Governor Pataki's budget proposal blurs his own vision of a smaller, low taxing, reshaped state government that operates without fiscal gimmicks. The Governor's $44 billion proposal calls for a $661 million spending increase, $1.1 billion of one-shots, and puts into New Yorkers’ pockets only $183 million of a new $2.2 billion tax cut program that will take four years to reach full value. If the Governor were willing to be as aggressive on spending as he promises on taxes, his vision would come sharply into focus.

During the past two years, Governor Pataki aggressively spearheaded the enactment of critically needed tax cuts, and he kept spending growth to 1 percent, a fraction of the historical rates. But, his failure actually to cut spending has required continued reliance on fiscal gimmicks and phasing-in the tax cuts over time, so that only a portion of the full value is received in the intervening years. In fiscal year 1996, New Yorkers received only 13 percent of the $4.4 billion of tax cuts enacted. This year, fiscal year 1997, taxpayers receive slightly more than half of the $4.6 billion in scheduled cuts. And the budgets in each of these years relied on more than $1 billion of one-shots.

The Governor's budget proposal for next year is not in balance—expenditures exceed revenues by $799 million. This reverses recent progress in reducing the State’s accumulated deficit. And if the plan is adopted, the projected annual deficit will more than double to nearly $1.7 billion in fiscal year 1999 and grow to $2.4 billion in fiscal year 2000.

But New Yorkers need not resign themselves to these prospects. The Citizens Budget Commission's Budget 2000 Project demonstrates that aggressive reform of State government could produce $8 billion of savings per year without service reductions. This amount is well in excess of what is needed to balance next year's budget without fiscal gimmicks. In fact, this sum could finance sizable tax cuts immediately while leaving significant resources available for infrastructure and service improvements.

This program demands bold leadership. The Governor and Legislature need to join forces and become serious spending reformers, focusing on three areas.

First, New York needs to change its relationships with private agencies that provide public services. The State contracts with private agencies to provide hospital, nursing home, home health, and foster care services at price tags that far exceed those of other large industrial states. For example, the cost per nursing home patient is 72 percent above the national average. Subjecting these agencies to the forces of competition could significantly rein in spending.

In acute care Medicaid services, the State has reduced spending using managed care, an application of competition. The Governor proposes next year to introduce competitive forces into the pricing structure of long term care, a step in the right direction. But more significant savings could be achieved by setting rates for all Medicaid services by competitive bidding and using the concept of capitation to discourage excessive utilization. This approach also should be applied to other services, including foster care and employment services.

Second, our State leaders need to focus attention on restructuring the government bureaucracy. Since taking office, Governor Pataki has downsized the workforce by 18,000 positions or 8 percent, and proposes a reduction, albeit small, of 1,700 for next year. However, the bureaucracy has not been subjected to competition, and services have not been fundamentally re-engineered.

Large savings from restructuring could result from adopting the best practices from around the country. Costs have been lowered significantly when government workers compete against private and nonprofit firms for the right to provide services such as road, equipment and facility maintenance and management, data processing, cleaning and printing. Competition led to savings of 57 percent on custodial services in Phoenix and 26 percent on highway maintenance in Massachusetts. In addition, savings in excess of 25 percent result from re-engineering service delivery by introducing new technology and work processes, abandoning old work rules and revising compensation packages.

Third, the Governor and Legislature must ensure that recipients of public subsidies are needy. For example, New York's loose Medicaid eligibility results in funding long term care services for affluent families. The State could provide incentives for families to purchase private long term care insurance and tighten eligibility rules to target Medicaid benefits only to the indigent.

In education, wealthy school districts choose to spend twice as much per pupil as the poorer districts. State outlays for wealthy districts subsidize this inequity in education spending. Significant savings could come from reducing State aid for districts with above average tax bases.

Incorporating these recommendations would make it possible to balance next year's budget, cut taxes far more than the Governor has proposed, and invest large sums in improved services and infrastructure. The Governor's vision could be realized, and New York's prospects for the next millennium could be brightened.