AFL-CIO Pledges Campaign to Stop Cuts to Medicare, Medicaid, Social Security

By John Reichard, CQ HealthBeat Editor

AFL-CIO President Richard Trumka told reporters Monday that “we will run the campaign necessary” to defeat any Medicare, Medicaid, and Social Security reductions proposed by joint deficit reduction panel. But he stopped short of saying the labor group won’t endorse members of Congress who vote for such cuts.

Trumka did say in the telephone briefing that opposition to potential cuts would be among the factors considered when it comes to making endorsements in the 2012 elections.
Trumka said he “would have a tough time envisioning us endorsing people who actually voted for major cuts to Social Security, Medicare or Medicaid. That would have a dampening effect on any candidate even if they were endorsed,” he added.

Trumka said the labor organization’s executive council would meet later Monday to flesh out the campaign against the cuts, which will involve coordinating with other left-leaning organizations.

“Today we’re asking 700,000 activists to start calling their members of Congress to oppose them,” he said. “We’ll be talking about the type of program or the type of campaign that we issue. It could be — everything from ads, leafletting at the work site, phone banking — a number of different things to let people know who stood with them and who stood against them.”

Trumka said that with the rise of the Occupy Wall Street movement, the public is closely watching lawmakers to see how they respond to the deficit panel.

“This marks the beginning of a critically important time for Congress where our elected leaders are faced with a defining choice: to stand up for the 99 percent of America or to continue the business-as-usual approach of the top 1 percent.”

Whether through added funding to repair infrastructure or aid to state governments to keep teachers and fire fighters on the job, “now is the time for decisive leadership on Capitol Hill,” he said.

“We’re deeply troubled about the possible direction” of the debt panel, he said. “Any person even loosely connected to reality can see that working people and working families have already given up too much while Wall Street and the wealthiest Americans have done all the taking. Inequality is at historic levels.

“It should be a no-brainer that we will finally ask Wall Street and the super rich to pay their fair share. Every politician should look at the occupy movement to know that working families across the nation will make their voices heard to protect core American programs and to hold Wall Street accountable for the mess that they created.”

Trumka denied that he was advocating an uneven approach to deficit reduction. A reporter suggested that was the case, given Trumka’s call for no reductions in benefits but “substantial action on the tax side,” in the reporter’s words. Trumka had suggested earlier in the call that ending the 2001 and 2003 tax cuts for high earners, taxing capital gains as ordinary income, and a surtax on the wealthy were ways to reduce the debt.

“First of all, if you’ve looked at what’s happened so far, there’s been substantial action on the middle income and low income families of this country,” he said. “They’ve already given a lot. They’ve given their homes, they’ve given their jobs, they’ve given back in wages while the rich have done as well as ever. Better than ever.”

John Reichard can be reached at jreichard@cq.com

DiNapoli Forecasts Weaker Wall Street Outlook

Economic uncertainty due to the European sovereign debt crisis, a sluggish domestic economy, volatile stock markets, and regulatory changes are among the chief contributors to a weakened outlook for Wall Street profits, jobs and bonuses for 2011, according to an annual report on the securities industry released today by New York State Comptroller Thomas P. DiNapoli.

“The securities industry had a strong start to 2011, but its prospects have cooled considerably for the second half of this year,” DiNapoli said. “It now seems likely that profits will fall sharply, job losses will continue, and bonuses will be smaller than last year. These developments will have a rippling effect through the economy and adversely impact State and City tax collections. As we know, when Wall Street slows, New York City and New York State’s budgets feel the impact and that is a concern.”

The economies and budgets of New York City and New York State are very dependent on the securities industry. According to the Office of the State Comptroller, last year securities-related activities accounted for 14 percent of New York State’s tax revenues and almost 7 percent of New York City’s. In addition, one in 8 jobs in New York City and 1 in 13 jobs in New York State are linked to the securities industry. Given the current weakness, tax collections are likely to fall short of City and State targets in their current fiscal years and may decline by more the following year.

DiNapoli’s analysis also found that:

• The member firms of the New York Stock Exchange earned $9.3 billion in the first quarter of 2011 (almost half of the City’s $20 billion target for the entire year), but profits declined sharply in the second quarter. The Office of the State Comptroller forecasts that profits are unlikely to reach $18 billion for all of 2011, which is one-third less than in 2010.

• After adding 9,900 jobs between January 2010 and April 2011, the securities industry has lost 4,100 jobs through August 2011. Job losses are likely to continue given declines in profitability and recent layoff announcements. OSC estimates that the securities industry could lose nearly 10,000 additional jobs by the end of 2012, which would bring total industry job losses to 32,000 since January 2008.

• Cash bonuses are likely to be smaller in 2011, the second year in a row in which they have declined.

