Transcript: Interview with the governor

Jay Gallagher: The economy is the big issue to our papers and our readers, and we'll be writing a series of stories about it over the next year. There are three parts to the critique of not only your administration but also the Legislature. We're also taking a historical look at this thing back to Rockefeller, when spending and taxes in New York started to diverge from the rest of the country. There's a connection between our high spending, our high taxes and our relatively poor performance economically compared to the rest of the country.

George Pataki: I couldn't agree with you more. That's what I've been saying since before I was governor, since my first day in the Legislature.

Gallagher: The critique has three parts. The first is fiscal. That is, in the first two or three years of your first term, you did a good job of holding down spending and taxes and keeping them in line with the rest of the country. Since then, you've gone back to the old ways ...

Pataki: That's something easy to say, but the facts don't support it. Just look at the actual facts. If you look at us, New York relative to other states in the country, we are third in general-fund spending containment ... At a time when New York has had an aging population and an influx of immigrants, still in the top three in controlling general-fund spending. If you go to all funds ... we're seventh in the country.

That's an extraordinary record, particularly, as you say if you want to put it in historical context. Go back to the Cuomo years, go back to the Carey years, go back to the Rockefeller years, go back before then and tell me the last time New York achieved those fiscal numbers.

And I might say that's not withstanding the fact in every single one of those budgets, we've had a tooth-and-nail fight with the Legislature that wanted to increase spending ... I don't think there's a governor in America who looks at what's been done. I don't see when you're going to see a fiscal record like that. Where am I wrong?

Gallagher: If you take out the first three years ...

Pataki: (laughs) Sure, and if you take out the last three years, we're probably first in the country. You can't do it in a vacuum, Jay. When you cut something in year one, two and three, you're going to have to have more spending in year four than if it hadn't happened in year one, two and three. That's just ridiculous ... That was the foundation we worked hard to achieve ... What other state got four investment upgrades?

Carol Stone: None that I know of.

Pataki: As of Sept. 11, 2001, we were sitting on massive surpluses, four credit-rating upgrades and third or seventh in spending restraint in America. Ignore the first three years? That was the whole basis.

I remember sitting here with Commissioner Mills ... and he said, we need much more money for education. I told him that education is a priority, but we can't do it until we straighten out the fiscal situation of the state, and we did. When you look at the spending, Jay, we also include STAR, which is a tax cut, which is what, $2.8 billion?

The star program results in dramatically lower taxes for people across the state.

Gallagher: It doesn't help businesses.

Pataki: No, it doesn't help businesses, but it certainly helps their work force, and it helps the communities they want to locate in. I would ask you to take a look over those last eight years and say, 'look at what they did, and look what New York did.'

Gallagher: But the fact that we were still out of line after three years, why not continue those strict fiscal policies?

Pataki: We have. We haven't reverted. Look at the cumulative record. Third in the country. I know people come in with preconceived notions, aha, this is what happened, but it's just not true. Look at the facts. I am extraordinarily proud of this record.

Gallagher: After Sept. 11, we had $3 billion in accumulated surplus but that was mostly used up in the '02-'03 budget year.

Pataki: Of course. We had an absolute catastrophe.

Gallagher: But spending went up that year.

Pataki: If you remember Jay, we didn't have a budget. I refused to go along with the Legislature's spending demands. They passed a so-called baseline budget in hopes they would shame me into coming back and spending more. I refused. After the Sept. 11 tragedy, we were able to enact a reasonable budget.

But Jay, it galls me. Forget the first three years. Look at my fourth year. An election year. I was running for re-election. The Legislature went off on their own and passed a ridiculously bloated budget knowing that since I had to run for re-election as a Republican in a Democratic state, there was no way I was going to veto these very attractive items. I line-item-vetoed, I think, 1,300-plus items, well over $1 billion in spending in my re-election year because I believe in fiscal discipline. I believe you build a sound foundation for the future. That was not one of the first three years. That was the fourth year.

Look at the seventh or eighth year when they passed their so-called baseline budget and we held the line and fought tooth-and-nail.

Gallagher: But then in October, you agreed on spending worth $500 million more.

Stone: If I could just interject, in October we went into special session and got some substantial reductions in spending and authorized revenues.

Gallagher: Wasn't it $500 million more than the baseline budget?

Stone: There were some pluses and minuses, but on balance we achieved savings in the October session

Joseph Conway: And we accessed more federal funds.

