what they paid in Cazenovia [in Madison County] on a similar half-million-dollar home.”[22] Tami Hasbrouck found “a different world” after she followed many other New Yorkers across the border to Pike County, Pennsylvania. She was a lifelong Orange County resident until her modest Middletown home proved too small for a family of five. Her family’s new house in Shohola, Pennsylvania, is twice as big—with significantly lower property taxes. “We never could’ve built this over there,” she says. “The taxes alone would have killed us.”[23]

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1. Peter Eisenstadt, editor in chief, The Encyclopedia of New York State, Syracuse University Press, 2005, p. 502.
2. Total nonagricultural payroll jobs data from U.S. Department of Labor, Bureau of Labor Statistics, available at www.bls.gov.
3. Ibid.
4. Based on personal income and gross state product data as reported by the U.S. Department of Commerce, Bureau of Economic Analysis and available at http://www.bea.gov.
5. U.S. Census Bureau data obtained from http://factfinder.census.gov.
6. Data from U.S. Census Bureau, Table 4: Cumulative Estimates of the Components of Population Change for the United States and States: April 1, 2000, to July 1, 2004, available at
http://www.census.gov/popest/states/NST-comp-chg.html. Rate of outmigration for each state calculated as net internal migration from 2000 to 2004 divided by total population as in
the base year of 2000.
7. U.S. Census Bureau data obtained from http://factfinder.census.gov.
8. Ibid.
9. U.S. Bureau of Labor Statistics data cited by the Public Policy Institute of New York State at http://www.upstateblog.net/upstate_jobs.pdf.
10. Steven Malanga, “Gotham Stalls Out,” City Journal, Summer 2005.
11. Ibid.
12. Ibid.
13. See a list of the state’s top ten spenders on lobbying, available at www.nylobby.state.ny.us/app_grev.html. Of the top ten, three are hospital interests, one is a teachers’ union, and one is the trial lawyers’ lobby.
14. “PAC-ing It In: Political Action Committees’ Contributions in New York State 2004,” a report from Citizens Union, Common Cause/NY, the League of Women Voters/NYS, and the New York Public Interest Research Group, April 2005, p. 1. Report is available at http://www.nypirg.org/goodgov/pacreport.html.
15. E. J. McMahon Jr., “Albany Has Plenty Left to Repair,” Syracuse Post-Standard op-ed, April 19, 2005.
16. Steven Malanga, “Taxpayers Revolt,” New York Sun, February 23, 2005.
17. “Fabius-Pompey voters had it up to here,” Syracuse Post-Standard letter to the editor, May 22, 2005.
18. “Ask lawmakers why jobs are scarce here,” letter to the editor, May 20, 2005, Rochester Democrat and Chronicle, available at http://www.democratandchronicle.com/apps/pbcs.dll/article?AID=/20050520/OPINION03/505200380/1040/OPINION.
19. “Failing governments are a widespread problem,” Buffalo News letter to the editor, May 10, 2005.
20. “There’s no such thing as a temporary tax here,” ibid., June 26, 2005.
21. “Leaders must step up efforts to attract jobs to Erie County,” Buffalo News letter to the editor, May 11, 2005.
22. “Red state a more appealing place to live,” Utica Observer-Dispatch letter to the editor, May 26, 2005.
23.“Promised Land Waits Just Down I-84,” Middletown Times Herald-Record, February 13, 2005.