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Pushback starts against Cuomo's departmental mergers proposal for greater state efficiency

Jan 10, 2011 6:50 am
First there was the inaugural speech, with everyone wondering how New York's new governor would be tackling our budget woes for the coming year. Then the State of the State, given last Wednesday, January 5, with everyone then saying the hard details were yet to come with the new budget, due at the end of this month. Now, it seems hints of several actions surrounding Andrew Cuomo's call for the consolidation of existing state agencies and departments is starting to create pushback, both internal and external.

In this morning;'s Times Union, Jimmy Vielkind writes, "If New York's vast budget is a maze, consolidating elements of it requires knocking down walls. Put another way: It's not easily done. Take, for example, the proposal Cuomo unveiled Wednesday in his State of the State address to merge the departments of Insurance and Banking along with the Consumer Protection Board. The regulators for insurance and banking are currently funded by dedicated fees paid by insurers, who believe the costs are unfairly high."

This after we reported an earlier brouhaha where small town bankers decried their being lumped in with Wall Street... as well as growing wonders about when revenues from the recent financial industry rebounds will start to refill state coffers.

The president of the New York Insurance Association said Cuomo must proceed by focusing on stopping "sub-allocations" of dedicated money -- a sort of younger sibling to the more familiar "sweeps" that feed the general fund.

"If (the merger) is theoretically supposed to reduce state spending, then it should reduce the assessment on New York businesses," said Ellen Melchionni, president of the New York Insurance Association. "If they're programs funded for all New Yorkers, it should be funded through the general fund, not a hidden tax on one industry."

Insurance regulation is funded by a dedicated assessment on policy-writers headquartered in New York -- companies like AIG, Utica Mutual and Tower Insurance Group -- that has increased from $3.58 per $1,000 of premiums in 2007 to an estimated $8.88 this fiscal year, according to David Neustadt, spokesman for the Department of Insurance. The banking department is funded by similar assessments on banks and financial institutions.

Neustadt said the Insurance Department's operating budget this fiscal year is $145 million, but roughly $450 million has been collected. A lawsuit filed by Insurance Association over the issue almost a year ago remains pending.

Cuomo spokesman Josh Vlasto didn't say whether the assessments would be reduced if the consolidation goes forward. It's a classic example of a devil in what should be a glut of details contained in the governor's first budget.

On Wednesday, Cuomo said "our current organization is not effective because it is not organized the way Wall Street works any more."

"These divisions of insurance and banking and consumer protection don't exist in the marketplace, and much of the activity is falling between the cracks of our regulatory entities," he said. "We can have a win-win. We can consolidate them into a Department of Financial Regulation that better protects the consumer, and the consolation will save the taxpayer money by reducing the cost of three separate organizations."

Further details have not been released.

Former Insurance Superintendent Eric Dinallo, now a partner at the Manhattan firm of Debevoise & Plimpton, was skeptical significant savings could be achieved.

"As financial products and companies present themselves more and more holistically in the marketplace, it's wholly appropriate for the regulatory regime to respond to that," he said. "I do urge some caution on those who think there will be extremely large cost savings. The fact is the front-line regulators do very different things that are not duplicative.

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