Every five years, the U.S. Census Bureau conducts a Census of Governments to record the organization, employment, and finances of every state and local government in the country. The most recent census year was 2007. The organization and employment phases of that effort have long since been completed, but staff turnover, budget cuts, and diminished cooperation from state and local governments (not ours) have delayed the release of financial data until recently. For the past few weeks, I’ve been working to put the detailed data, downloaded from the Bureau, into a format that makes possible a fair comparison between places for the state and local government tax burden (by type of tax), level of spending (by government function), and level of debt. Many adjustments are needed to make such a comparison possible, given differences in population and average income, the varying organization of local government, and variations in the division of responsibility between the state and local level. This post describes the origin of the data, issues in presenting it, and modifications made to it. Multiple posts will follow over the next month or two with the findings. Those interested should read it to understand what it is they will be seeing, and what it means.
The attached spreadsheet contains three worksheets with data on state government, for New York State, the U.S., and a handful of states I have chose for comparison: New Jersey, Connecticut, Massachusetts, California, Illinois, North Carolina, and Texas. As well as providing background, in this post and another to follow I’ll describe how the State of New York compared with other state governments. Before reading the rest of this post, I suggest opening the spreadsheet, and printing the tables in the “Summary 2007” and “NY & U.S. 1972 to 2007” worksheets; each will print on two pages. Look at the “FY 2007 State Government Revenues & Local Aid Expenditures” table. The state and local government data in all the spreadsheets I will present is expressed per $1,000 of the personal income of area residents. For example, the State of New York collected $83 billion in taxes in FY 2007, while the State of North Carolina collected $29 billion, but New York State both has more people and a higher average income, meaning that the state tax burden may not be higher New York. Local Area Personal Income data from the Bureau of Economic Analysis shows that the personal income of New York State residents was $925 billion in 2007, while the personal income of North Carolina residents was $316 billion. By division, the total state tax burden, therefore, was $68.28 in state taxes per $1,000 of income for residents of New York, and $71.55 per $1,000 of personal income for residents of North Carolina.
This, however, is not the whole story. State governments also influence the level of local government taxation, through spending mandates and state aid, and by having services provided at the state rather than local level. While Medicaid has been a state program in New York since the early 1980s, for example, the state’s local governments are still required to contribute to it. For this and other purposes, New York’s local governments were required to collect on average $8.36 in local taxes per $1,000 of personal income to send to the State of New York, compared with just $2.44 in North Carolina. That is one of the reasons New York’s average local tax burden as a share of its residents’ personal income is much higher than in North Carolina. (Very high public school spending as a share of personal income in the portion of the state outside New York City is another reason).
In fact, New York’s total state and local tax burden as a share of personal income is among the highest in the U.S., while North Carolina is below average. As the table shows, New York’s state and local tax burden was 34.1% higher than the U.S. average as a share of personal income in FY 2007, with most of that excess at the local level. In the past (we’ll do this table later) I’ve found that virtually all the rest of the states are no more than 15.0% higher or lower than the U.S. average, once income is taken into account.
Looking at the 2007 State Government Expenditures and Debt table, one finds that spending is also expressed per $1,000 of personal income. For every $1,000 its residents earned in 2007, for example, the State of New York spent $9.07 on Higher Education in FY 2007, while the State of North Carolina spent $21.48 for each $1,000 earned by the residents of that state. Think of it this way. As a New York State resident, for every $1,000 of your income, you might have spent $250 on housing, $150 on food, $150 on transportation, and — through the state government — $9.07 on public colleges and universities and $3.26 on state prisons.
Note that this is described as “direct spending.” The relationships between the federal, state and local governments are complex. In some cases states spend money on services and benefits they provide themselves, with higher education, corrections, and unemployment insurance examples of functions where states do most of the work. But more often they merely pass money on to local governments (or in the case of health care the private sector). The Census Bureau distinguishes between “direct spending” on actual public services and benefits, and “intergovernmental” revenues and spending, the portion of the budget sent to or received from some other government.
Take, for example, Medicaid funded health care at a hospital run by New York City’s Health and Hospitals Corporation. Medicaid is a state program in New York, but local governments are required to contribute to it. So the City of New York might “spend” a dollar on “public welfare” aid to the State of New York (Medicaid is lumped in with public welfare in revenue data because it is a categorical, income restricted federal program). The State of New York, meanwhile, could then “spend” that same dollar as “public welfare” aid to the City of New York, as a payment to the Health and Hospitals Corporation. And then the City of New York could then spend that same dollar a third time, as direct Public Hospital spending on care. For comparisons of spending by function across places, only “direct expenditures” should be used.
Note that Medicaid cannot be directly accounted for in Census Bureau statistics. If Medicaid money (or less commonly other money) is used to pay private health care companies, that direct spending is classified under Medical Vendor Payments. Note that New York State is far above the national average in direct spending on Medical Vendor Payments as a share of its residents’ personal income, at $35.02 compared with $23.02 (and just $16.65 in California, among the lowest in the country). If Medicaid is used to pay for Public Health or Public Hospitals spending, for “direct” purposes that spending is tabulated there. Public Hospitals also receive funding from charges for services, as well as Medicaid and tax support. New York’s “direct” Public Hospitals spending was about average at the state level, but as will be shown later, much higher than average for local government hospitals in New York City.
You will note that the State of New York had zero spending on cash welfare assistance in FY 2007, but that is only because in New York such spending is classified as “local government spending.” The State’s contribution to that spending, and spending on social services, shows up (in the “FY 2007 State Government Revenues and Local Aid” table) as “Welfare, Hospitals and Health” aid to local governments, not direct spending. In New York, such state spending on local government aid equaled $18.19 per $1,000 of personal income, compared with just $6.50 nationally – because if state governments are providing the service, there is no need to send money to local governments to do it.