Pataki: One of the things we've been working very hard on is accessing federal funds. As Sen. Moynihan used to point out, tens of billions a year we send down we don't get back. Jay, that should be part of the calculation, is how much, when you look at the burden, how much we spend to Washington we don't get back. It's an enormous drain on the state's economy. (The late Sen. Daniel Patrick) Moynihan estimated 15, 16, 18 billion. Other analyses estimated it to be much higher. It all comes right out of New Yorkers and out of our economy.

Conway: That shows up in the growth of our all-funds growth.

Pataki: Yeah, our maximization of federal funds to try to lessen that horrible imbalance.

Stone: Including the World Trade Center aid.

Gallagher: It's not like we don't get anything back for that money We pay for he armed services out of that money.

Pataki: The bottom line is we have a gross imbalance for Washington and it has a very real impact on the state of New York. Whether it's the Medicaid rate, where we get 50 percent where other states get 70 percent. We're now getting 52 for 15 months. Or the tax structure itself because New York and the entire Northeast are high-income, high-cost states. We pay proportionately much more in income taxes. Whenever federal income taxes are cut, the largest beneficiary proportionately by far is New York.

Gallagher: Don't you believe in the progressive income-tax system? Shouldn't people who make more pay more?

Pataki: Of course. But I also think New York should get far better treatment out of Washington than we have.

Stone: In August 2001, we were still fighting with the Legislature that the national economy had turned down. In October, when they came back, we did some building-aid reform, we did some revenue initiatives. We also simultaneously imposed the hiring freeze. That has saved us nearly 10,000 jobs. So there were a lot of administrative actions.

Pataki: We also ordered all agencies to cut their spending by 5 percent.

Stone: Starting in the 2001-2002 fiscal year, the governor recognized what was happening.

Pataki: The reason we had the baseline budget in 2001-2002 is because we saw the national economic trends, and the Legislature either didn't see it or refused to acknowledge it.

Gallagher: In retrospect, would you have been better off saving some of that $3 billion in surplus money and using it for this year when obviously ...

Pataki: No. We had an unimaginable catastrophe befall New York and it cost us enormously. It cost us most gravely in human terms. Overnight, we lost 100,000 jobs. We had 30 million square feet of office space destroyed.

Certainly the human consequences, but the economic consequences. We were dealing with an unimaginable crisis and we dealt with it extraordinarily well. And I'm incredibly proud of how this administration and all New Yorkers responded to the challenge.

Gallagher: Moving on to the economic issues, certainly during the first part of your tenure, the gap between job creation in New York and the rest of the country narrowed. I think there were two years, 1999 and 2000, that we surpassed the nation in the job-creation rate.

Pataki: When was the last time that happened?

Gallagher: Once under Cuomo? Maybe back to Rocky.

Pataki: I don't know if we had back-to-back years of surpassing the national rate of growth for the last 20 years. We're proud of what we did and what we're still doing to bring back the economy in the face of very great challenges.

Gallagher: Since then we've slipped back. In the two years that ended in August, we lost 3 percent of our jobs, compared to 2 percent for the nation.

Pataki: I don't have the statistics, but if you look at our performance relative to the other industrial states near us, it's been virtually identical. But you have to understand Jay, those other states didn't lose 30 million square feet of office space. The other states don't have a cluster of financial industry so when the stock market plummets and when the financial-services industry is reeling from scandals like Enron and others, it impacts New York state enormously. When the corporate governing scandals hit, it impacted New York enormously. So we had extraordinary events. Maybe you could have predicted Enron. I didn't. Maybe someone could have predicted the economic consequences of 9/11, I certainly couldn't have.

Yes, New York has been harder hit than any other states by outside circumstances. California was hit by the dot-com boom collapse. But that was something Alan Greenspan was talking about year in and year out. I forget the term, maybe it was a bubble or something. Greenspan was warning about that. No one was warning about the financial-services industry, the stock market and Sept. 11, and losing 30 million square feet of office space and the corporate governance scandals.

That really hurt the New York economy. For all that, we can still look at tomorrow and next week and next year and the next decade with enormous optimism because we have provided the leadership to get through these incredible challenges. Whatever challenges are out there, we will do it again. And we'll continue to build for a better future in this state. We're going to do it.

Conway: Back out New York City, and the rest of the state has been doing as well as the rest of the country.

