Goldmark: NY's financial ordeal, Act I

The curtain goes up this week on Act I of a year-long cliffhanger, as New York State struggles to straighten out its disastrous finances. The players in the orchestra pit have warmed up and tuned their instruments, and conductor Andrew M. Cuomo stands before them, baton raised.

The trouble is, not all the players are his friends.

Gov. Cuomo has set the scene skillfully. He's made clear that he will not preside over another patchwork fiasco of gimmicks and financial flummery. He is taking his case directly to the people, to provide a counterweight to the special-interest lobbyists who will prowl the halls of the Capitol until the last gavel comes down on the last supplementary appropriation.

There will be no avoiding wrenching adjustments in service levels. The question is whether our elected leaders can design the cuts so they lay the groundwork for stronger, more cost-effective services in the future. We don't want to go through this again.

Beneath the political separation of state and local governments lies a tightly interwoven system of shared funding, mandates and service loads. A shock to one part of the system gets transmitted to the others. The only way to achieve serious fiscal retrenchment is to reduce the service loads of state and local governments in a coordinated way. Imagine a come-to-Jesus meeting in the Red Room, where the governor explains to mayors and county executives that the only way out of this mess is the way they got into it - together. Everybody needs to know how large the combined state and local deficits are so they all understand where the goal line is.

The largest areas of expenditure - health and education - constitute over half of combined state and local government spending. So they cannot escape a large share of the retrenchment. The goal is to have the cuts absorbed as much as possible by the institutional part of these service systems, not by their clients. This means hospitals, for example, should avoid hiring new staff and existing employees should forego normal pay raises, rather than eliminating services that the medically indigent need. It's like going on a crash diet rather than amputating an arm or a leg.

The goal is recurring balance between spending and revenue, so the state and localities can rationalize and improve services off a stable foundation. This would also shore up state and local credit ratings, enabling capital investments to create jobs and make the state's economy more competitive.

Of course, there are real problems with public employee pensions in New York, and they will be difficult to fix. The good news is that, unlike the state and local budget deficits, pension reform can extend over several years.

The governor has told us he intends to do all this without new taxes. But it's not clear that the highest income brackets in New York State will be carrying their share of the brutal burden New Yorkers are about to shoulder. From emergency rooms and classrooms to parks and roads, we are going to see a jarring restructuring of the service fabric of the entire public enterprise in New York. Unemployment is still high and many families are suffering. But Wall Street and the financial sectors are starting to roar back, partly because a taxpayer-financed bailout rescued them from their orgy of phony mortgages and excessive leverage. There should be some thoughtful discussion on this issue.

The curtain on Act I, the release of the governor's budget, is going up Tuesday. Cuomo has taken his case to you and me. Are we ready to listen, and to tell him and the legislatures - both state and local - the principles we want them to follow in a drama we can't escape?