He could not have known it, but the credit crisis makes Monday, March 17th an ironic day yet appropriate day for David Paterson to have chosen to be sworn in as Governor. And not because it’s Saint Patrick’s Day. Since it is clear that everything didn’t change on Day One, and certainly cannot be expected to change on day 442, I thought it worthwhile to predict the our future under the Paterson Administration, or rather the Paterson, Silver, Bruno and related parties and organizations administration, by examining the past. Since a Census of Governments is being conducted for FY 2007, detailed Census Bureau data on public employment and payroll in 2007 will not be out until the fall. The New York State Department of Labor, however, has recently released revised and updated payroll employment data through 2007 (see attached). Looking at annual data from 1990 to that year, I think we can get a sense of where things are headed, and how New York City is likely to be affected. If you are planning on enjoying St. Patrick’s Day festivities, don’t read this until you are done celebrating and prepared to merge your personal hangover with the national one.
First the good news. New York City’s private-sector wage and salary employment (ie. not including self-employed freelancers, independent contractors and proprietors) reached 3,185,800 in 2007 after a strong gain of nearly 75,000 jobs from 2006, based on the annual average (the average of all the 12 months of the year). Private employment surpassed the 2000 cyclical high, and came close to the all-time high of about 3,250,000 in 1969 (see attached chart). Moreover, the 2.4% increase in private sector employment for the city exceeded the national average, and even with the ever-growing Health Care and Social Assistance sector excluded, the gain was 2.5%. It should be noted that household-based employment data, and Bureau of Economic Analysis data, both of which include the self-employed, show a far greater gain in NYC employment in the years through 2006, and total employment at an all-time high here.
With additional information available, moreover, New York City’s private-sector job count for 2007 was adjusted upward by about 25,000. In Orange County, California, in contrast, a previously reported loss of 2,700 jobs in the year to November 2007 morphed into a loss of about 24,000 once better data became available. Orange County was the home of many subprime lenders what went belly-up last year. At this point in our story you might want to cast a glace at Bloomberg News or the Online Wall Street Journal to see if the effort to stabilize the financial system has succeeded, at least for now.
Now for the bad news.
The Rest of New York State added only 25,400 private-sector jobs from 2006 to 2007 based on annual average data, an increase of just 0.6%. More to the point, however, looking at the entire 1990 to 2007 period, if one excludes the Health Care and Social Assistance sector, which is primarily government-funded, private employment is up by just 52,700 jobs (2.0%) in New York City and 55,100 (1.7%) in the rest of New York State, even though 1990 was three years into a private employment downturn while 2007 was (I’m guessing) a peak year more similar to 1987 or 2000. Excluding Heath Care & Social Assistance, New York City almost certainly has fewer private-sector jobs than it did in 1987, 20 years ago. It absolutely has 40,000 fewer private-sector jobs than in 2000.
Those stagnant private-sector jobs have had to carry an every larger Health Care and Social Assistance sector, as a result of the political power of the health care industry and its ability to obtain more public funding through New York State’s expensive Medicaid program. In both New York City and the rest of New York State, this sector’s employment rose by 1.8% from 2006 to 2007. This was with the former “Steamroller,” ex-Governor Spitzer, daring to assert that the health care non-profiteers were sucking up too much state and local money while providing too little basic healthcare. For the entire 1990 to 2007 period the Health Care and Social Assistance sector grew in NYC by 176,500 jobs (46.9%), while in the rest of the state it was up by 208,100 (43.7%). Steamroller or no, the 9,600-job increase in this sector in NYC from 2006 to 2007 was down only slightly from an average of around 10,400 per year during the entire 1990 to 2007 period; in the rest of the state the 2006 to 2007 increase was almost right on the average, despite all the noise about hospital closings. Note, moreover, that there was never a year in which employment in this sector went down, either in New York City or in the rest of New York State.
The Health Care and Social Assistance sector wasn’t the only politically-powerful, government-financed part of the economy to rise by 1.8% in the “Year of the Steamroller.” Local governments in the rest of New York State, bolstered by ever increasing state “tax relief” aid directed to them and away from New York City, also increased their employment by 1.8%, both in Elementary and Secondary Schools (up 6,300 for the year) and other local government (up 5,400). These “Year of the Steamroller” gains were actually above the average for the entire 1990 to 2007 period, during which the rest of New York State recorded job increases of 71,600 (24.8%) and 43,500 (16.9%) respectively. Local government in the portion of New York State outside New York City has dipped by a tiny amount every now and then, but never significantly, in the 1990 to 2007 period.
