WHO SHOULD BAIL OUT NY?

WSJ 5/18/20220

Democrats want a $915 billion budget bailout for states and cities, and the leading lobbyist is New York Governor Andrew Cuomo. His main public antagonist on the subject is Florida Senator and former Governor Rick Scott. Both men were first elected Governor in 2010, so let’s do the math to consider which state has managed its economy and finances better over the last decade.

In 2010 New York’s population of 19.378 million was larger than Florida’s 18.8 million. By mid-2019 Florida had grown to 21.48 million, according to the Census Bureau, while New York had barely increased to 19.453 million. Yet Mr. Cuomo recently signed a budget for fiscal 2021 of $177 billion that is even bigger than last year’s, papering over what was a $6 billion deficit before the coronavirus. Florida’s budget for fiscal 2021, not yet signed by new Governor Ron DeSantis, is expected to be about $93 billion.

Democrats in Albany are claiming to be victims of events that are out of their control. But they have increased spending by $43 billion since 2010—about $570,000 for each additional person. Florida’s budget has increased by $28 billion while its population has grown 2.7 million— a $10,400 increase per new resident.
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New York has a top state-and-local tax rate of 12.7%, while Florida has no income tax. Yet New York has a growing budget deficit, while Mr. Scott inherited a large deficit but built a surplus and paid down state debt. The difference is spending.

New York’s spending on worker retirement benefits has nearly doubled since 2010 and is six times greater than Florida’s. Its debt-service payments have also doubled. Albany’s biggest cost driver is Medicaid, which gobbles up 40% of the state budget—twice as much as education. Florida spends about the same on schools as on Medicaid.

Blame New York’s cocktail of generous benefits, loose eligibility standards and waste. New York spends about twice as much per Medicaid beneficiary and six times more on nursing homes as Florida though its elderly population is 20% smaller. Many New York nursing homes and hospitals are organized by unions, which use their political clout to drive generous pay and benefits.

Mr. Cuomo in 2014 expanded Medicaid as part of ObamaCare to able-bodied individuals earning up to 133% of the poverty line. Florida didn’t. While the federal government initially picked up 100% of the ObamaCare expansion tab, New York is now on the hook for 10%, which contributed to this year’s $4 billion Medicaid shortfall.

New York spends about $76 billion a year on Medicaid—three times more than Florida. Swelling Medicaid costs have squeezed spending on transportation, causing Empire State trains and roads to fall into disrepair. Florida has found money to pave potholes and increased transportation spending 10 times more than New York between 2010 and 2019.  Mr. Cuomo pleads poverty by claiming New York is a “donor” state to the federal government. But federal dollars account for about 35.9% of New York’s spending compared to 32.8% of Florida’s, according to the Tax Foundation. New Yorkers pay more in federal taxes than what Albany gets back because the progressive federal tax code hits high earners the hardest and New York still has many high earners. The “donors” are individuals, and the money isn’t Mr. Cuomo’s.

In any case, many high earners are moving to lower-tax states. New York lost $9.6 billion in adjusted gross income to other states in 2018 while Florida gained $16 billion. Workers are following jobs, and vice versa.
The rate of private job growth in Florida has been about 60% higher than in New York from January 2010 to January 2020. Finance jobs expanded by 25% in Florida compared to 9.7% in New York. By our calculations, New York would generate $10 billion more annually in tax revenue if its personal income had grown at the rate of Florida’s over the last decade.
New York’s future has been discounted before, but the coronavirus may be its most serious economic challenge. Many service businesses are learning they don’t need as many workers in the office and can save money by downsizing. Morgan Stanley has said it intends to reduce office space in New York City, and Twitter has told employees they can work remotely as long as they want. Many restaurants were struggling before the coronavirus due to New York’s high minimum wage, taxes, rents and suffocating regulation. Some may now close permanently.
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Mr. Cuomo no doubt realizes all this, which is why last week he cited a repeal of the $10,000 limit on the state-and-local tax deduction as his top request from Congress to keep more high earners from leaving. He also wants $61 billion in budget relief, which the Empire Center’s E.J. McMahon notes would cover projected deficits for four years assuming spending increases by 4% annually.

The policy question is why taxpayers in Florida and other well-managed states should pay higher taxes to rescue an Albany political class that refuses to restrain its tax-and-spend governance. Public unions soak up an ever-larger share of tax dollars, but Albany refuses to change. Mr. Scott is right.

Source: The Wall Street Journal

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