It seemed, at the time, like an auspicious moment. On a slushy winter's day at the New York State Capitol, David Paterson entered the Assembly chamber to give his first State of the State speech as governor. He drew a chuckle from the audience with a slight but theatrical bow as he handed Assembly Speaker Sheldon Silver a bound copy of his speech. Then, having memorized the entire 63-minute address, he turned to a bare lectern to begin.
By all historical and political standards, this should have been the opening act to an exuberant era for Paterson and most of the politicians surrounding him. For the first time in 70 years, the Democratic Party was in control of both the New York governorship and -- by virtue of a new, slim majority in the state Senate -- the two chambers of the legislature. On the day Paterson delivered his speech, when Silver held up the arm of newly minted Senate Majority Leader Malcolm Smith, the chamber erupted in wild shouts and applause -- the rumble of frustrated ambitions breaking an ice jam that had lasted decades.
Yet in hindsight, the general feeling of goodwill in the room that day may have been the high-water mark, the moment when Paterson's governorship -- and Democrats' hopes for a new era in Albany -- began to slide from promise-filled and potentially transformational, to embattled. Today, not even two months later, there is open speculation among Democrats that Paterson's time as governor may be short-lived: from the day a year ago that he was sworn in to replace the scandal-battered Eliot Spitzer, to the moment the winner of next year's gubernatorial contest takes the oath of office.
Whether or not New York finds itself with a third governor in as many years depends a great deal on how Paterson himself responds over the next few months to a question he posed to legislators that day at the capitol. Against a backdrop of unrelenting financial pressure and some $15 billion in budget cuts and tax increases he'd proposed three weeks before, Paterson challenged his listeners this way: "[Are] we in politics ... going to raise hopes we can't fulfill, make promises we can't keep, talk in absurd extremes or peddle a bunch of simplistic exaggerations that parody the truth?" he asked. "Or are we going to act?"
In essence, Paterson was asking Albany to reshape itself. Thrust into an office he didn't seek, confronting a state economy whose underpinnings are turning to mist, Paterson has made budget and fiscal reform the centerpiece of his governorship. "In this sort of budget crisis," he said in an interview a month after the speech, "I want to redefine the budgeting structure for the foreseeable future, where it will now become the culture that there is no way to outspend revenue projections, and that the overall state debt has to be paid down."
This recognizes a stark fact: The rest of the country's economy may be grinding to a halt, but the center of the financial destruction that set off the downturn lies in New York, and state government is paying the price. Over the past few years, the lavish incomes and various activities generated on Wall Street came to account for 20 percent of state revenues, and they are disappearing, perhaps for good. Paterson's success as governor will depend on his ability to persuade lawmakers and others to allow state government to mature from one eager to spend taxpayers' money on whatever any organized interest or legislative majority wishes, to one that can stare financial reality in the eye and respond appropriately.
At the time of his speech, the potential obstacles sat all around him. Malcolm Smith, ideologically inclined to go along with Paterson, had just taken over as majority leader of a state Senate so new to change and so precariously balanced -- Democrats hold only a two-seat edge -- that no one could predict what the next few days would bring, let alone the upcoming session. Sitting in a folding chair on the floor in front was the man Smith had just replaced, Republican leader Dean Skelos, whose caucus had held the Senate reins for all but nine months between 1939 and an hour before, when the upper chamber organized for the year. He and his colleagues were already maneuvering for a return to power. Presiding over it all was Speaker Silver, whose fixed grip on the Assembly -- a chamber that bestows untrammeled power on the speakership -- made him, in many ways, the arbiter of Paterson's hopes. And out of sight, but hardly out of mind, were some 5,000 protesting union members, most of them public employees, massed near the building in an unmistakable reminder that Albany's organized interests don't take being told "No" lightly.
None of these challenges has gone away, yet in the weeks since then, an even more formidable stumbling block to Paterson's hopes has emerged: Paterson himself. From his State of the State, which was widely panned as flat and uninspiring at a moment when his cause needed a ringing call to arms; to his administration's treatment of Caroline Kennedy in its fumbling search for a U.S. Senate replacement for Hilary Clinton; to the public hammering Paterson has been taking from unions and other deep-pocketed interests trying to stave off budget cuts; to widespread reports of infighting and upheaval on his staff, the governor's standing within Albany, and hence his ability to maneuver for his budget goals, has taken blow after blow.
"This governor hasn't wavered on the budget," says a longtime lobbyist who is sympathetic to what Paterson is trying to achieve. "But the legislature -- run by Democrats now, all his people -- may just decide, -This isn't going to work for me, why should I bother to swallow hard medicine given me by a guy we don't have confidence in?' Nobody's afraid of this guy now."