In addition to the public employees on the payroll, there is the ever-growing number of former public employees who are retired. A taxing jurisdiction with a growing population will have few retirees relative to its growing tax base, since the only retirees would be from its pre-developed, rural past. So it can shift costs to the future by promising rich pension and retiree health care benefits, and not fully funding them. That bill then comes due later, and is affordable while the population keeps growing, but generally proves disastrous when population growth stops.
Twenty-five years after New York City’s population essentially stopped growing in 1950, and a decade after a 1965 political deal to radically enrich pensions under Mayor Lindsay, the city was nearly bankrupt and taxes had to be drastically increased even as public services collapsed to pay for the debts, pensions and health care burdens of the past. Now many “suburban” areas that developed after 1945 and stopped growing after 1980 are facing the same financial crisis, exacerbated by inadequate pension contributions in the 1990s, a big pension enrichment in 2000, and a retrenchment toward normal financial asset values in years since. No wonder many are now advocating allowing local governments elsewhere to avoid a repeat of the 1970s in New York City by shifting their pension costs to the state, forcing New York City to pay, and having New York City repeat the 1970s again instead. All the proposals would make New York City worse off by only shifting pension costs in categories where New York City would get much less of the benefit.
But up to now, how has New York State’s stagnant private sector outside of Health Care and Social Assistance paid for all this government and government-financed employment?
For one thing, although private employment in New York City barely changed from 1990 to 2007, the income earned by people who work in those private jobs, and the profits earned by businesses that employ them, rose substantially, at least for those at the top in Finance and Professional and Business Services. That means the same number of workers generated vastly more personal and corporate income tax revenues, primarily in Manhattan and the affluent Downstate Suburbs. And New York State has transferred a growing share of those taxes out of New York City to the rest of the state. Basically, the state public finances are now addicted to Wall Street profits the way Nevada is addicted to gambling revenues and Alaska is addicted to oil and gas revenues, even as Wall Street employs fewer and fewer city residents. And, as it terms out, those professionals and corporations didn’t really “earn” those bonuses and profits after all, they just sort of got them, and many not be getting them for long. Now might be a good time to look in on MSNBC Business.
Second, New York City’s own local government did not increase its employment even as the city’s population increased substantially. For the entire 1990 to 2007 period, in fact, NYC’s local government employment was down by 18,300 (3.9%), with a gain of 10,900 (7.8%) for Elementary and Secondary schools offset by a loss of 29,200 (8.8%) in other local government. From 2006 to 2007, other local government posted the first significant increase in New York City, at 3,300 (1.1%), since 1998 to 1999, when former Mayor Giuliani was gearing up for a campaign for Senator and wanted to be popular. City residents go libraries that are open more than three days a week. We’ll see if that lasts an entire year.
Third, New York City and New York State borrowed massively, with many of the debts falling on the Thruway Authority and the Metropolitan Transportation Authority, since bond buyers know that if those authority’s fail to pay they can shut down the transportation system and destroy the state’s economy and the lives of millions of people. That possibility of blackmail makes the more confident they will be paid back no matter what the consequences. Beginning with the cutoff of city and state funding in the early 1990s recession (and maintained every since in fat years and lean), those debts allowed the transportation system to experience the financial conditions of the 1970s without the physical conditions of the 1970s, at least until now. Going forward, they mean disaster is likely, as I discussed in three recent posts.
So what now?
With the same people in charge, backed by the same interests, the best predictor of difficult years of the near future are the most difficult years of the recent past, only worse.
That would be the early 1990s recession and the early ‘00s recession. In each case, New York City’s local government employment started falling years after its private sector employment, as politicians borrowed, put off costs and sucked forward revenues in an attempt to keep the gravy train rolling as long as possible. So for the early 1990s recession, the table shows the change in private-sector employment from 1990 to 1993 (it actually started falling after 1987 if Health and Social Services employment is excluded) and the change in public sector employment from 1993 to 1996. And for the early 2000s recession, the table shows the change in private-sector employment from 2000 to 2003 and the change in public sector employment from 2002 to 2004.
In each case, the powerful interests that grow the most in the good years sacrificed nothing in the bad years. New York City’s Health Care and Social Assistance sector added 42,400 jobs (11.3%) in the early 1990s recession and 27,300 jobs (5.6%) in the early 00’s recession. The Health Care and Social Assistance sector in the rest of the state added 54,400 jobs (11.4%) in the early 1990s recession and 40,000 jobs (6.6%) in the early 00’s recession. Local governments in the rest of New York State, meanwhile, added 16,700 jobs (3.0%) in the early 1990s recession and 14,400 jobs (2.3%) in the early 00’s recession. Tom Suozzi can make all the recommendations he wants. Employment in all these sectors may be expected to go on rising no matter what the cost to others elsewhere, now and later.
