New York State’s leaders are letting a historic opportunity to reform government slip through their fingers. With Wall Street unexpectedly pumping money into the state’s coffers, the leadership should jump at the chance to eliminate the recurring cost of old mistakes and to restructure a bloated government.

The fiscal year 1997 surplus, estimated at $1.3 billion or more, could retire outstanding debt—paying off $1.3 billion of debt would save taxpayers $130 million annually for 30 years. Or, it could pay bills, like the over $1 billion the state owes local governments.

Unfortunately, Governor Pataki and Legislature aren’t jumping. They plan to use this year’s cash windfall to support new spending next year. This is a one-shot—a gimmick which uses non-recurring funds to support recurring spending. It creates a financial bind: there’s leftover cash available to finance programs the first year, but no funding for the bills thereafter.

Albany is partial to fiscal gimmicks because they are easier than rectifying old policy mistakes and restructuring entrenched bureaucracies. Unfortunately, the $1.3 billion gimmick has become a convenient excuse to perpetuate a bigger government than we can afford.

Reform is a low priority in the executive budget, which was released in January. Rather than restructuring, which would cut spending without service reductions, this plan increases spending by $183 million. Moreover, the state bureaucracy is virtually held harmless from any action to balance the budget.

The result is that Pataki’s proposed budget would generate a $799 million deficit under Generally Accepted Accounting Principles (GAAP); the planned spending cannot be supported by next year’s revenues. And these are the good times. Unless this course is reversed, New York will stumble into the next century.

The Governor and the Legislature should join forces to reform government. The Citizens Budget Commission recently completed The Budget 2000 Project, a two-year study showing that $8 billion of taxpayer money can be saved annually, without cutting services, by reforming inefficiencies in the state government.

That’s more than enough to balance the budget without gimmicks and leave adequate resources to finance tax cuts, infrastructure investments and service improvements. The time to start is now.

Pataki’s budget incorporates several of Budget 2000’s recommendations, including cuts in the estate and gift taxes, Medicaid cost containment aimed at service provider rates, reforms of special education and exemptions from the Wicks Law, whose contracting requirements drive up the costs of state and local projects.

But these actions don’t go far enough. Additional expenditure cuts are required to balance the budget.

State operations should be restructured more aggressively. The state workforce should be subjected to competition with private and nonprofit agencies, and service delivery systems should be reengineered through the introduction of new technology, work processes, work rules and compensation packages.

Greater savings should come from Medicaid-financed long-term care services, which are costly, in part, because they are provided to affluent families. Eligibility rules should be tightened to target Medicaid benefits to the indigent, and incentives should be provided for wealthier families to buy private long-term care insurance.

The administration and financing of social welfare programs should be centralized. Statewide administration of public assistance, Medicaid and foster care would save money and improve services. Statewide financing would improve New York’s competitiveness by realigning state-local responsibilities to match those of most other states.

Finally, the Governor’s STAR school aid increase and school tax relief program should be rejected because it disproportionately benefits wealthy districts. Equitable education funding should be promoted by reducing aid to districts with relatively high tax bases.

Pursuing these reforms will permit New York to capitalize on this economic recovery and create a smaller, lower taxing, more efficient government, free from fiscal imprudence. Then New York’s prospects for the next millennium could be brightened.