NRPLUS MEMBER ARTICLE W ith the debate over additional epidemic aid to the states simmering, Florida senator Rick Scott and New York governor Andrew Cuomo are taking a special interest in one another.
Senator Scott used to be Governor Scott. He took office in Florida in 2011, three days after Cuomo did in New York. The two states had a lot in common at the time: Both had been hammered by the financial crisis, both had lost a lot of jobs during that crisis, and—this part is sometimes forgotten—both had seen significant numbers of residents moving elsewhere.
After having led the country in net domestic migration (meaning people moving from one part of the United States to another) for years, Florida had slipped behind Texas in 2006—and by 2008, it was losing population to other states. Both New York and Florida began to make modest population recoveries in 2010, but New York’s petered out. Between 2010 and 2019, its net domestic migration decline was almost 1.4 million people. Florida has kept growing. It surpassed New York as the third-most-populous state in 2014. New York is probably going to lose a House seat after the next census; it already is losing part of its tax base to Florida, as even Governor Cuomo has been forced to admit.
How bad is it? New York officials currently are scrutinizing dentists’ records and veterinarians’ bills to make sure that former New Yorkers who have relocated to Florida aren’t exceeding their quota of New York days. “If you’re a high earner in New York and you move to Florida, your chances of a residency audit are 100 percent,” Barry Horowitz of WithumSmith+Brown, an accounting firm, told CNBC.
Who wouldn’t want to sign up for that?
New York has a very lopsided tax system, with 1 percent of taxpayers coughing up almost half of the state’s income-tax revenue. Every time New York loses a Carl Icahn to Florida, the state treasury feels the pinch.
Florida is happy to have New York’s former taxpayers. And New York’s former taxpayers have reason to be happy in Florida.
“Look at Cuomo and me,” says Senator Scott. “We were elected at the same time. I went about trying to recruit companies and people to move to Florida. We had lost 832,000 jobs in four years. I went to New York to recruit companies, and Cuomo was livid. At first, the reaction was, ‘Nobody’s moving.’ By the time I left, people were moving in in droves. Why? New York’s budget is almost double Florida’s, but it has 2 million less people.” (If you want a flash fact-check: New York State’s budget in 2019 was $176 billion for 19.5 million people; Florida’s was $91 billion for 21.5 million people.) “People move out of New York because they’re sick and tired of the taxes, and now, instead of trying to control his budget, Cuomo wants Florida to pay extra.”
It wasn’t just New York. As governor, Scott says he was tempted to put up billboards taunting California’s governor at the time, Jerry Brown: “Same haircut. Lower taxes. Move to Florida.”
Florida Republicans believe, with good reason, that they have done a pretty good job of things and made a lot of those “hard choices” that Rick Scott talks about. Theirs has not been a perfect record, by any means. But compared to what’s been going on in Albany or Trenton, the ladies and gentlemen down in Tallahassee have done pretty good work. They are subtropical ants to Aesop’s grasshoppers up in New York and New Jersey.
Following up on the first pandemic aid package for the states, Nancy Pelosi now wants to push through another multi-trillion-dollar aid package, one that would include almost $1 trillion in unrestricted cash. Governor Cuomo would very much like to see that happen. Senator Scott is stepping on it. The latest House bill has been described as DOA by Senate Republicans, but Senator Scott also is blocking a vote on a bill from fellow Republican John Kennedy of Louisiana that would lift restrictions on money already appropriated for state aid, allowing the states to use that money for general operating expenses. That is of great interest to leaders in certain mostly Democratic-run states such as California, New York, and Illinois (and Kentucky), which have hundreds of billions of dollars in unfunded liabilities for government workers’ pension plans. The total unfunded pension liability for the states is estimated at $1.5 trillion.
“Pensions are driving a lot of this,” Senator Scott says. “[States] don’t want to raise taxes. They don’t want to make tough choices. Businesses have to do it. You have to. Families have to watch their budgets — but not the states.”
Governor Cuomo, for his part, has attempted to resurrect the old canard about the so-called blue states subsidizing the red ones, as measured by tax receipts vs. federal expenditures. “They’re not bailing us out,” Cuomo said of Florida and Rick Scott. “We bail them out every year.”
This is a cherished Democratic talking point, but it is not quite true.
