NYC is the poster child for America's dysfunctional federalism. It makes no difference the magnitude of the crisis. We can be in the deepest recession since the great Depression and the City is held hostage to the unaccountable politics of Albany.
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As the New York State Senate departs Albany until the fall we are mercifully ending the first act of one of the most sordid political dramas in the State's history. The New York City press corps, which mostly ignores state government has covered this story like installments in a daily soap opera. And really you can't blame them. With greed, corruption and betrayal, not to mention sex, alcohol and violence central to the plot these larger than life personalities have dominated the headlines feeding the public's cynicism about government.

Yet, if we could just step back from the drama for a moment there is an important problem that underlies this all too familiar political story and reveals something fundamentally dysfunctional in American federalism. There is a structural problem in state-city relations that has been there since the founding of the Republic, but political self-interest and the public's general inattentiveness to state government has made it nearly invisible.

But before I get to the policy issues, let me recap the highlights of the political story for those of you who have been out of the country. Two ethically challenged Democrats decided to jump ship and vote with the Republican minority to create a "bi-partisan reform" government in the State Senate. The Democratic majority refused to recognize the new leadership and would not show up to the legislature at the most critical time of the year. Our first erstwhile reformer is Hiram Monserrate, the state senator who was indicted for slashing his girlfriend with a broken bottle. Within several days of the coup, he had a change of heart and returned to the Democratic caucus. Our second champion of transparent and open government is Pedro Espada, Jr. He is being investigated by the Bronx District Attorney for having a primary residence in Westchester, while representing a district in the Bronx. Espada also has been fined for filing incorrect campaign reports and his network of health clinics is being investigated by the Attorney General for moving money directly into Espada's campaign. For a short time the Senate found itself evenly split 31-31, with the leadership in question and no Lieutenant Governor to break a tie vote. The stalemate remained in place until Espada rejoined the Democratic caucus as part of a power sharing agreement in which he became Majority Leader in the Senate. Of course, Espada is telling us there was no personal deal made by the Democrats to reclaim his loyalty.

While I think even Boss Tweed would have been entertained by the political theater of the absurd and impressed with the unadulterated self-interest of the players, it is really nothing new in New York State. I suppose it wasn't embarrassing enough that our maverick governor Eliot Spitzer, who was elected by voters to clean up Albany, had to resign after only a year in office, caught in a tawdry prostitution scandal. Right before Spitzer left office our state comptroller Alan Hevesi ended his long political career for inappropriately using his government car to chauffeur his wife. That's the short version. Apparently his friend and political consultant Hank Morris was also using his connections to the state comptroller in a multi-million dollar pay to play scheme that provided clients opportunities to manage state pension fund assets. We can't forget that the long time Republican majority leader of the State Senate Joe Bruno decided not to seek reelection and was recently indicted by the US Attorney for collecting millions of dollars in fees from companies seeking state contracts and grants. It would be an understatement to say that New Yorkers really have had no expectations from their state government for years. With the State Assembly guaranteed to elect Democratic majorities and the State Senate gerrymandered to elect Republican majorities, Albany was governed behind closed doors by three men in a room for over 40 years. But all this was to change with the promise of a new Democratic majority elected to the State Senate last November and David Patterson stepping in to replace the disgraced governor. So it didn't happen. With only the Speaker of the State Assembly, Shelly Silver, remaining from the old guard, the three men in a room managed to reconstitute themselves with the same closed door budget and legislative process as before. This time it was three Democrats making all the decisions, but not for very long. It really wasn't that surprising when all those great promises to reform Albany vanished in the mist on the other side of Bear Mountain.

So the events of the past month may be part of a pattern, yet it would be a shame to simply see the current Albany drama as just the usual story of greed and corruption. Let's go back to federalism for a moment. Albany simply has too much power over New York City. In reality the American federal system gives State governments legal authority over their City governments. The legal doctrine that gives the state supremacy over its political subdivisions is known as Dillon's Rule. It dates back to 1868 when the Iowa State Supreme Court ruled that local governments were creatures of the state, and as such could be modified or abolished at the state's will. State constitutional grants of home rule and statutory grants of increased authority have given cities some discretion, but generally states and cities have been in an adversarial relationship. State governments have been mandating more, taxing more and giving less fiscal support to their central cities. Cash cow would be the right description for New York City's relationship to the State government. We actually have to go to the state government to change our tax structure and tax rates. Recently the state repealed the Commuter Tax costing the city $416 million in revenue each year; the state passed permanent pension Cost of Living increases for city workers that cost the city $480 million a year. New York State is the king of the unfunded mandates--forcing the city to spend for services without providing the revenue to support the programs. New York State is the only state where localities are mandated to pay a share of Medicaid costs. New York City's share of Medicaid is $4 billion annually. It is estimated that the city pays at least $11 billion more to the state than it receives in services. It is not just the city's taxes and spending that are regulated by the state. The city must wait for the State Senate to take up the extension of mayoral control of schools. The State has the legal authority and the Senate has just decided to adjourn without taking up the issue. But if we think about this rationally why should the City have to go to the state for permission to change the way it runs its public schools. Why should the state control the city's tax structure or mandate work rules and pension costs for city workers? NYC is the poster child for America's dysfunctional federalism. It makes no difference the magnitude of the crisis. We can be in the deepest recession since the great Depression and the City is held hostage to the unaccountable politics of Albany. State governments have no incentive to change this dynamic. The only solution is for Washington to empower America's great cities. Obama has created a White House Office of Urban Affairs. Instead of doing the usual federal programs that go through state governments, it's time to go directly to the mayors and city councils for guidance and federal aid should bypass the states all together for cities over one million people and be given directly to City governments. Maybe this way, New York City, Chicago. Los Angeles and Houston will see some of that stimulus money. This would at least be a beginning. More later....

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