• The average salary in the securities industry in 2010 grew by 16.1 percent to $361,330, 5.5 times higher than the average salary in the private sector of $66,120. The disparity between average salaries in the securities industry and the rest of the private sector narrowed in 2008 and 2009, but widened in 2010.

• In 2010, the securities industry accounted for 23.5 percent of all wages paid in the private sector despite accounting for only 5.3 percent of all private sector jobs.

• The State Comptroller’s Office estimates that each job gained (or lost) in the securities industry leads to the creation (or loss) of almost two additional jobs in other industries in the New York City and another job elsewhere in New York State.

“Excessive risk-taking on Wall Street was a major factor leading to the financial crisis and the recession,” DiNapoli said. “Regulatory changes that reduce risk and focus attention on long-term profitability rather than short-term gains will enhance stability. Despite the weaknesses we are seeing, the securities industry remains profitable and is a key component of the economies of New York City and New York State.”

Click here for a copy of the report.

One in seven New Yorkers out of work two years into “recovery”

New report documents New York’s continuing unemployment crisis in the context of the weak national economic recovery

New York (August 31, 2011): A new report released today by the Fiscal Policy Institute (FPI) shows that two years into the “recovery” from the Great Recession of 2008-09, 1.4 million, or one in every seven, New York workers is unemployed, under-employed or has given up looking for work. Long-term unemployment is at record levels. Half of the unemployed have been out of work for more than six months and 29 percent have been jobless for a year or more.

The report, FPI’s 2011 annual edition of the “State of Working New York,” indicates a modest decline in the state’s unemployment rate over the past year, but shows that this decline is deceiving since it results solely from discouraged workers dropping out of the labor force. Adding back those workers would make the state’s July 2011 unemployment rate 9.6 percent, more than one-and-a-half percent higher than the official 8 percent unemployment rate for that month and higher than in late 2009, considered the recession “bottom” in the job market.

At a time when much of the political debate has been focused on the federal budget deficit, James Parrott, FPI Chief Economist and Deputy Director, stated: “The deficit that matters most for New Yorkers is the jobs deficit. New York would need 512,000 additional jobs today to return the unemployment rate to the 4.3 percent level that prevailed prior to the recession.”

New York has an unemployment crisis two years into the recovery mainly because this is the weakest recovery on record in the post-World War II period, the report demonstrates. In prior recoveries, real GDP averaged 5.4 percent annual growth through the first two years. In this recovery, GDP growth has averaged less than half that, 2.5 percent.

In examining trends within the state, the report finds that over the past three years of recession and recovery, New York City has had the smallest net payroll job loss (1.6 percent), followed by the six upstate metro areas west of the Hudson (from Utica-Rome to Buffalo-Niagara Falls) which had a combined 1.8 percent job loss. The non-metropolitan counties north and west of Albany had a 3.3 percent job loss, and the downstate suburban counties a 3.6 percent job loss. The Hudson Valley region from Newburgh to Glens Falls fared the worst within New York with a 4 percent job loss over the past three years.

Few of the economic sectors that lost jobs in the recession have totally re-gained their pre-recession job levels, only the government sector has lost more jobs during the recovery than during the recession. The 54,000 government jobs lost over the past three years in New York is more than in any other sector, including finance and insurance, except for manufacturing. It is expected that New York schools will open this fall with 12,000 fewer teachers and other staff.

The report provides detailed estimates showing how various demographic groups have fared during the recession and recovery. Blacks and Hispanics have been particularly hard hit, experiencing large unemployment increases during the recession, and with both groups having unemployment rates about twice the level for non-Hispanic whites. Unemployment for black non-Hispanic workers was an estimated 13.8 percent during the first half of 2011.

According to the FPI report, $12.7 billion in unemployment insurance benefits have been paid in New York since the start of the national recession. However, the state’s unemployment insurance program has not been updated in over a decade and has fallen behind nearly every other state in the extent to which it replaces lost wages. New York’s average weekly benefit of $305 replaces less than 27 percent of the average weekly wage, putting New York 48th compared to other states.

Among the report’s policy recommendations for boosting job and economic growth are calls for immediate federal action to foster large scale job creation, federal fiscal relief to state governments, investing in rebuilding the nation’s infrastructure, and promotion of long-term innovation and high-skill jobs through investment in developing advanced manufacturing capacity.

In addition to reforming the state’s unemployment insurance system to restore the purchasing power lost over the past decade, the report makes several recommendations for steps New York can take to boost jobs and the state’s economic future. The report urges improvements in public higher education, prioritizing the creation of good jobs and making decisions regarding subsidies to businesses more transparent and accountable, providing assistance to advanced manufacturing to support good-paying jobs, adequately funding transportation infrastructure needs, and exploiting the potential of the nation’s largest mass transportation network to promote advanced transit-related manufacturing.
FPI’s Executive Director, Frank Mauro, stated: “Not allowing New York’s current high-end personal income tax surcharge to lapse in 2012 would make a huge difference in substantially reducing job cuts that would otherwise be necessary among state and local government employees, including school teachers and educational support staff.”