The largest per-capita net-recipient states at the moment are Democratic states: Virginia, Kentucky, and New Mexico. The biggest “donor” states are Democratic, too: Connecticut, New Jersey, and Massachusetts. (NB: Estimates vary some from source to source, but New York is reliably pretty high on the purported net-payers’ list.) Some of those numbers are driven by entitlements and by the fact that the U.S. tax code is steeply progressive, i.e. by Democratic policies. And some of those numbers are driven by the fact that federal purchases, federal contracts, federal employees (hello, Virginia!), and federal lands are not evenly distributed throughout the country, which means that federal outlays do not land equally on every square inch of American territory — the federal government owns 85 percent of the land in Nevada but less than 1 percent of the land in New York State. There are a lot of financial firms in New York City and not very many Air Force bases, which affects the notional balance of payments.
The same dynamic is a big part of why Democratic states such as Maryland and Hawaii are on the net-takers’ list while Republican states such as North Dakota are net payers. California, once a donor state, is at the moment a modest recipient state, to the tune of about $12 a year per capita.
Again, it’s a dumb talking point, but this is Andrew Cuomo we’re dealing with. And if New York keeps sending the Carl Icahns of the world to Florida, it’ll end up being a net-recipient state, too, much to the delight of Florida. Governor Cuomo had better be careful what he wishes for.
(Another fun way of looking at this is that, because of our very progressive tax code, so-called donor states tend to have very high levels of the “income inequality” that keeps progressives up at night. In fact, California, Connecticut, Louisiana, New York, and the District of Columbia contribute disproportionately to that inequality—every other state has a Gini coefficient lower than the national average. The most egalitarian state in the country? Utah. But Utah is way down at No. 42 in per-capita income . . . and in the top tier, at No. 13, in household income. It’s complicated. Utah’s median family income is about the same as California’s, those being $65,997 and $67,739, respectively. California has a median per-capita income lower than that of North Dakota, Minnesota, Colorado, or Delaware, but those Silicon Valley guys pay a lot in taxes.)
Governor Cuomo’s administration is not spending its money bailing out Florida. It’s spending it on government unions and welfare, and on an increasingly dysfunctional New York City transit system for which a new mile of track or a new station costs five times (or more) as much as the same work does in London, Paris, or Madrid.
As Chris Edwards at Cato points out, New York and Florida have about the same number of kids in school, but New York spends far more on its highly unionized public-school workforce, shelling out $69 billion in 2017 to Florida’s 28 billion. U.S. News and World Report ranks New York and Florida about the same when it comes to preK-12 education, right in the middle of the pack at 25 and 27, respectively. (It ranks Florida No. 1 in higher education and New York No. 15.) Edwards finds that New York spends two and a half times what Florida spends on welfare, even though the Empire State has a higher median household income. New York’s government workforce is much larger than Florida’s (1,196,632 vs. 889,950), and as Edwards notes, “New York spends vastly more on employee retirement than Florida.”
Rick Scott likes to boast that Florida’s government debt was reduced by $10 billion on his watch and that Moody’s upped its credit rating to AAA. Less debt and better credit mean less money spent on interest payments. New York carries more debt than Florida does, and does not share that AAA rating. That takes an additional $10 billion a year out of New Yorkers’ pockets compared to Floridians’ interest-payment burden.
Senator Scott doesn’t want to see federal bailout money going to state governments, he says, because of the “complete disregard for the people who pay the taxes.” Beyond the pension shenanigans, just writing a blank check to state governments allows Democrats in effect to shift state liabilities onto the federal government and pursue their own parochial short-term political interests. “If we do the bailouts, we’re funding the pension plans,” Senator Scott says. “If we do the bailouts, we’re funding Planned Parenthood.” He’d rather see money go to unemployment benefits and to more focused counter-epidemic programs, especially testing.
“The right thing to do is to solve the problems. Do the testing. If people have lost their jobs, help the unemployed. Help the small businesses that have been hit.” He says the Paycheck Protection Program needs to be “cleaned up” — he wants businesses to prove they’ve suffered substantial revenue losses before Washington starts picking up their expenses — and says he is worried about the rate at which the federal government is accumulating debt and the interest-rate risk that brings. “We haven’t fixed any of the programs,” he says. “Medicaid, Medicare, Obamacare, Social Security — none of them is fully funded.”
Instead, he says, we have leaned on deficit financing. And that means, at some point, a day of reckoning.
“Somebody, eventually, has to write the check.”