The Winners: Where NYC’s Public Money Went in FY 2005

It’s Memorial Day weekend as I write this, it’s a beautiful day, and it’s tempting to save some time by just copying my post from last year on the categories of local government expenditures for which New York City and the rest of the state spend more, or less, than the national average. After all, the winners and losers don’t change much from year to year, although the losers sometimes catch up a little in good years (when other interests are sated) and fall behind more in bad years (when victims must be found). But I’ve compiled the data, so I might as well write about it, and the readers could express their gratitude by downloading the spreadsheet linked here (click on the Output tab), printing the two pages, and looking them over. For the less grateful a brief summary table may be found at the bottom of this post, and it shows that New York City spent much more than the U.S. local government average, as a share of its residents’ personal income, on interest on past debts, pension contributions, payments to the State of New York for Medicaid, and Police and Correction. As always. Local governments in the rest of New York State also spent more than average on Medicaid payments, but not to nearly the same extent, and spent about average in the other categories were NYC was high. Elementary and secondary education spending, however, was sky-high as a share of personal income in the rest of the state, but below the national average in NYC. As always.

It appears that the recession, and resulting fiscal crises, convinced the few other states that forced local governments to contribute to Medicaid to stop doing so. In FY 2005, payments from local governments to states for categorical federal welfare programs (mostly Medicaid) totaled $6.3 billion in New York State and $6.5 billion in the entire country. With Medicaid recipients concentrated in New York City, those payments absorbed 1.1% of all the personal income (wage, benefit, investment income, public assistance income, everything) of NYC residents, compared with 0.6% in the rest of the state and 0.1% for the national average (or 0.0% for the part of the nation outside New York State).

While Medicaid is now carried on the Census Bureau’s books as a state program, welfare payments (now at 0.4% of income in NYC) and other social services (1.4% of income) are still tabulated as local government expenditures. So don’t be fooled. New York City’s local government expenditures on public hospitals, public health, and social services are three-quarters covered by federal and state aid and charges, slightly less than the national average and slightly more than in the rest of the state, where local health expenditures outside of federal and state programs are more common. It is Medicaid that is the real local tax burden, even though only a part of its cost — the local tax contribution — shows up as local government expenditure. Including federal and state shares, Medicaid spending is many times what New York City has to pay.

Virtually every newspaper editorial board in New York City has bemoaned the low pay of New York City’s police officers, especially their starting pay, and the data shows New York City police officers are underpaid in cash. But that doesn’t mean New York City residents are getting a bargain on excellent police protection at their expense. Indeed the NYPD and the NYC Department of Corrections are an extraordinary burden on the people of New York City, absorbing 1.5% of their personal income in FY 2005, about the same share as in 2000 but far above the national average of 0.8% of income. The rest of New York State and New Jersey are slightly above and slightly below the national average, respectively. Why the high cost? New York City has a high number of officers, a high number of retirees, and very expensive pension and other retiree benefits. Retiree health benefits are much more expensive for those who retire in their 40s than for those who retire at 62, because after 65 Medicare kids in to help carry the load. The figures above, best as I can tell, don’t even include the cost of health care and other non-pension benefits for officers, and retired officers. Those costs are massive.

Also massive — elementary and secondary education spending in the portion of New York State outside New York City, which totaled 6.5% of personal income there in FY 2005, compared with 5.8% of income in FY 2000 and a national average of just 4.6% (up from 4.3%). New York State kicked in state education aid equivalent to 3.0% of the income of residents of the rest of the state in FY 2005, compared with 2.3% in New York City. No matter. Spending was so off-the-charts high in the rest of the state that local education funding absorbed 3.5% of the income of residents of the rest of the state, compared with just 2.2% nationally. In New Jersey, public school spending rose from 4.2% of income in FY 2000, about average, to 5.5% of income in FY 2005, far above average. The local tax burden of this also rose, to 3.7% of income. Higher education spending relative to income was responsible for the rise in New Jersey’s taxes above the national average in the first half of this decade. That state hadn’t even started paying for its past debt and pension misdeeds as of that time.

New York City had started paying similar bills in FY 2005, although the bill has continued to rise thereafter. Interest on New York’s state debts absorbed 0.6% of the personal income of state residents in FY 2005, compared with 0.4% nationally and in New Jersey (though in the latter case money “borrowed” from the pension fund may not be counted). Interest on New York City’s local government debts, including the portion of MTA debts attributed to New York City transit and Port Authority debts, absorbed 1.2% of the personal income of city residents in FY 2005, compared with just 0.5% nationally. The rest of New York State and New Jersey were below average, meaning that the entire tax burden of extra debts in the two states fell upon New York City that year. I guess we vote for bond issues and don’t complain as much about taxes, so the rest of the state, and those moving away, figure NYC is a good target for future taxes. NYC’s interest burden actually fell slightly as a share of income from 2000, thanks mostly to lower interest rates. If interest rates were to rise, and up is just about the only direction they can go, the city could be caught in a debt spiral.