The FPI report also recommends increasing New York’s $7.25 an hour minimum wage to restore its purchasing power which is 26 percent lower than it was in 1970, and suggests that the state launch a state-managed voluntary retirement fund in which small employers and individuals without a retirement plan could participate.
The report is available at: http://www.fiscalpolicy.org/SOWNY2011.html

The Fiscal Policy Institute (www.fiscalpolicy.org) is a nonpartisan research and education organization that focuses on tax, budget, and economic public policy issues that affect the quality of life and the economic well being of New York State residents.

N.Y. Sues Feds Due to Hydraulic Fracking Concerns

According to reports, the United States government will ask a federal judge to dismiss a New York lawsuit that seeks to force a comprehensive review of how natural gas extraction might affect the 9 million residents of the state. Sources say the U.S. plans to ask for dismissal because the state of New York cannot prove injury and has no right to sue federal agencies. Reportedly, U.S. attorneys are relying on the principle of sovereign immunity, which protects the U.S. from lawsuits unless it waives that right.

According to New York’s lawsuit, the federal commission that oversees the Delaware River Basin has proposed regulations that will allow hydraulic fracking on 15,000 to 18,000 gas wells without a full environmental review. Hydraulic fracking is a process in which water, sand and chemicals are pumped underground to widen the cracks in the earth’s crust and release the natural gas.

Sources say the suit asks the court to halt the regulations until the federal commission complies with the National Environmental Policy Act’s requirements for a full review of all health and safety risks. The Delaware River Basin Commission supervises activities over a large gas deposit known as the Marcellus Shale. Reportedly, companies such as XTO Energy Inc. have pending applications with the commission requesting to explore the area. The lawsuit claims the commission has refused to carry out a full assessment of the effects exploration and hydraulic fracking can have on the environment.

Reportedly, the U.S. attorneys will contend that the harm to New York is “conjectural and hypothetical, and not actual or imminent.” The U.S. will also argue that the case is not yet ripe because the commission has not completed its review. Sources say the Delaware River Basin covers 58 percent of the land area of New York City’s water supply west of the Hudson River. According to the lawsuit, the reason targeted for exploration is protected by a 50 year-old agreement between the U.S. government, New York, New Jersey and Delaware.

According to New York’s lawsuit, the city of New York has spent around $1.5 billion to protect drinking water that flows from the watershed west of the Hudson. The lawsuit claims this money has gone to buying land to serve as a buffer for pollutants, maintaining sewage plants and regulating human activity.

Further, the lawsuit claims that more than 2,000 natural gas wells have been drilled in Pennsylvania which has resulted in the violation of hundreds of water pollutant laws. The above referenced case is New York v. U.S. Army Corps of Engineers, 11- cv-2599, U.S. District Court, Eastern District of New York (Brooklyn).

Warren Buffett’s Tax Dodge

OPINION

Barney Kilgore, the man who made the Wall Street Journal into a national publication, was once asked why so many rich people favored higher taxes. That’s easy, he replied. They already have their money.

That insight is worth recalling amid the latest political duet from President Obama and Warren Buffett demanding higher taxes on “millionaires and billionaires.” Mr. Buffett is repeating his now familiar argument this week, coinciding with Mr. Obama’s Midwestern road trip on the economy. Since the media are treating Mr. Buffett as a tax oracle, let’s take a closer look at some of the billionaire’s intellectual tax dodges.

• The double tax oversight. The Berkshire Hathaway magnate makes much of the fact that he paid only 17.4% of his income in taxes, which he considers unfair when salaried workers often pay more. But Mr. Buffett makes most of his income from his investments, in particular from dividends and capital gains that are taxed at a rate of 15%.

What he doesn’t say is that much of his income was already taxed once as corporate income, which is assessed at a 35% rate (less deductions). The 15% levy on capital gains and dividends to individuals is thus a double tax that takes the overall tax rate on that corporate income closer to 45%.

This onerous tax on capital is a U.S. competitive disadvantage in the global economy, which is why Congress agreed in 2003 to cut the rates on dividends and capital gains. Even as the rest of the world is cutting tax rates on corporate income, Mr. Buffett wants to raise U.S. rates in a way that would make America less attractive for investment. Under a sensible tax reform, the feds would impose either a corporate tax or a dividend and capital gains tax, but not both.

• The middle-class bait-and-switch. Like Mr. Obama, Mr. Buffett speaks about raising taxes only on the rich. But somehow he ignores that the President’s tax increase starts at $200,000 for individuals and $250,000 for couples. Mr. Obama ought to call them “thousandaires,” but that probably doesn’t poll as well.