The most important thing to understand about David Paterson, who is 54 years old, is not that he is New York's first African-American governor, nor that he is its first legally blind one -- although his drastically impaired vision, the result of an ear infection as an infant, has undoubtedly marked his personality in myriad ways. Instead, it is that he wants to operate differently from his predecessors, perhaps because he seems to have no higher ambitions than governor. Paterson spent two decades in the state Senate, first as a rank-and-file member, then, from 2002 until he became Spitzer's lieutenant governor in 2006, as the Senate Democratic leader, and he was friendly with colleagues on both sides of the aisle. As governor, he has labored to work collaboratively, not in the confrontational manner governors before him tended to adopt. "He doesn't pick a fight with you; you have to pick a fight with him," says the lobbyist. "There's no malice."
He also has a quick and disarming wit: When the wife of Jonathan Lippman, the man he'd just nominated to be chief judge, fainted at the press conference introducing him, Paterson returned from making sure she was okay to reassure the alarmed audience, "It's the usual reaction when Jonathan is speaking."
All of his charm and obvious decency built Paterson a reservoir of goodwill, both in Albany and throughout the state, and the good feeling has only partially evaporated with his recent travails. Still, this is the moment when Paterson most needs high public standing, as he and legislators negotiate a budget that is all about allocating pain. Unemployment in New York is forecast to rise above 9 percent this year, wages to drop by 3 percent and personal income to fall by 2 percent. Overall, the state comptroller's office foresees a $19 billion reduction in state revenues between now and the 2011-12 fiscal year.
The big contributor to all this, of course, is the Wall Street meltdown. In November, State Comptroller Thomas DiNapoli predicted that the state could lose 225,000 jobs and $6.5 billion in revenue over the next two years because of the financial crisis. Some in Albany argue that the financial industry will never again be a major contributor to the state's economy. DiNapoli disagrees, but only up to a point. "You won't have the outsized revenue gains that you had from 2003 to 2007," he told reporters in January. "You'll have fewer employees, even when things stabilize. And you won't see huge profits."
The result is that New York is looking not just at a temporary budget shortfall but at what is almost certain to be a permanent reshaping of its economy and revenue structure. Paterson began arguing that the state was in dire trouble long before anyone other than his department heads was willing to listen to him, and began ordering cuts at state agencies almost a year ago. "It's been a continuing process," says David Hansell, commissioner of the state welfare agency, who was appointed by Spitzer and kept on by Paterson. "We've been going through one round of reductions after another."
The $121-billion budget Paterson proposed in December represented his first large-scale effort to come to grips with the challenge. It called for significant cuts to school aid and to a school-tax-rebate program that has been especially popular in the suburbs; give-backs on public employees' negotiated raises and changes to their pensions, although only minor layoffs; reduced Medicaid payments to hospitals, nursing homes and pharmacists; closure of under-used state institutions, especially upstate; drastic cutbacks in the much-debated "Empire Zone" program, which gives subsidies to businesses; and smaller cuts to a huge range of programs, from after-school care and child-abuse prevention to solar-energy subsidies and waterfront redevelopment.
Paterson coupled all this with a welter of tax and fee increases, mostly on consumption -- the most commented-upon being his so-called "fat tax" on sugared soft drinks. He did not propose any increase in income taxes, despite loud calls from traditional Democratic allies for a so-called "millionaire's tax" that, should it see the light of day, is actually more likely to impose a surcharge on taxpayers with incomes above $250,000.
All of this has made Paterson difficult to pinpoint politically. Certainly, he has not resembled the conventional liberal he seemed to be in the state Senate. "There has been a proliferation of a culture of overspending," he says now. "The Democrats were in charge of the first half of that trend, and we were accused of taxing and spending; and the Republicans were in charge for the second half, and they did it with borrow and spend, but where we agreed was, we kept spending."
Initially, this fiscal sobriety worked to Paterson's advantage. Eliot Spitzer had taken office as governor in 2007 as a political reformer of a different stripe and temperament, bent on changing the slack ethical culture, pay-to-play expectations and opaque political maneuvering that had long characterized state politics. He spent months denouncing the "three men in a room" model that had the governor, Senate president and Assembly speaker as the only decision makers who mattered on many subjects. Unlike Paterson, he made no effort to behave in a personally ingratiating way. His peremptory style and attacks on Joe Bruno, then the Republican Senate president, brought the legislature into open resistance.
