It seems that, perhaps because my teenage kids spend too much time on the phone, no one called to ask that I serve on the Suozzi Commission on high property taxes. No matter. Rather than stand on ceremony, I’ll just make my contribution here on Room Eight. Those on the Commission are encouraged to download the spreadsheets attached to the posts linked here. What the data from the U.S. Census Bureau shows is the opposite of what people in the portion of New York State outside New York City insist on believing, and their elected officials insist on telling them. Property taxes are high in the rest of the state because spending is high, not because New York City has such a wonderful deal. Spending in the suburbs and upstate is high in particular categories, not in all categories, for reasons that are not unfamiliar in New York City. Spending in those categories benefits powerful interests with an outsized and unchallenged sense of entitlement. And spending in those categories is increased by one set of elected officials, who get credit, but funded by another set of elected officials, who get the blame. High staffing levels, particularly in the public schools, may also be a response to weaknesses elsewhere in the economy, as it was in New York City under Mayor John Lindsay. But whereas economic problems in New York City led to a growth in the welfare rolls, economic problems elsewhere have led to an increase of more than 100,000 local government jobs since 1990, jobs that have pensions and unfunded retiree health care attached to them.
The first of many false beliefs is that taxes are higher in the rest of the state than they are in New York City. In fact, as I showed in one of the spreadsheets attached to this post, the New York City tax burden is higher. Others have found the same while relying on other data sources, or by calculating the tax burden for theoretically people and businesses. Comparing fiscal 2005 tax data from the U.S. Census Bureau with 2005 personal income data from the Bureau of Economic Analysis, one finds that New York State taxes absorbed 6.5% of the income of state residents, just above the 6.3% national average and 29th in the country. Local taxes, on the other hand, absorbed 9.2% of the income of New York City residents, and 6.8% of the income of residents of the rest of the state, far above the 4.4% national average. Only the District of Columbia, which has no state taxes, has higher local taxes. Putting these two together, and assuming that the burden of state taxes is distributed around the state in proportion to personal income (it isn’t — MTA taxes are only collected downstate), one finds that state and local taxes absorbed 15.7% of the personal income of New York City residents in FY 2005, which would have been highest in the nation by far if the city had been a separate state, and 13.3% of the income of the rest of New York State, which would have ranked third. New York City’s state and local taxes were 46.4% above the national average, compared with 24.4% above average for the Rest of New York State and 4.0% for New Jersey.
Property taxes are lower in New York City, but this is offset by a local income tax, as shown by the tax data by type in the spreadsheet attached to that same post. That tax absorbed 2.0% of the personal income of city residents in FY 2005, compared with just about zero everywhere else. That’s up from 1.8% of income in FY 2000. The effect of the city’s lower property taxes and higher income taxes is that those in lower income categories tend to pay less overall than similar people in similar housing in the suburbs, while those at higher income levels pay more in the city. Overall, local personal income tax revenues plus total property tax revenues equaled 5.2% of personal income in the rest of New York State and 5.4% of income in New York City. Under the STAR program, the state provides offsetting funding for property homeowner taxes statewide, with New York City getting very little because those taxes are low, and local income taxes in New York City. Governor Spitzer has proposed to begin cutting STAR funding for local income taxes, which would force New York City to cut school spending or raise taxes.
New York City’s high taxes are associated with high spending in certain categories, but that is true in the rest of the state as well, as demonstrated by another of the spreadsheets attached to this post. In a repeat of longstanding patterns, 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 in Fiscal 2005. 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 totaling 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.
High public school spending is a result of high public school staffing and pay, as demonstrated by the spreadsheet attached to this post which displays employment and pay per employee in March 2006. While New York City had 1,444 elementary and school instructional employees per 100,000 residents, below the national average of 1,542, the rest of New York State had 1,881. And while New York City had 382 non-instructional school employees per 100,000 residents, below the national average of 678, the rest of the state averaged 938. The differences are even starker when March 2002 data, from a year in which the Census Bureau collects data for all counties individually, is analyzed. A spreadsheet with this data is attached. That year non-instructional employment relative to population was nearly double the level of New York City, and far above the level of New Jersey and Fairfield County, Connecticut, in every part of New York State. Adjusting average pay levels for the higher cost of living Downstate, on finds that instructional pay per employee was far below the national average, but instructional pay in the other parts of the state was far higher. (Non-instructional pay, after a cost of living adjustment, was about the same everywhere).