The President needs to levy his tax increase at such a lower income level because that’s where the money is. In 2009, 237,000 taxpayers reported income above $1 million and they paid $178 billion in taxes. A mere 8,274 filers reported income above $10 million, and they paid only $54 billion in taxes.

But 3.92 million reported income above $200,000 in 2009, and they paid $434 billion in taxes. To put it another way, roughly 90% of the tax filers who would pay more under Mr. Obama’s plan aren’t millionaires, and 99.99% aren’t billionaires.

Mr. Buffett says it’s only “fair” to raise his taxes, but he’s lending his credibility to raising taxes on millions of middle-class earners for whom a few extra thousand dollars in after-tax income is a big deal. Unlike Mr. Buffett, those middle-class earners aren’t rich and may earn $250,000 for only a few years of their working lives. How is that fair?

• The charity loophole. For billionaires like Mr. Buffett, the single most important deduction in the tax code is for charitable giving. Middle-class earners can’t give nearly as much money away to reduce their overall tax burden. Yet we don’t hear Mr. Buffett calling for the elimination of that deduction in the name of fairness.

Mr. Buffett has also already sheltered the bulk of his fortune from federal taxes by putting them into a foundation that will give the money away. That’s an act of generosity, but if the government’s purposes are so vital, why doesn’t he simply give the money to the IRS?

Rebecca Quick of CNBC put that question to Mr. Buffett in 2007. His answer: “Well, that’s a choice and it’s an option . . . If I had to give it to a single individual, or make some young Buffett a multibillionaire, or give it to the government, I’d absolutely give it to the government. I think that on balance the Gates Foundation, my daughter’s foundation, my two sons’ foundations will do a better job with lower administrative costs and better selection of beneficiaries than the government.”

Mr. Buffett is no doubt right about the relative efficiency of private donors, but should billionaire philanthropists get such a large tax preference? Another case of fairness?

Mr. Buffett is one of the great stock-pickers of his time, and we don’t begrudge him a single dollar of his wealth. We only wish that, having already made himself rich, he weren’t so intent on making it harder for others to become rich too. If he’s worried about being undertaxed, we’d suggest he simply write a big check to Uncle Sam and go back to his day job of picking investments.

Stop Coddling the Super-Rich

By WARREN E. BUFFETT

OUR leaders have asked for “shared sacrifice.” But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.

While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.

These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.

To understand why, you need to examine the sources of government revenue. Last year about 80 percent of these revenues came from personal income taxes and payroll taxes. The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It’s a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot.

Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.

I didn’t refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.

Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent.

The taxes I refer to here include only federal income tax, but you can be sure that any payroll tax for the 400 was inconsequential compared to income. In fact, 88 of the 400 in 2008 reported no wages at all, though every one of them reported capital gains. Some of my brethren may shun work but they all like to invest. (I can relate to that.)

I know well many of the mega-rich and, by and large, they are very decent people. They love America and appreciate the opportunity this country has given them. Many have joined the Giving Pledge, promising to give most of their wealth to philanthropy. Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.

Twelve members of Congress will soon take on the crucial job of rearranging our country’s finances. They’ve been instructed to devise a plan that reduces the 10-year deficit by at least $1.5 trillion. It’s vital, however, that they achieve far more than that. Americans are rapidly losing faith in the ability of Congress to deal with our country’s fiscal problems. Only action that is immediate, real and very substantial will prevent that doubt from morphing into hopelessness. That feeling can create its own reality.

Job one for the 12 is to pare down some future promises that even a rich America can’t fulfill. Big money must be saved here. The 12 should then turn to the issue of revenues. I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get.

But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate.

My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.

Warren E. Buffett is the chairman and chief executive of Berkshire Hathaway.

The Great Mirthologist: Why Hugh Carey was one of the best governors ever

tyle of politics. He called it “mirthology.” He applied it to one of his political heroes, Al Smith, the great New York governor in the 1920s who was quick with a disarming, humorous story or a witty comeback to a political attack.

Carey admired many things about Al Smith, but you got the sense, talking with him for even five minutes, that what he admired most was Smith’s sense of joy—F.D.R. famously called him “the happy warrior.” The guy loved politics and loved being around politicians. He loved telling stories.

Al Smith would have had a blast with Hugh Carey, the two-term governor of New York who died over the weekend at the age 92. Smith would have regaled him with stories about the legendary Tammany figures who took a kid from the Lower East Side and made him a presidential candidate. And Carey would have had lots to tell Smith about Brooklyn politics in the 1950s, about campaigning for John F. Kennedy in 1960, and about the back-room talks that did nothing less than save the city they both loved in the 1970s.

Hugh Carey’s obituaries rightly paid tribute to the extraordinary role he played when the city of his birth faced its greatest crisis of the 20th century. They also took note of his successful career in Congress, and the heroic role he played as an Army officer in Europe during World War II. They recounted his childhood in Brooklyn, the story of a scrappy Irish-American kid who made good and who managed to keep his humor, his faith, and his sense of joy despite unspeakable personal tragedies.

