What If New York Goes Bust?

I know that this article I found via RealClearMarkets isn't an Illinois related story, but I hope that Gov. Quinn can avoid the mistakes or misteps of two of our nation's most important states. It's seems we're already in a difficult economic and financial environment right now.

So what does John Avlon, a man who has worked on Rudy Giuliani and Bill Clinton's presidential campaigns in addition to working for Giuliani when he was mayor of NYC, and has to say about fiscal and economic health of NY and California.

If California and New York State were businesses, they'd be going bankrupt. If you're among the nearly 20 percent of Americans who live or work in these two states, the fiscal crisis is coming home for the holidays. And the worst is still on its way.

California, the world's eighth largest economy, will run out of money in March if the deadlocked legislature and Gov. Arnold Schwarzenegger can't come to an agreement on tax-hikes and spending cuts. Its bonds have been reduced to near-junk status after decades of borrowing and spending. State Treasurer Bill Lockyer summed up the situation in terms unhelpful to the tourist industry: "California's fiscal house is burning down."
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Here's the really bad news: the full impact of the financial crisis in New York has yet to be felt.

The dirty secret of Empire State budgeting is that New York City depends disproportionately on Wall Street for its budget and New York State depends on New York City.

In the last four months, the financial landscape has changed dramatically. Investment banks that have been the engine of the city's tax revenue for decades have disappeared entirely or morphed into restricted new entities. According to E.J. McMahon, my colleague at the Manhattan Institute, between 1980 and 2007 the securities industry's share of wages in the state rocketed from 3 percent to 18 percent, with the average Wall Street salary and bonus rising to $379,000. Wall Street revenues made up 20 percent of the state's budget. So the 40,000 local jobs lost in the financial sector are only the beginning. We're not facing a cyclical downturn; we're facing a fundamental alteration of the facts of financial life in New York. And the 20 percent unemployment in some upstate counties will not help ease the squeeze.
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In a preview of political fights to come, both New York State and California budgets are being crippled by outsized public sector union pension obligations that are now coming due in a perfect storm—a combination of an aging population, a declining tax base, and a fiscal crisis.

The Democrats who narrowly control both state legislatures have a notoriously cozy relationship with unions and they will be unlikely in the extreme to bite the hands that feed. But the unsupportable absurdities of the current arrangement are becoming evident.

The average state and local government employee now makes 46 percent more in combined salary and benefits than their private sector counter-parts, according to the Employee Benefit Research Institute—including 128 percent more on health care and 162 percent more on retirement benefits. New York City, for example, not only spends 10 times more on pensions than it did ten years ago, it now spends more on pensions and benefits for firefighters than it does on firefighters' salaries.

Like I said I hope that we can weather this current crisis. Illinois may not be up there with California or New York, but some of the problems that those two states are facing probably isn't much different.