The city’s pension payments were already spiraling out of control by FY 2005, absorbing 1.1% of the income of New York City residents compared with 0.4% in the rest of New York State, 0.3% nationally, and 0.1% in New Jersey, where pension obligations were put off for another day. Payments by the City of New York and New York City Transit equaled 14.8% of employee wages that year, vastly higher than the 7.2% national average or the 7.0% in the rest of New York State, and have gone up since. And the employees? They averaged paying in 2.5% of their wages into the pensions in New York City, compared with 4.9% nationally, 1.1% in the rest of the state, and 5.8% in New Jersey. Some New York City public employees have a better deal that others, however. New hires in most titles pay 5.85% of their wages into the pensions; those hired before1995 and police officers and firefighters pay nothing.

That leaves additional state and local taxes equaling 2.1% of personal income in New York City and 0.8% of personal income in the rest of the state unexplained for FY 2005. Some of this is explained by the unfunded quarter of state and local welfare and social services expenditures, discussed earlier. For example, the City of New York paid nearly $1 billion dollars to the Health and Hospitals Corporation in FY 2005, according to the Comprehensive Annual Report of the NYC Comptroller (CAFR).

In New York City, the fiscal cost of existing public and subsidized housing is an increasing issue. New York City spent 1.1% of its residents’ personal income on housing and community development, including public housing, Section 8 vouchers, and HPD programs in FY 2005, or more than three times the national average of 0.3%. The city’s spending here really stands out — the rest of New York State and New Jersey are both below average. In the past, the federal government has funded most of this, but because HUD (the federal Department of Housing and Urban Development) spending particularly benefits New York State in general and New York City in particular, it has proven virtually the only target of budget cutters in recent years.

The City of New York cut aid as well in the recession, but is now paying more. After paying around $40 million to the New York City Housing Authority in FY 2001 (and similar inflation-adjusted amounts in prior years), according the CAFR, New York City cut that to virtually nothing in FY 2005. This figure soared to $120 million in FY 2006, and is likely to carry on rising, crowding out other spending and the ability to spend on new subsidized housing, as federal aid is reduced. According to the recent New York City Housing Authority budget, the agency will cut staff, cut maintenance, use capital money for operating expenses, and sell open space to developers (a one-time only source of revenue) and still run a deficit this year. The systems in the city’s public housing projects have reached the end of their useful life, extensive reconstruction is required, and its residents somehow have the right to continue to live in New York City at a rent equal to 30% of their income. The federal government, which gave them that right and required the city to give preference to the most troubled people from here and elsewhere, is withdrawing support. This is a potentially enormous unfunded liability I have worried about for years.

New Yorkers also pay extensive state and local taxes, and borrow extensive debt, for mass transit. Tolls, fares, motor vehicle taxes, and federal and state aid equaled 81% of all local government transportation spending in New York City, compared with 82% in the rest of the state, 60% nationally, and just 50% in New Jersey (where they have preferred using debt to pay for spending while keeping gas taxes and road fares low). And, the New York City subway covers a higher share of its outlays from the farebox that just about any transit system in the country. Yet as I discussed here http://www.r8ny.com/blog/larry_littlefield/the_national_transit_database_retired.html, however, because New York City Transit is so large, it and the PATH system also absorb a large number of present and (by running up debts) future tax payments despite those extensive fare revenues. In FY2005, subtracting transit revenues from transit expenditures left a net need for other revenues of $29 billion nationally, $5.1 billion in New York City, and around $1.1 billion in the rest of New York State and New Jersey. As a share of the personal income of area residents, that equals 0.3% nationally, in New Jersey, and in the rest of New York State — and 1.5% in New York City.

Finally, New York City spends a great deal on “other expenditures,” which includes economic development, judgments and claims and, most expensively, non-pension public employee benefits that cannot be allocated to individual government functions. In New York City, public school and transit benefits are tabulated separately in the CAFR and MTA documents, and included in census data for those services, but for other services it is all lumped together. After all, many of those benefits are provided to retirees and thus not associated with any current services at all. “Other expenditures” equaled 1.9% of the personal income of New York City residents in NY 2005, compared with 0.7% nationally, a difference as great or greater than for transit, pensions, police and correction, or interest on debts. That is up from 1.5% of income and 0.6% of income nationally, in FY 2000.

The rest of New York State and New Jersey were also above average in “other expenditures” as well at 1.3% of income and 1.1% of income, respectively. The current City of New York practice of gradually pre-funding some of these benefits for retirees New York City, so that people pay for services when they are received, is the right one. Unfunded benefits threaten to bankrupt local governments around the country, including in Upstate New York which means we may end up paying for their retirees too. A natinla health care financing system is the only way out of this national problem, courtesy of public employees who get retiree health care most others don’t and past generations that promised those benefits and didn’t pay for them, can be avoided.

I’ve long suspected that New York City’s health care industry is overcharging for Medicaid to accommodate its higher costs while keeping prices down for, and offsetting the loss of, private insurance. I have the same suspicion about health insurance premiums for New York City public employees, and the merger of the city’s two main insurers into a monopoly — which the city opposed and the state blessed — won’t help. Perhaps its time to stop “taking money from public hospitals and giving it to the private hospitals” and have the HHC, rather than GHI and HIP, be the one insurance plan New York City public employees can use without any additional contributions. Or, a national system could equalize the health care choices and costs for us all.

Many of the winners are, in fact, the costs of the past. Moving onto the present and future, we find the losers, the subject of the next post.