Missing from these accounts—because you really had to be there—was Carey’s voice, the gleam in his eye when he told a story, the pitch-perfect timing that made him one of New York’s great political storytellers during his long post-gubernatorial career.

Carey spent hours telling me stories several years ago, when we were in discussions about a book project. I felt like a contemporary version of William Riordan, the political reporter who took notes while the colorful Tammany Hall politician George Washington Plunkitt delivered tutorials in the art of practical politics in the opening years of the 20th century. Like Carey, Plunkitt was a wonderful observer of people. If you want to succeed in politics, Plunkitt said, just study human nature.

Hugh Carey knew that people loved good stories, and he told them well. I never did check the veracity of some of them; for example, about how a Kennedy loyalist working for Lyndon Johnson got a District of Columbia stadium renamed for Robert F. Kennedy despite his boss’ violent opposition. (It was a great and touching story. Not sure if it was true.) He told stories about campaigning with both Kennedys in the early 1960s, about working together with the likes of Felix Rohatyn, David Rockefeller, and many union leaders to prevent New York City’s seemingly inevitable bankruptcy in 1975, and about being courted by Democrats and Republicans alike during his eventful years as an elder statesman.

He told these stories, even the serious ones, with a great narrative style and a fine appreciation for irony. Those qualities are not always associated with members of the political class, unless, like Carey and Plunkitt, they have studied human nature as well as they study election results.

Carey admired Al Smith not only because of the mirth his predecessor brought to his profession, but for the values he embodied as well. Carey described himself to me as an “Al Smith Democrat.” The phrase very likely would mean nothing to most members of the state legislature, where Smith rose to fame, or to the New York congressional delegation, of which Carey was a member through the 1960s. To me, it meant that Carey saw a bit of himself in the man who made New York a model of progressive government, who put in place a social safety net for the poor and vulnerable.

It was Carey’s lot in life to become governor at a time when bills came due. He managed to persuade the banks that he was serious about making systemic changes to New York City’s finances, but he did so without ripping apart the social compact which Al Smith wrote, and which F.D.R. borrowed from to create the New Deal.

Like Smith, Carey demanded accountability in government. Like Smith, Carey was a serious political professional. And like Smith, the guy was never too busy to tell a good story.

Historians and political nerds sometimes argue over who was the greatest New York governor of the 20th century. It’s sort of like trying to figure out who was the century’s greatest Yankee. Albany was graced by the likes of Smith, Franklin Roosevelt, Herbert Lehman, Thomas E. Dewey, Nelson Rockefeller, Carey and Mario Cuomo, and they put in more than a half-century of service from 1918 to Cuomo’s departure in 1994.

There are people who argue that Smith topped the list, even ahead of F.D.R. Carey was one of those people.

On this day, at this moment, I’d make a case for Hugh Leo Carey, savior of New York City and one of the political game’s greatest mirthologists.

Former Gov. Hugh Carey Has Died At Age 92

Gov. Andrew Cuomo announced this morning that former Gov. Hugh Carey passed away this morning at his home in Shelter Island. Carey, the state’s 51st governor between 1975 and 1982, was 92.

Here’s the announcement from Carey’s family through Cuomo’s office:

HUGH L. CAREY

(April 11, 1919- August 7, 2011)

The Family of former Governor Hugh L .Carey announced today that the Governor passed away peacefully at his much loved summer home on Shelter Island, New York, early this morning. The Governor was surrounded by his loving family. He was 92 years of age.

The Fifty First Governor of New York State, Governor Carey served as New York’s Chief Executive from 1975 through 1982. He was widely credited with saving the City of New York from bankruptcy, during the 1970’s fiscal crisis. He signed the landmark Willowbrook Consent Decree and his administration initiated the I Love New York Campaign and The Empire State Games among many endeavors.

Prior to his election as Governor in 1974, Hugh Carey spent 14 years in the U. S. House of Representatives serving Brooklyn’s 12th and 15th congressional districts. He served on the powerful Ways and Means committee in Congress, and was heralded as a champion of the underprivileged. He was a stalwart leader of efforts to achieve fair and equal rights for the developmentally challenged and to create programs to benefit the underserved members of our society.

Governor Carey was a decorated veteran of World War II; his unit liberated the Nordhausen concentration camp from Nazi Germany and he retired from military service with the rank of Colonel. Governor Carey was awarded the Combat Infantry Award, Bronze Star and the Croix de Guerre amongst other honors. A member of The Four Horsemen along with Senator Edward M. Kennedy, Senator Daniel Patrick Moynihan, and House Speaker Tip O’Neill, Governor Carey strived for peaceful solutions to the conflict in Northern Ireland.