In addition, pensions and debts will continue to be paid, the former guaranteed by the New York State constitution is a way that a “sound basic education” for New York City’s children is not. In fact, public employee pensions (but not the minimum wage for the struggling people who provide services to the pensioners) rise with inflation every year as a result of the 2000 pension deal, and if the current financial crisis leads to rising inflation pension costs will rise faster. Pension costs, in fact, could explode as asset prices fall, as taxpayers are forced to make up losses in the pension funds. As a result of an assumption built into the 2000 pension deal to pretend it was “free,” anything less than an 8% gain is a “loss” that has to be made up. This might be a good time to check Bloomberg News again.
Both public employees are public employment retirees, moreover, are guaranteed virtually unlimited health care at whatever the health care industry elects to charge. This won’t change either, as the New York State legislature is a wholly-owned subsidiary of those who have very good deals, and the new Governor is a former member.
So the winners not only give back nothing, but probably take even more, no matter how tough times are. And if they get more at a slower pace, they call it a “cut” and “unfair treatment.” And times will be very tough, many predict, perhaps worse than at any time since WWII, with few Wall Street profits or bonuses to tax in the next two years. This much is absolutely predictable.
As for Governor David Paterson per the Daily News “don't be fooled by his nice-guy reputation – he will be tough enough to lead and make the hard decisions when he becomes governor Monday.” “We may have to cut further than we thought we were going to need to,” he said. Well what would be hard would be telling the winners they were going to have to cut back, or senior citizens they would have to pay taxes. Perhaps the blind man can see the inequities, and generational inequities, others close their eyes to. It doesn’t matter. Even if he wanted to be tough but fair, Bruno and Silver and those who back them would not let him. Governor Paterson is likely to be “tough the way all our elected officials have been “tough.” All the sacrifice will be shifted to the losers, those who were behind at the start. Who are they?
Public services in New York City is one loser, a continual loser, particularly the schools. Local government in New York City fell by 34,200 (7.4%) from 1993 to 1996, including a 7,600-job loss (5.6%) in Elementary and Secondary schools that was far worse than it seemed because school enrollment was growing rapidly at the time. Other NYC local government employment fell by 26,600 (8.1%).
The losses were smaller in the 2002 to 2004 period, with NYC Elementary and Secondary school employment essentially unchanged and other local government down just 8,500 (2.8%), as Mayor Bloomberg sought to preserve services and made the schools his number one priority. But the city paid a high price — its state and local tax burden rose from 13.7% of its residents’ personal income (compared with 10.2% nationally) in fiscal 2002 to 14.9% of personal income (compared with 10.4%) nationally in FY 2004 — and 15.7% if personal income (compared with 10.7% nationally) in FY 2005. That’s right, taxes here were more than 46% higher than the national average relative to our incomes in FY 2005.
The future was made a loser in both recessions, through debts that sucked money away from it to get by in the present. But today the present is the past and the future is now, with interest rates oaring on the debts we already have despite decreases in the official rate by the Federal Reserve. The MTA, for example, is unlikely to be able to borrow another $20 billion as it hopes, lifting debt service to 43% of its revenues and leaving, after pensions and retiree health care, perhaps one-third of those revenues to actually run the transit system. People will see the future bankruptcy coming and refuse to buy the bonds at other than junk bond rates.
With an economic crisis looming that could be the worst since the Great Depression, there will be a lot more sacrifice to go around this time. Except it won’t go around — it will be right where it always is. Expect New York City’s public services, particularly its schools, to be as bad as in the mid-1990s recession, or worse. Bloomberg’s school turnaround will have accomplished exactly two things — higher spending in the rest of the state, to keep it much higher than in New York City even as the city’s spending per child adjusted for the cost of living crept over the national average, and earlier retirement for the city’s teachers. New York City taxpayers will pay for both — not, as it turns out, for better schools. Expect the city’s tax burden, after massive city and state tax hikes next year, to soar to the level of FY 2005 or higher. And this time, expect the cancellation of long-promised transit improvements due to “circumstances beyond our control,” and a severe downward spiral in transit service as well.
We face a terrible, terrible time, and it’s guaranteed because of the deals of the past and the state legislature’s unwillingness to change them. Those legislators, and the interests that back them, will put on a show of objecting to the tax increases and service reductions, but they and theirs have already taken the money off the top and won’t give it back. Politics will be a show and a sick joke to anyone who knows the truth, beginning with the rally to protest the school cutbacks this Wednesday. Before showing up at the rally to hear our union leaders and state legislators tell us how much they are fighting for us (against whom?), be sure and check CNBC and think about those Wall Street bonuses and profits New York has required just to almost pay for what we already get.
By the way, wasn’t a Governor sworn in today?