The budget crisis allowed Paterson to sidetrack most of Spitzer's procedural reform goals -- and avoid criticizing most of the entrenched habits of his former colleagues in the legislature. He continues to present himself as no less a reformer than Spitzer, but his version of reform consists of changing the budget, and taking aim at the long-standing notion that state government can be endlessly bountiful.
Many liberals argue that the state's deficit stems mostly from billions in new education and health care obligations taken on under Spitzer and his predecessor, George Pataki. "They were gambling that revenues from the existing system would grow fast enough to cover not only existing expenditures but these new expenditures," says Frank Mauro, director of the Fiscal Policy Institute. Paterson's goals are more structural. By imposing rate reform for nursing homes, re-evaluating subsidies for teaching hospitals, changing the formulas for school aid and payments to home-health-care agencies, closing state prisons, and reducing pension benefits for new state employees, he is starting to rethink what government should pay for in the first place.
"These are items that begin to move the state in a new direction," says Elizabeth Lynam, of the business-oriented Citizens Budget Commission, "to acknowledge that what we've been doing isn't going to be affordable anymore." Or, as Paterson says, "We're trying to put in a system that's closer to what entities can endure -- what really is a fair distribution of sacrifice in a time like this. But we're also hoping that will roll over and start to become policy rather than crisis management."
Of course, a governor's budget is just a starting-point for negotiations, and even under the best of circumstances, Paterson would have had a difficult time. To begin with, as the public employee unions showed by protesting the State of the State speech, many organized interests are scrambling to block what Paterson has proposed. "New York is a lobbyist's haven," says Alan Chartock, the CEO of public-radio WAMC. "These guys invest a ton of money into the system and have tremendous sway." At the end of January, the hospital workers and the Greater New York Hospital Association signaled their intent to pull out all the stops with a hard-hitting television ad that featured, among others, a blind man asking Paterson, "Why are you doing this to me?"
To those who have spent years around the legislature in Albany, this is familiar ground. "When the health care and education establishments get done with ads that have him killing patients because of the Medicaid cuts and abusing children because he's closing schools," says Lawrence Levy, of Hofstra University, "his approval will be under 50 percent just as every governor who has faced them has ended up."
Paterson, in what has become typical fashion, has responded to these critics by agreeing that what he's asking is very difficult, but insisting that he has no choice. "I have absolutely no problem with their ads," he said one day at the beginning of February. "I think they are articulating correctly the feelings of people around this state. But the question is, Where are the leaders right now? If anybody thinks that this is an opportune time to take advantage of me, it is not, because this issue is not about me. This issue is about the welfare of the people that live in this state. And I'm the last person standing warning us that we will be in economic crisis, if not bankruptcy, if we don't act now."
Yet Paterson is asking individual legislators to take on what amounts to a great deal of political risk. "This is all distasteful," says John Bonacic, a veteran Republican state senator. "The legislature has been wedded to special interest groups. It's against their political survival to have to do these acts -- they've never had to do them before. The appetite to spend was insatiable, but those days are gone. Can the legislature, who are political animals by nature, can they get it and step up and do the right things? That's really the big question."
This is where Paterson's self-inflicted wounds come in. The precipitating event was his handling of a Senate replacement for Hilary Clinton and, especially, what amounted to a smear job against Caroline Kennedy that came out of his office. For months, Paterson had played coy about his choice, musing aloud over his options and dropping misleading hints to the press. Then, during a confused and chaotic night and day in late January when Kennedy withdrew from consideration for reasons that still have not been made clear, a consultant to Paterson orchestrated an effort to discredit her. The governor initially denied that any close aides had played a role, then -- after a flurry of reporting suggested he had to have known what was happening -- took responsibility.
Although the episode tarnished Paterson's standing with the public, its ripples have done even more damage in Albany. His behavior crystallized doubts that the capitol's persnickety politicos were already harboring: about the capabilities of the governor's press and political operation; about his penchant for forgetting that even a governor's informal musings are taken seriously by the political community; about what one reporter for the Albany Times-Union called "the perception that Paterson fudges the truth, whether deliberately or out of a desire to please." As SUNY's Gerald Benjamin says, "It legitimized a subtext that people had been unwilling to talk about publicly."
To be sure, Assembly Speaker Silver and Senate President Smith moved quickly to shore up Paterson's standing by agreeing to close a $1.6 billion budget hole in the fiscal year ending March 31. The method chosen, however, did little to address the state's long-term needs. In a secretive deal that was pure three-men-in-a-room, they moved money from off-budget accounts into the general ledger, swept a fee hike for the state university system into the general fund, and raised taxes on insurers.