Governor Carey was a graduate of St. John’s University and St. John’s School of Law.

He was appointed to the American Battle Monuments Commission by President Bill Clinton.

Hugh Leo Carey was married to the late Helen Owen Carey on February 27th 1947 in The Lady Chapel of St. Patrick’s Cathedral. Together they raised 14 children. The Governor is survived by 11 children, 25 grandchildren and 6 Great Grand-Children. Mr. Carey was pre-deceased by his late wife Helen in 1974, and three sons Peter, Hugh Jr., and Paul. His parents were Margaret Collins and Dennis Carey.

Funeral arrangements will be announced shortly.

Carey Was Indispensable In City’s ’70s Fiscal Crisis

By Henry J. Stern
August 8, 2011

The obituaries for Governor Hugh L. Carey stress a major achievement, bringing fiscal responsibility to New York City government after the financial crisis of 1974 and 1975. Here are some facts about the situation at that time and Governor Carey’s critical role.

Mayor Koch, who knew Governor Carey since they served in Congress thirty years ago, has written about Carey’s achievements. Click here to read his commentary.

This article is a worm’s eye view of the fiscal crisis and political events that surrounded and followed it. Back then, I was a City Council member at large, elected from the Borough of Manhattan. The City Council, at the time less powerful than it is today, had little to do with creating or resolving the city’s near-bankruptcy. We offer some background and political history of the 1970′s. Thirty-five years later, it is remarkable how many of these events have been forgotten, while the new generation of New Yorkers never knew them.

In Governor Carey’s inaugural on January 1, 1975, he said that “the days of wine and roses were over.” This was a sage prediction of the fiscal storms ahead. In response to the city’s inability to borrow money to meet its obligations, Carey secured state legislation creating the Municipal Assistance Corporation (also known as Big Mac) and the Financial Control Board for New York City. MAC had the authority to borrow money on behalf of the city, and city tax revenue streams were required to give priority to MAC bonds over any other municipal obligations. The interest rate on some MAC bonds was set as high as 11 per cent, and that income was tax-free. The FCB had authority over the city budget, its approval was required before a budget could be adopted.

The city’s fiscal crisis was different and more immediate than the one the Federal government is now enduring. For years, starting at the end of the mayoral term of Robert F. Wagner in 1965, and increasingly during the eight years of the Lindsay administration and the first year under Mayor Abe Beame, the city had consistently spent more than it received in revenues. The gap was filled by borrowing, and city officials devised a number of instrumentalities for short-term borrowing, which was in addition to regular long-term borrowing through the issuance of bonds. In addition, current expenses, which should have been paid for by current revenues, were allocated to the capital budget, which made them eligible for bonding.

To meet its cash needs, the city began to issue new instruments, called RANs, TANs and BANs. These were respectively Revenue Anticipation Notes, Tax Anticipation Notes, and Bond Anticipation Notes. When they came due, the city rolled them over, renewing them for a short period of time. The sum of money borrowed in this way steadily rose, and there came a time in 1975 when the banks, fearful of default as the city’s debt increased, stopped buying the freshly issued notes. This caused an immediate cash crisis, as the city did not have the money to pay its employees, having become dependent on the proceeds of the short-term notes which had been rolled over.

The Emergency Financial Control Board (as it was called at the time) had effective control of the city government, since it controlled the cash flow. Its seven-man board consisted of the governor, the mayor, the state and city comptrollers, and three private citizens chosen by the governor and confirmed by the state senate. Other elected officials were allowed to appoint non-voting representatives to the Board.

Governor Carey, who had become proconsul for the city, first secured the retirement of Deputy Mayor James Cavanagh, a longtime civil servant and the appointee of Mayor Beame. Cavanagh, an honorable man who came to symbolize the old way, was replaced by John E. Zuccotti, a 38-year-old who had been chairman of the City Planning Commission. The city reduced its expenditures sharply, mainly by laying off 50,000 employees on June 30, 1975, the end of the fiscal year.

Politically, Carey concluded that Beame was indecisive and not competent to manage the city. He and former Mayor Wagner set about finding a challenger for the 1977 Democratic primary. The usual partner of Wagner and Carey was Alex Rose, the Liberal Party leader who had brought about Mayor Lindsay’s re-election in 1969 after Lindsay, at the time a Republican, lost the primary in his own party. Lindsay was re-elected on the Liberal Party line.

Sadly, Alex Rose had passed away on December 28, 1976 and Wagner and Carey were left on their own. They settled on Mario Cuomo, at the time New York’s secretary of state under Governor Carey. Cuomo came in second in the seven-person primary race (Bella Abzug, who had just left Congress after narrowly losing a Senate primary to Daniel Patrick Moynihan, came in fourth). The top two, Congressman Ed Koch and Cuomo, made the runoff. Beame had been eliminated because he came in third, Manhattan Borough President Percy Sutton ran fifth and Bronx Congressman Herman Badillo was sixth. Joel Harnett, a civic reformer, was a distant seventh. The results were so close that the top six candidates each received more than 10 per cent of the vote, but none of them won 20 per cent. Koch was barely one per cent above Cuomo in the initial voting.