Public school staffing levels may have gotten out of hand in the rest of the state in a series of steps. During the 1970s, as the massive baby boom generation exited school, enrollment plunged throughout the state, and so did spending relative to personal income. In New York City, the fiscal crisis forced the city to drastically reduce the quality of its schools even as enrollment fell. In the rest of the state, however, rather than lay off staff the schools were able to reduce employment more slowly without raising taxes, adding services and administrators and cutting class sizes. During the 1990s, when the baby boom echo generation flooded into school, pushing up enrollment, New York City was forced to reduce the quality of education yet again, as the state cut funding to the city but increased it to the rest of the state to balance budgets in the mid-1990s. In the suburbs and Upstate, school districts had become used to those smaller class sizes and extra positions outside the classroom, and rather than cut them back they added staff.
While high spending, staffing and pay is concentrated in the public school system, for which the State of New York picks up much of the bill, in Upstate New York, the Downstate suburbs have additional categories of high spending, as show by the spreadsheet attached to this post. Staffing and pay are high in Nassau, Suffolk and Westchester County not only compared with the national average but also compared with similar affluent suburban counties elsewhere in the New York Metropolitan area and around the country. Nassau, Suffolk and Westchester counties all have high taxes in large part due to an unusually large number of unusually well-paid public school and police employees. Public employment is also relatively high in amenities such as parks and recreation and libraries. It is also likely that these counties suffer from the effects of being fully developed and aging communities, with current residents paying rising bills for Medicaid-financed senior services, and for debts, pensions and retiree health benefits inherited from the past. In other words, they are facing the same difficult transition that New York City did in the 1960s and 1970s.
How do entitlement, and financing responsibility, explain these patterns? Suburban and upstate legislators have always taken credit for more public school funding for their communities, and whether such funding was necessary has never been questioned. What has been questioned and criticized is the level of public school spending and staffing in New York City. Given a pass on accountability, suburban and upstate school districts have felt entitled to more and more funding. When higher spending led to higher property taxes, moreover, the STAR program was created to send more state education aid to whatever districts spent the most. Upstate and suburban school districts can now spend more and force the state to either raise taxes or cut school aid to New York City, both of which occurred in the last recession.
Moreover, local government in the rest of New York State has expanded by more than 100,000 workers since 1990, while falling in New York City. In the 1960s and 1970s, and large portions of the New York City economy employing low-wage workers declined, the number of New York City residents on welfare soared, prompting outrage in the rest of the state and a hostility that lingers to this day. Similarly, Upstate New York’s economy, which fared well in the 1980s, has fared poorly since the early 1990s recession, and that recession saw a severe decline in high-wage jobs in the suburbs as Westchester lost corporate headquarters and Long Island lost the aerospace industry. I do not believe it is a coincidence that upstate and suburban jurisdictions drastically expanded the number of well-paid government jobs with benefits at the same time. In effect, some portion of the growth of public employment in the rest of New York State is a high-class welfare program. And, of course, commuters from the suburbs dominate the best-paid government jobs within the City of New York as well, since the rest of the state is permitted to exclude New York City residents from government jobs there, but in many categories New York City is prohibited from doing the same by state law.
A finding that high property taxes result from high spending, and cannot be blamed on New York City, would shatter a lot of illusions in the rest of the state. Such a finding would not be popular. What would be popular is a finding that aid to New York City should be cut, that New York City residents should pay higher taxes, and that New York City public school spending, staffing and pay should be reduced, because the city’s public schools are wasteful and those in the rest of the state are not. What would be popular is a funding system like that used for Medicaid, in which the state picks up most of the cost of services concentrated outside the city — like nursing homes and Family Health Plus, forcing city residents to fund them, but only picks up half of the non-federal share in services concentrated in the city, like home health care and hospitals. With that in mind, I’ll reprise more detailed data on public school spending in my next post.