Politics & Policy

The Return of George I

New York's governor is pro-growth again!

Given his Rockefeller Lite persona in recent years, no one would have been surprised if New York’s Governor George E. Pataki had responded to a looming fiscal crisis with a round of tax increases — if not on the scale of Democrat Gray Davis’s gargantuan $8 billion hike in California, then something like Republican John Rowland’s soak-the-rich surcharge in Connecticut.

Instead, faced with a record $12 billion shortfall at the outset of his third term, Pataki is now promising to stick with scheduled tax cuts and avoid any “job-killing” tax increases in his 2003-04 budget, which will be released next week. It’s enough to make conservatives recall the airport scene from Casablanca — the part where a gratified Paul Heinreid tells Humphrey Bogart, “Welcome back to the fight.”

In a speech to civic leaders in Manhattan last week, Pataki laid out the pro-growth vision that he said would guide his next budget (which is due for release on Jan. 29).

“If New York’s tax burden increases relative to other states, businesses and jobs will flow out of New York,” he said. “It’s what happened before.

“Let other states take that path. Let us choose jobs. Let us choose growth.”

This was reminiscent of the original George Pataki — the fiscal reformer who vanquished liberal icon Mario Cuomo in 1994 and responded to a $5 billion budget gap by reducing spending and initiating the largest tax cuts of any state. Not by coincidence, New York’s lagging economy came back to life, caught up with the national expansion, and actually exceeded the nation’s job growth rate at the end of the decade.

Once prosperity returned to the Empire State, however, Pataki took the same wrong turn as many of his Republican counterparts throughout the country — lurching to the left, turning on the spending spigot, and expanding the sort of costly entitlement programs he had previously criticized. The result is a budget gap more than twice as big as the one Pataki inherited from Cuomo.

Granted, New York faced unique challenges in the wake of 9/11, but the situation never should have gotten this bad. Even while increasing spending by 25 percent between state fiscal years 1997 and 2001, Pataki had piled up a $3 billion surplus that could have cushioned the combined blows of the stock-market collapse and the destruction of the World Trade Center. Instead, looking ahead to his third reelection campaign, he took the politically safe course — plundering the state’s reserves virtually overnight in order to maintain a further spending hike of 12 percent during the past two fiscal years, despite the recession and terrorist attacks.

Something’s got to give — and Pataki, at long last, seems to know it.

“I recognize what we have to do will be extremely difficult,” Pataki said this week. “It will require cuts in some of our most precious programs and projects — many of which I have championed personally.”

Presumably this means the governor is willing to reverse the Medicaid and health-care spending boom that his own policies have fueled, including a sweetheart deal reached just a year ago this week with the powerful boss of dominant New York health-care workers’ union, Dennis Rivera (who repaid the favor by backing Pataki’s reelection effort).

A further downsizing of the state workforce, which Pataki reduced in his first term, is surely in the cards. But with two-thirds of the state funds budget committed to local assistance, there¹s no way he can avoid deeply cutting popular programs — including aid to New York’s exceedingly well-funded public-school districts.

Pataki’s anti-tax pronouncements have carefully avoided a “read-my-lips” pledge, and his credibility will be undermined if he violates the spirit of his pro-growth agenda by proposing stealth tax increases. And if, as expected, he also rolls out an array of short-term fiscal gimmicks — such as multi-billion bond issue backed by tobacco settlement revenues — he’ll need to demonstrate that it’s all part of a multi-year plan to bring recurring spending into line with revenues, and not just setting the stage for another big budget gap in 2004-05.

Pataki no doubt remembers what happened the last time he proposed significant spending reductions — the angry demonstrations at the state capitol, the drumbeat of negative media coverage, the multimillion-dollar advertising campaigns attacking him personally, and the steep plunge in his poll ratings. This year will, if anything, be even worse — in no small part because he will need to cut spending on initiatives he either created or expanded and then took credit for in last year’s campaign. But he would do well to also recall the upshot of his previous efforts — the political storm blew over within a couple of years, the sun rose again, and the state was stronger than it had been in years — both economically and fiscally.

Pataki’s pro-growth rhetoric stands in contrast to what many of his fellow governors, Republicans and Democrats, are saying and doing. If his commitment to growth matches the quality of that rhetoric, it will be worthy of emulation across the country.

— E. J. McMahon is senior fellow for tax and budgetary studies at the Manhattan Institute.


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