The law provided for a runoff between the top two candidates if no one received 40 per cent of the ballots. Koch defeated Cuomo in the primary runoff by ten points, and in the general election when Cuomo ran a strong race on the Liberal line. On winning, Koch declared peace with Carey, and the two men became political allies and friends. In 1982, when Mayor Koch ran against Carey’s Lieutenant Governor, Mario Cuomo, for the Democratic gubernatorial nomination, Carey endorsed Koch, who ended up losing to Cuomo.

The breakthrough in Hugh Carey’s political career came in 1974, when he defeated the better-known Howard J. Samuels by a 3-2 margin to become the Democratic and Liberal Party candidate for governor. Carey had been a Congressman from Brooklyn for seven terms. Samuels, known affectionately as “Howie the Horse”, had been the first chairman of the Off-Track Betting Corporation. He had the support of Democratic Party leaders and was personally wealthy due to the success of Kordite, a plastic product used in baggies, wax paper, plastic wrap, disposable kitchenware, and sturdy trash bags, which he invented and developed. Samuels came from upstate Canandaigua, and was widely referred to as “the upstate industrialist”. Carey was the downstate politician.

As governor, Carey made first-rate appointments to his staff, including David Burke and Robert Morgado as successive Secretaries to the Governor, Judah Gribetz as counsel and Michael Del Giudice as policy director. After he left office, Carey led a relatively private life with his family.

In addition to the extensive obituary by Richard Perez-Pena which began on A1 of the Times, the Carey family placed a lengthy and detailed notice on pA17, the obituary page of the newspaper. Mayor Koch wrote a tribute to the former governor, titled HUGH CAREY: NEW YORK’S GREATEST GOVERNOR OF THE MODERN ERA. Click here to find the column, republished on New York Civic’s website. It is well worth reading.

BTW, many years ago, Governor Carey received the park name “Leonine”. It was a reference to his middle name, Leo, and his stately appearance. In New York State, he was, at an important time in history, the king of beasts.

Statement: Robert Greenstein, President, on New Debt Ceiling Agreement

“The new debt ceiling agreement will achieve the essential goal of avoiding a potentially catastrophic default in the days ahead. But to say that the deal is likely to lead to highly unbalanced results would be an understatement. The deal places the nation on a disturbing policy course and sets what may become important precedents that are cause for serious concern.

“The agreement starts with nearly $1.1 trillion (or $840 billion, depending on the budget baseline used) in discretionary (i.e., non-entitlement) spending cuts over ten years, enforced by binding annual caps through 2021. It also calls for a Joint Select Committee on Deficit Reduction to propose, by November 23, steps to reduce the deficit by at least another $1.5 trillion over ten years, and for the House and Senate to consider the proposal under fast-track procedures that guarantee an up-or-down vote in both bodies, with a simple majority needed for passage. If policymakers achieve less than $1.2 trillion in deficit reduction through this process, an automatic across-the-board cut in non-exempt discretionary and entitlement programs will take effect to make up the difference between what they accomplished and the $1.2 trillion target.

“Multi-year discretionary caps were included in the major 1990 and 1993 deficit reduction agreements — but as part of larger deals that also included revenue increases. As we have noted repeatedly in recent years, establishing multi-year discretionary caps without an agreement on increased revenues makes it even harder to secure revenue increases for deficit reduction in the future. That’s because the only way to secure a bipartisan agreement that includes increased revenues is to provide anti-tax policymakers with significant spending cuts in return, likely including substantial savings from imposing discretionary caps. With 10-year discretionary caps already in place (and with the potential for across-the-board cuts that would further cut discretionary programs), there will be little prospect to exchange substantial discretionary cuts in return for revenue increases unless policymakers who support a meaningful federal governmental role are willing to accept even deeper, more draconian cuts in discretionary programs than the $1.1 trillion in such cuts that the agreement already requires.

“To be sure, the joint committee will have the legal authority to produce a balanced package that includes revenue increases as well as program cuts. But House Speaker John Boehner, in an effort to secure votes for the deal, is undermining the joint committee before it’s even established. Boehner has circulated documents to his caucus claiming the agreement requires the use of a “current-law revenue baseline,” thus “making it impossible for Joint Committee to increase taxes.” That’s not true. Even with such a baseline, policymakers could choose from among numerous tax proposals — such as the President’s proposals to end special tax preferences for corporate jets and tax breaks for oil and gas companies — that would produce deficit reduction. Moreover, the agreement does not require the joint committee to use a current-law baseline. The legislation to implement t he agreement would allow the joint committee to elect to use another baseline, such as the “plausible” revenue baseline that the President’s 2012 budget, the Bowles-Simpson commission, the Rivlin-Domenici commission, and the Gang of Six all used, or the current-policy baseline that was used in the earlier negotiations between the President and Speaker Boehner. This would allow the joint committee to consider tax reform such as the Senate’s Gang of Six proposal, which would not raise revenues relative to a current-law baseline but would raise revenues relative to either the “plausible” baseline or a current-policy baseline.