Pataki: That's the first time that's been the case in a very long time. The last recession in the Cuomo years, our recession was five or six times as strong. We went into it earlier and came out of it later. Particularly upstate, where durable-goods manufacturing is so important. That's what gets hardest hit in a recession. That didn't happen this time relative to the rest of the country. Obviously we went down as a nation. We didn't go down more. We didn't go down five or six times as much as was the case the last time because people do have much better confidence in the economic climate, the social climate, the quality of life and the future of this state.

Gallagher: I understand we're part of an international, national and regional economy. There are forces beyond New York state that caused manufacturing to virtually collapse, not only in New York but around the country. What do you see as the economic future of upstate? Obviously when employment at Eastman Kodak goes from more than 60,000 to 18,000 ... it has an enormous impact. And Carrier and other well-paying industries moving out. Do you think the Centers of Excellence will eventually create as many jobs?

Pataki: Many more.

Gallagher: Many more?

Pataki: Absolutely.

Gallagher: Are you counting on the centers to provide the catalyst that will revive upstate?

Pataki: You don't put all your eggs in one basket. We've got to fight for every job. Were not giving up on any of the industrial and manufacturing companies that are here or that we want to bring here.

We got a new steel mill because of the Empire Zone in the Southern Tier. It's not simply high-tech. We've got to fight for every job. We're fighting now to see if we can reverse Carrier's determination. But we're facing enormous challenges. I'll just tell you, when I talked to the chairman of Carrier ... In the container compressor industry, where Carrier is one of the major components of what they produce in Central New York, 90 percent of their market is in Asia. They can produce those compressors for 30 percent of the cost in Asia as in Central New York. It is enormously difficult to compete in these times, but we are. And we're going to succeed in the competition.

We're going to succeed on a number of factors. One, we have to continue to lower the cost of doing business in New York state, which is why I'm going to continue to fight for tax cut and workers' compensation reform and regulatory reform and energy-cost reductions ... We're going to fight for every manufacturing job and every job we can bring or attract.

At the same time, we're fighting on other fronts, as well. Quality of life, having safe streets. Having clean air and more open space. In the 21st century with personal mobility and corporate mobility, you have to have the quality of life issues.

And then there's the quality of the work force. I can't tell you what a success story SUNY and CUNY are. Having higher standards and more students and cresting a great work force that meets the educational requirements of the 21st century. You have to do all of that. And that's apart from the Centers of Excellence.

But to me the most exciting elements is the Center of Excellence. Because we have the potential to create collaborate clusters not just for research and product development but ultimately to commercialize those products. Across what we now call the Empire State high-tech corridor.

Let me tell you one story as to how we've changed things in this state.

Before I took office in 1994, I went around and met with some of the top private-sector leaders across the state to talk to them and ask them, what do you think? Virtually to a person, they said, we're going to give up on New York, it's not going to work.

I remember sitting down with IBM. Lou Gerstner wasn't there at the time, to his No. 2 guy, to talk about IBM and what they were doing.

Gallagher: Who was that?

Pataki: I don't remember his name. But they pulled out a map ... and said here's the IBM headquarters. Here's the land that IBM owns. They showed me a blue line down the middle of the map of their property. They said do you know what that blue line is? I said 'no.'

It's a survey, maybe it's a stone wall or something. They said it's the Connecticut border. I'll never forget this. They said, why should we be on this side of the border without new world headquarters, as opposed to that side of the border, when Lou Gerstner and all our top officers live in Connecticut, and when we can be anywhere on the globe?

I was also told by Gerstner at a subsequent meeting that he had made a conscious decision to pull every single IBM job out of New York state whenever there was a decision to be made about where you were going to close something, or where you were going to relocate something. He had made a conscious decision every chance, he was going to pull jobs from New York and put jobs elsewhere.

To make a long story short, their new world headquarters is in New York state. The most advanced chip facility in the world again, we had global competition, a $2.6 billion plant, is in New York. They are a key element of our Center of Excellence in nanoelectronics in Albany because they again have confidence in New York.

I remember talking to George Fisher of Kodak. He was telling me the same thing. He said we have a great plant, I forget what it was for, in Colorado. And he said do you know why it's in Colorado? I said no. Tell me. Yes, it's the economic structure and it's also regulatory. Colorado has very high environmental standards, as does New York. But we can get the plant done in 6 months in Colorado, and here it would have taken, if we were lucky, 2 1/2 years (in New York). And in the market, we couldn't wait that long.