And so, as Paterson and the legislature move into tough negotiations over the budget -- and hence, his legacy as governor -- his ability to drive through the reforms he'd like to see remains up in the air. "He's trying to make some tough calls," says a lobbyist, "but the clever veterans here may use his completely tripping over himself with all these unrelated issues to avoid yet again dealing with substantive issues. These are people who specialize in getting their way by hook or by crook, and they've found yet another way to avoid being part of the solution on the budget problem."
In the next few months, Paterson will be a kind of hostage to the skills of other people, and it's unclear how much he can rely on them. This begins with his own operation, which was dealt a devastating setback last fall, when his closest adviser, Charles O'Byrne, was forced to resign in a tax scandal.
Since then, Paterson's aides in charge of legislative relations and overall strategy have often seemed at sea. Under Republican Governor George Pataki, notes a lobbyist, "the people who worked for him were real good at discipline, knew what they wanted to get done, had their story straight and were cohesive. This guy, I don't know what's their underlying theme. They don't know each other, they certainly don't work together."
Paterson's allies are hoping that a mid-February staff house cleaning, along with the recent hiring of Larry Schwartz, a former deputy county executive in Westchester County and before that a well-respected Democratic operative in Suffolk County, on Long Island, will bring a measure of discipline to the governor's office.
The state Senate is likely to prove even more challenging. While Malcolm Smith, the new Democratic major-ity leader, is a Paterson ally, he is untested -- or rather, his first tests did not reassure those looking for firmness from the party in power. Democrats won 32 of the Senate's 62 seats last November, but their ability to organize as a majority was held up by three New York City senators who would have been back-benchers but threatened to bolt the caucus unless they were given more influence. Two months of drama ensued, including an abortive agreement that Smith announced triumphantly only to have it disintegrate as the rest of his caucus furiously denounced it in private.
People who watch the legislature for a living aren't convinced that, even with a new agreement, Democrats will cohere as a caucus. "They don't have the DNA to work together," says Blair Horner, director of the New York Public Interest Group and a longtime good-government advocate in Albany. "They have ideological differences on top of their personal differences. The Republicans were in the majority for so long, there's an institutional collective brain; they understand they have to work together no matter how they feel about each other." Democrats, having been in the minority for so long, never had a chance to perfect those skills.
Republican senators, for their part, will not be inclined to provide political cover for the budget reforms Paterson is requesting and Smith is supporting. The 2010 elections are more than usually significant because of redistricting and the GOP will be wary of doing anything that might bring them trouble at the polls in two years. Senate Republican leader Skelos has little incentive to offer much in the way of help. "If the majority bites the bullet and votes for these cuts," says Senator Bonacic, "the instinct of the minority is going to be to say, -No."
As a result, most Albany insiders expect that the final word on budget reform will rest in the Assembly, where Silver's caucus of 109 Democrats so overwhelmingly outweighs the 41 Republicans that the speaker can do pretty much whatever he wants. "They are the island of tranquility in the chaos of Albany, and are as politically protected as you could be," says Horner. "In many ways, the Assembly is going to drive the policy train because of that: The governor is dealing with the budget über alles; the Senate will probably take a year to get their act together, while in Silver's shop, they have senior staff who have been there a long time, he's been there a long time, and they have the institutional structures to make decisions."
That's not necessarily good news for Paterson, either. Silver, for instance, has made education funding one of his priorities over the years; Paterson's budget cuts are, says one legislator, "a dagger in Silver's heart." The Assembly majority also has close ties to many of the interests -- the teachers, the hospital workers, environmental groups, social-service lobbyists and others -- who are besieging the capitol now. This is why many in Albany expect a "millionaire's tax" to surface in the Assembly, despite Paterson's stated -- although not unequivocal -- opposition.
One other question lingers in the background, as well. Given his current travails, can Paterson govern as he would like -- collaboratively, rather than in the bare-fisted, universally derided "three men in a room" model that had the governor, Senate president and Assembly speaker confronting each other for their own benefit in the final budget negotiations? Perhaps Albany will let him do it. But old habits die hard. "Albany," says a veteran lobbyist, "has always been about forcing things to happen: Putting a tough decision in someone else's hands and saying, 'Okay, it's yours!' and then the minute he acts, going, 'Oh! I can't believe you did that! Oh! The pain and suffering!' Paterson is pleading with them not to make him do that."
Yet Paterson also has begun signaling that there is a limit to his patience -- both with the arm-twisting by special interests that fund political campaigns, and with the perception that collaboration is tantamount to vulnerability. "Often," he says, "cooperativeness is confused with weakness and there is a perception that you can get away with more, or be intimidating. That is not going to be allowed here."