“That one party is being led to believe that the deal does bar the joint committee from raising tax revenue is not helpful, to say the least. Coupled with Speaker Boehner’s pledge not to name any members to it who will raise any tax revenue at all and to defeat any joint committee-produced package on the House floor if it raises any revenue, this interpretation of the agreement seems to give the joint committee only three places to go — severe cuts in entitlement programs, deep cuts in entitlements coupled with even deeper cuts in discretionary programs (i.e., cuts on top of the at-least $1.1 trillion in discretionary cuts that the annual caps will produce), or a failure to meet its target.
“If the joint committee were only to cut entitlement programs to reach its target, how deep would those cuts be? The deal that President Obama and Speaker Boehner were negotiating several weeks ago would have raised Medicare’s eligibility age, raised Medicare cost-sharing charges, shifted significant Medicaid costs to states, modified cost-of-living adjustments in Social Security and other benefit programs (and in the tax code), and instituted other entitlement savings. Those steps would have saved $650 billion to $700 billion over ten years. The joint committee would have to produce cuts twice as deep — and roughly twice as deep as those in the Gang of Six plan.

“Democrats on the joint committee would not conceivably agree to entitlement cuts, or a mixture of entitlement and deeper discretionary cuts, that deep. Hence, if Speaker Boehner honors his pledge to keep revenue increases off the table, the committee will surely fail — and gridlock and policy warfare will continue.
“The joint committee could agree on a much smaller amount of savings without revenues, but nothing close to $1.2 trillion to $1.5 trillion. Thus, unless Republicans back off their refusal to consider any increase in revenues, the joint committee will fail to produce savings anywhere close to $1.2 trillion — triggering across-the-board cuts that are of unprecedented depth and will remain in place for nine years.

“In key respects, then, this deal postpones the biggest battle over deficit reduction, creating an even more cataclysmic clash that would occur most likely in a lame-duck congressional session after the 2012 election. At that point, three huge events will loom: 1) across-the-board cuts in January 2013, with half of them coming from defense (amidst likely charges that they will jeopardize national security); 2) the scheduled expiration of President Bush’s tax cuts at the end of 2012; and 3) the renewed specter of default if policymakers do not raise the debt ceiling quickly again by early 2013. Where all of that will lead policy debates and outcomes is impossible to predict at this point.

“Anticipating the policy battles to come, we should not lose sight of an alarming development. Those who have engaged in hostage-taking — threatening the economy and the full faith and credit of the U.S. Treasury to get their way — will conclude that their strategy worked. They will feel emboldened to pursue it again every time that we have to raise the debt limit in the future.

“They also will likely continue insisting, in future hostage-taking efforts, that for every dollar we raise the debt ceiling, we must cut spending by a dollar, with no revenue allowed. When one considers that even the harsh budget plan of House Budget Committee Chairman Paul Ryan would require policymakers to raise the debt limit by nearly $9 trillion over the coming decade, one begins to understand the extraordinary results such a policy path would produce over time. Substantial parts of the federal government, including important parts of the Great Society and even the New Deal, would be cut sharply or eliminated. That would put us on a path toward achieving anti-tax activist Grover Norquist’s vision of shrinking government to the point where ‘we can drown it in the bathtub.’

“Having said all this, the agreement has some partially — but important — redeeming features. For one thing, the Administration ensured that half of the automatic cuts that could be triggered will come from defense programs, and that basic entitlement assistance programs for low-income Americans, as well as Social Security, will be exempt from such cuts. This could provide helpful leverage for a more balanced solution in the showdown likely in the 2012 lame-duck session. For another, the deal raises the debt ceiling until about early 2013, so the nation’s credit will not be threatened in coming months by election-year politics. (On a smaller front, the Administration secured beneficial provisions related to Pell grants.)

“Our grim assessment of the agreement, its very disturbing implications, and the policy and political trajectory that we now face are not arguments for defeating the agreement on Capitol Hill. There is an adage that, as bad as things get, they can always get worse. If Congress defeats the package, one or both of two very troubling developments may well occur: we may experience a default, with potentially catastrophic consequences for the economy and the nation’s future; or policymakers may quickly rejigger the deal, making it still more unbalanced in order to secure more arch-conservative votes. These are risks that are simply too dangerous to take — despite the deeply troubling problems that this deal poses.”