Obviously Kodak is struggling in the global marketplace and scaling back. But we no longer have companies doing that ... it was one of the inspirations for our shovel-ready program where we have sites where you can go in a month.

We've listened, we've responded. These are the toughest economic times we've faced as a state since I don't know when ... Our state, our policies, for all the difficulties we're in now, are successful.

Gallagher: Were you discouraged that during the last legislative session that virtually every initiative business was asking for — reforming worker's comp, doing something about tort reform, scaffolding law, Wicks, all of the things we hear local governments talk about year after year as things that discourage business and drive up their costs. Despite the unprecedented crisis, the $12 billion potential hole, despite the economic downturn, despite 9/11, none of that stuff got done. What is it about Albany?

Pataki: I think it's disappointing but it's not discouraging. You never get discouraged. You always have to live up to the fight. There are enormous entrenched interests in the Legislature that just don't want change. And we saw that when we battle for the workers' comp change and when we fought for some of the minimal success we've had with the tort issues. We proposed a number of tort changes that would have helped Mike Bloomberg. At a time when it wasn't just the state but also the city that was facing real economic pain. None of it was passed. It's clearly disappointing but not discouraging. You have to move forward.

Gallagher: It seems like a no-brainer.

Pataki: It is a no-brainer. But unfortunately, it requires the Legislature to act on it. That's just one example of the unwillingness on the part of some of those in the Legislature who have the ability to prevent this type of change from occurring. You don't get discouraged. You keep fighting the fight.

Gallagher: Let me ask you about the process. It seems like if you're not Dennis Rivera (head of Local 1199 of the SEIU) or the Trial Lawyers or you don't hire Pat Lynch (a lobbyist who is a former aide to Speaker Sheldon Silver) or Al D'Amato, (former senator-turned-lobbyist) it's hard to get your voice heard. You have a very closed process. In the first few years you made some attempts I thought to open it up. But we're kind of back to where we used to be — three men in a room.

Pataki: Are you talking about the legislative process?

Gallagher: Yes.

Pataki: The legislative process is something where all we can do is propose reforms and it's up to the Legislature.

Gallagher: I don't mean just the legislative process. I mean the entire process. We hear all the time about the HCRA (Health Care Reform Act) deal that was struck at the last minute. Voted on that night. No public hearings, without an actual written proposal.

Pataki: I would love to explain that because I'm very proud of that HCRA deal. It wasn't the product of a one-night meeting. It's something we worked on for months. We worked on it with the hospitals, we worked on it with the nursing homes, we worked on it with 1199, and we worked on it with our budget and health experts. We were facing, as is not uncommon in New York state, a serious crisis in our health-care system. We wanted to provide stability.

What we achieved was an incredible accomplishment. We were able to give raises to our health-care workers who were at the lowest end of the pay spectrum and provide them with career ladders so they could upgrade their skills so that technicians could become nurses and full that shortage. We did it in a way that didn't hurt the hospitals or the nursing homes who were financially worried about their status. And we did it simultaneously with getting reforms to Medicaid that in those first three years saved $1.2 billion. In fact it was a net-cost saving to the state of New York.

Now I negotiated very hard with all of those elements, the hospitals, the downstate hospitals, the upstate hospitals, the nursing homes, 1199, everybody involved coming to a consensus. Then I presented it to the Legislature. Now I can't tell the Legislature what their procedures and policies are. They could have gone out and held hearings on it. They could have done it a month later or two months later. If they request a message of necessity from me on any bill, by and large I'm going to give it to them because I respect their request ...

It has helped the hospitals, it has helped the workers. It has helped stabilize the system. It has helped the state's finances because of the $1.2 billion in Medicaid reforms. And this was not an easy thing to accomplish.

Conway: Before Monica (Pataki's secretary) has my head, we are going to have to wrap up here. I don't know if you want to give some kind of an overarching view, given where Jay is going with this story.

Pataki: I fear. (laughter) I hope it's not pre-written. I really do.

Gallagher: If I might just say one thing about that. Obviously this is going to be a hard look at this problem.

Pataki: Good.

Gallagher: But it's not just focused on you and this administration. It's focused on the whole Albany process, and also we're looking historically, as well. Obviously it was not something that was perfect when you came in.

