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The Mayor's New Right Hand Man

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On the same day that Ed Sklyer left his top post in the Bloomberg administration for a job at Citibank, the mayor announced Skyler's replacement: the job was going to former mayor of Indianapolis Stephen Goldsmith.

Goldsmith is an intellectual heavyweight on the theory of governance as much as he is practiced in the day-to-day realities of governing. Not only was he a two-term mayor of the nation's 12th largest city, but he also wrote six books on the subject of governance and served as a professor at Harvard's Kennedy School of Government.

Early coverage of the appointment has branded Goldsmith as an outsider. At a press conference Friday, Goldsmith admitted that he had a lot to learn about New York City, "I know a lot about how to run a government. I don't know nearly enough about New York City. So the learning curve is to get infused with what's going on."

Goldsmith is an outsider ideologically as well--he was a domestic policy advisor to President George W. Bush during the 2000 presidential campaign. "He and I share a conservative philosophy," Bush said of Goldsmith at the time. And now he will help running a city where only 18 percent of the public voted for George Bush for president in 2000.

But if his red state politics stand out in a city of true-blue Democrats, the appointment of Goldsmith is a clear indication that Bloomberg will make belt-tightening a key component of his third term in office.

News of the appointment was a highly anticipated event. Skyler was considered Bloomberg's right hand man, and city hall insiders expected Skyler's replacement to have just as much influence on the mayor's decision making as Skyler did.

Because of all the expectations, the job's recruitment process was a top secret affair--Goldsmith confessed that even he did not know he was being interviewed for the position when he dined with Mayor Bloomberg in DC a few months ago.

Political insiders reacted in surprise when they heard of Goldsmith's appointment; few would have guessed that he was even being considered. But with Bloomberg's rising anxiety about the city budget, and considering Goldsmith's legacy in Indianapolis, the reason for Bloomberg's choice becomes more clear.

The Bloomberg administration is grappling with how to cope with cuts both state and federal funds. Governor Paterson's budget cuts $1.3 billion in aid to the city, which the mayor has said will result in massive layoffs. On top of that, federal stimulus funds, which have been a $6 billion godsend for the city since 2009, will run dry by 2012.

Unfortunately, Mayor Bloomberg has rejected the notion that increasing taxes for the richest New Yorkers could protect New Yorkers from drastic service cuts. At the same time, the state's finances are not likely to get much better any time soon. And the prospects for the passage of the federal Local Jobs for America Act, which would save 22,000 jobs in New York City, are regrettably dim.

After these cuts in state and federal funds, New York City will have a difficult time providing the vital services that all New Yorkers rely upon every day. Outgoing Deputy Mayor Skyler was grappling with these problems just as he announced he was leaving the administration. One week before his announcement he warned, with the foreboding mood of 19,000 layoffs in the air, "It does not appear that the city will weather the Albany budget without having a significant impact on our own operations and our own fiscal situations."

Now it's Goldsmith's problem. And it is exactly this problem that Bloomberg hired Goldsmith to solve. As mayor of Indianapolis, Goldsmith aggressively found ways to shrink city government through privatization of city services and assets. He also introduced the concept of "marketization," in which public sector employees compete for their jobs against the private sector.

To determine whether a government service should be marketized, Goldsmith and his aides conducted the Yellow Pages test. "If the phone book lists three companies that provide a certain service," Goldsmith explained, "the city probably should not be in that business."

Goldsmith injected private-sector principles into Indianapolis' public sector in order to increase efficiency and realize cost savings. These innovations raised eyebrows in the highest of political offices, and eventually those of the then-governor of Texas.

If his legacy in Indianapolis is any indication, Goldsmith will look to find ways to shrink the size of New York City government. "We have promised ourselves far more government than we will be able to afford," Goldsmith recently wrote. "Embracing major shifts in policy and practices won't be an option for state and local governments--it will be a necessity."

But the residents of New York, who are considerably more liberal than Goldsmith (and certainly more labor-oriented), will likely be suspicious of this kind approach. And perhaps it is wise to raise questions about whether or not privatization and marketization will erode the quality of public goods and services in New York. Residents of all income levels depend on high-quality services. But when city decisions are made based on cost alone, it is usually the least- politically connected and the most vulnerable that see the services they depend upon get cut.

Well, at least at first.

There is no doubt that the desire for profit can trump the desire to protect the public good. Look no further than a pair of scandals in the news involving private contractors who compromised public safety in order to increase profit. Both involve cases in which the city outsourced a service to the private sector that perhaps the city should have been doing itself.

Earlier this month the private contractor responsible for conducting safety tests for asbestos and lead in city buildings admitted to faking tests and submitting results for tests that were never performed. In another high-profile scandal, two executives of a concrete testing company were recently convicted of falsifying inspections at construction sites across the city, including the Freedom Tower and Yankee Stadium.

In both instances newspapers were shocked about just how widespread the fraud had been. These private contractors were hired by the city to protect public safety. Instead, they defrauded the public and compromised safety. And in the case of concrete testing, the city has now decided to do the testing themselves in order to prevent this type of fraud from happening again.

These two examples are pertinent reminders that a "political economy," which is how Goldsmith himself described a robust public sector, may be much better suited to protect the public interest than the market economy.

So the question is an important one: how can we make city government more efficient while still protecting the public good? It is unlikely that modeling public sector service delivery on the free market will achieve this aim.