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A Phony Focus on Fraud

After declaring himsef a "f•ing steamroller," new governor Eliot Spitzer's honeymoon ended with his first budget negotiation, which he proved inexplicably ill-prepared for, especially given that he'd spent 18 months running, and never faced a competitive challenger. (Full disclosure—I was the policy director for his opponent in the Democratic primary, Nassau County Executive Tom Suozzi). My gut is that with all the voices in his ear during and after the election, the paramount importance of the budget was over-looked. Whatever the reasons, while he's given himself a perfect score for his first 100 days, even sympathetic observers were taken aback by his inability to keep what nearly everyone agrees is an entirely unsustainable level of spending, especially now that the real estate market seems to be cooling, and threatening to impact Wall Street.

Spitzer, who's taken heat for his less-than-sterling record as Attorney General in pursuing Medicaid fraud (despite spending more on the program than California and Texas combined, Spitzer's office consistenly recovered less than the offices of either of those states), launched an aggressive campaign to cap spending and reform the program, even spending rolled-over campaign funds on TV ads touting his agenda. The health care union, though, ran ads of their own, which proved considerably more effective than those of Jimmy Siegel, a Madison Avenue executive whose campaign ads for Spitzer were widely praised for cinematic value and high-mindedness, and who's now hooked up with Hilary Clinton. As I said, though, the election was not competitive, but the fight with 1199 was, and, unsurprisingly, Siegel's work proved considerably less effective this time, and Spitzer saw his popularity drop nearly 20 points, despite his spending on tv spots.

That still left Spitzer's approval rating at over 55 percent, and having already taken the hit, the new governor had every reason to reap the rewards for doing the right thing. Instead, he became suddenly concerned with passing an on-time budget, which he'd previously claimed wouldn't be a priority, and mostly capitulated on out-of-control spending on Medicaid and throughout the budget. Given his nearly 70% approval rating upon taking office, it's unlikely he'll ever again have more political capital than he's just squandered. Given what he'd committed to getting things right in his first 100 days (the mantra was, "On Day One, everything changes") It's the equivalent of folding a $50 pot to a 50 cent bet.

Whatever his reasons for backing down, Spitzer's come out of his first real fight with his reputation damaged. Still, he's got at least three and likely seven years to turn things around, and has something of a track record of doing so. Few still remember that he'd originally intended to make his name as A.G. on gun control, and it was only after suffering several embarrassing defeats on this front that he set his sights on Wall Street, and established the reputation as "Sheriff of Wall Street" that he leveraged into the governorship.

For all the fuss about Medicaid fraud, which according to the New York Times may cost billions, though, the real issue is willful waste. Spending on the program exploded under Governor Pataki, mostly owing to a unique funding formula in which the state split its share of Medicaid costs with the counties, and so came to see dollars spent on the program as nearly free money, since each dollar so spent generated one from a county, and two from the federal government. The result has been a health care system that does triple duty as a political power base and as a incredibly inefficient job subsidy. It's also resulted in a politically potent union that gains more power over the state government each time that same government ensures its income and membership increases, making reform that much more difficult with each year's new spending spike.

All this was brought to mind, but the undue focus on fraud, which has became an issue largely owing to the Times dispatch, which generated national headlines, its potential efficacy as a campaign issue for Spitzer's opponents. The Times has continued on the fraud beat, with a new A1 dispatch (also picked up by Drudge) on the $50 million New York spends on just 500 addicts who continually enroll in Medicaid-sponsored rehab programs.

To be sure, it's crucial to pick such low-lying fruit, but this coverage seems to come at the expense of any broader look at how New York ended up spending so much more per person on Medicaid than any other large state, with no discernible improvement to the quality of healthcare. The focus on fraud has conveniently kept attention from the larger issue of the program's profound and purposeful inefficiencies. Medicaid spending is an awfully inefficient and especially inelegant way for the state to create or maintain jobs.

Spitzer has a year now to get his budget priorities in order, and there's every reason to believe that next year he'll come to the table in a weaker negotiating position than where he just was, as a new governor who'd won with an overwhelming mandate for change. Here's hoping he'll play his hand better, no matter the cards, the next time around.