Pataki: Big picture. The national economy for the last 50 years has been in a transition, it has been in a transition both in a component element, where manufacturing has become less important nationally or less successful nationally, to where geographically parts of the country that hadn't been opened up in the past have been opened up, like the entire South. Where there was segregation and other walls. So they weren't a successful part of the national economy. Now they are.

Gallagher: Carrier air conditioners helped.

Pataki: There is truth to that. So there has been a dramatic change. New York for the longest time, I don't believe, prior to our involvement, had any sense what to do about that change.

Let me first give Gov. Rockefeller some credit. The Thruway system and the university system were ahead of their time and are important elements of the 21st century economy.

Gallagher: It was Tom Dewey (who built the Thruway).

Pataki: Tom Dewey, that's true. We had that, and it was a positive. But then as things changed and New York couldn't afford the level of spending, the state did not respond in an appropriate way.

So when we took office, there was no question in my mind that we needed to make dramatic changes. And I think we have. And I'm very proud of what we've done in the short term, straightening out the state's finances in specific cases working with companies to convince them to stay and generically with programs like the Empire Zones to allow manufacturers to have the opportunity to compete successfully here. I'm extremely proud we're not just looking at Carrier here, or IBM there or Tokyo Electric here. We're saying where are things going to be in the 21st century? New York hasn't done that before.

The answer is going to be cluster and collaboration. High tech and innovation. When you think how the United States, as opposed to New York, is going to compete successfully, there are basically two options. You can build a wall around the country and say to a company, 'you can't go overseas because we're going to have tariffs and barriers.' Or you can innovate and compete in a global economy.

The first thing is not going to work. It's impossible to build walls in a global economy ... So you have to innovate. That's what we're doing with our centers or excellence, that's what we're doing with our high-tech corridor, that's what we're doing with the synergies from the university sector and the private and nonprofit sector involved with state government.

That's what we're doing not just with the Centers of Excellence, but with the Genesis program where you go over to RPI and see what's going on there, the strategically targeted academic-research programs. We came very close to landing in Rome the bioterrorism laboratory because of these types of investments we're making.

I just called for the program in 2001 ... What we've accomplished in a short period of time is really important. But what we're going to accomplish over the course of the next years is going to be historic.

I think we have the ability just as the Silicon Valley came out of nowhere, just as South San Francisco bioengineering came out of nowhere, just as the Research Triangle of North Carolina people never would have thought of that 20 years ago. They're not going to be talking about the Research Triangle in North Carolina in 2020. They're going to be talking about the high-tech corridor in the Empire State. I only believe we're doing everything in our power to make that happen.

Tax cuts are a critical component. I know you have a tendency to pooh-pooh the tax cuts. But in fact no state in America has done more: 27 percent of all tax cuts in America over the last eight years have been in New York state.

Gallagher: But we're still paying higher taxes than anybody.

Pataki: Of course. That's why I want to continue to lower taxes. Jay, you're sounding like a Republican. You want to control spending, reduce taxes, reform the Wicks law and torts. So do I.

Gallagher: They seem like no-brainers to me.

Pataki: They seem like no-brainers to me. Whenever the Legislature wants to raise taxes and spending as they did this year, I expect you and Gannett to be out there saying, how dare they?

Gallagher: One more specific thing, if you don't mind. I'm also doing a story about the rivalry between Fuji and Kodak. The governor of South Carolina is part of group of Southeast governors. Every year they meet with a bunch of Asian businesspeople. One year in Asia and one year somewhere in the Southeast U.S. They just got back from Asia, and the governor of South Carolina announced three or four new companies from Asia are going to invest in South Carolina. What do we have to do to attract investment like that?

Pataki: If you take a look at manufacturing jobs in South Carolina over the last eight years, we have virtually an identical record. More recently. Over the last two to three years. We have virtually the same record.

That's not to pooh-pooh anyone else's success. We are out there aggressively competing in the global marketplace. We are getting the word out there.

Look at Tokyo Electron. For the first time in the history of that company, they are investing outside Japan ... When I think of the future, a computer toolmaker putting 300 million into research and development ... I'd love to have Fuji here. But given the choice, there's no reason to have a choice. We'll keep fighting to get Fuji and everybody else to come, as well.

I am very proud of the fact that Tokyo Electron are coming here. We're going to do more.