But much of the money for Medicaid and public welfare programs originates with the federal government. The State of New York received a total $42.78 in aid from the federal government for each $1,000 of its residents’ personal income in FY 2007, 23.9% more than the U.S. average for all states. But New York was below average in federal aid by this measure in most major categories, such as education and transportation. Much of New York’s high level of federal aid can be traced to high Medicaid spending, which also leads to higher local taxes via New York’s local contribution to Medicaid.
While revenues and expenditure categories do not line up directly, I have attempted to combine categories and disentangle how much spending in different categories actually costs in state taxes, as opposed to intergovernmental aid or fees. Looking at the FY 2007 State Government Revenues & Local Aid Expenditures table, one finds that tuition and other charges, federal aid, and aid from local governments equaled 37.5% of the State of New York’s spending on Higher Education in FY 2007, leaving 62.5% to be paid for by taxes or debt. Transportation charges (tolls, parking revenues, air transportation charges, motor vehicle fuel and license taxes) accounted for most state spending in the category, in New York and elsewhere.
Transportation, as tabulated in my state government tables, does not include Public Transit. In most of the country, and in New York City, Public Transit is classified as a local government activity, whereas in all of New York State outside New York City and in New Jersey it is classified as state government. That is true even though New York City Transit has been part of the state-run MTA since 1968. Similarly, local elementary and secondary schools are almost everywhere a local government activity, but the State of Hawaii operates the schools there and some states, notably New Jersey, have taken over failing school districts. Comparing New York City’s local government spending in these categories with the New Jersey and U.S. totals based on the original data, therefore, would be misleading, because some of the spending would be missing. In the tables to be presented, therefore, state spending on Elementary and Secondary Education and Public Transit is reclassified as local government spending, to get a similarly measured total for different places.
For local government spending within different parts of New York State, this requires that New York State as recorded by the Census Bureau be allocated based on data from the Federal Transit Administration. As an added complication, for historical reasons all the revenues, expenditures and debt of the Port Authority of New York and New Jersey are tabulated as local government in New York City. Where possible, I’ll divide this spending up between the city and New Jersey. Note that when I present data for local government individual New York State counties, data for public transit systems such as the Long Island Railroad and the Capital District Transportation Authority are not included.
Pension systems present an even more complicated mix between state and local government. Most local government workers are covered by state run government pension plans: in FY 2007 U.S. local government pension plans paid $30.5 billion in benefits, while state government pension plans paid $136 billion. Those “expenditures” come from pension plan assets, and are thus not directly funded by taxes, fees or intergovernmental aid. What is paid for by taxes are pension plan “revenues,” those paid by state and local governments. In some cases, moreover, state governments are responsible for making contributions for local government employees, notably teachers in California and, I believe, New Jersey.
As it happens, the largest local government pension system in the U.S. is right here in New York City, with $8.9 billion in benefit payments in FY 2007. Most of what you read about the condition of New York’s public employee pension plans does not include New York City, which has far greater problems (in large part as a result of pension deals passed by the New York State legislature). So comparing New York State’s pension revenues and expenditures as a share of personal income with other places would be misleading, because New York City would be missing and make the state seem low. Comparing New York City’s local pension revenues and expenditures as a share of personal income would similarly be misleading, because for most local governments there are no pension revenues and expenditures, because they don’t have their own pension plans.
So I make the comparisons I can, using the data that is available. For the most part, pension revenues and expenditures are presented as a share of the wages of public employees rather than personal income, for all state and local government pension plans within a state combined. Within New York State, on the other hand, the data is presented for the State and City of New York pension system separately. For the New York State pension plans, data is available on contributions to the pension funds by the state government and by other governments (which we know are those outside New York City), and by state employees and local employees (which we also know are those outside New York City). This can be divided by the wages and salaries of state employees and local government workers in the part of New York State outside New York City, combined.
As the “FY 2007 State Government Expenditures & Debt” table shows, employees of the State of New York and local governments outside New York City contributed 1.0% of their wages and salaries, on average, to the state pension plans in FY 2007, compared with a national average of 4.5%, and 6.5% in California and 7.0% in Illinois, where pension underfunding has become a crisis. California teachers contribute 8.0% of their wages to their own pensions, and they are not eligible for Social Security. New York’s taxpayers contributed the equivalent of 9.0% wages to the state funds that year, compared with a national average of 9.4%, 12.5% in California and 9.2% in Illinois. Pension benefit payments equaled 22.9% of the wages and salaries of those still working for those covered by the New York State pension plans, compared with 21.2% nationally, 23.2% in California and 28.7% in Illinois.
Note that pension benefit payments equaled just 14.6% and 16.9% of the wages and salaries of state and local government workers still on the job in North Carolina and Texas. That is because those states are growing rapidly, and have relatively few state and local government retirees from the past when their population was smaller, compared with their larger tax base and state and local employment today. Fast growth allows places to underfund their pension plans for a while, but unless enough money is set aside today for when their new, larger workforce retires, North Carolina and Texas will eventually face the same crisis as California. In FY 1987, pension benefit payments in California totaled just 12.3% of the wages and salaries of public employees still on the job, compared with 23.2% today. Those low pension contributions in Texas and North Carolina, and the low taxes associated with them, may be a trap. And, of course, other public employee retirement benefits such as retiree health insurance are not pre-funded, which means they cost little in taxes in fast growing localities with many taxpayers and few retirees, but the cost can explode later.
And what of the City of New York pension plans, which are larger than those of virtually all state plans? As in the New York State system, the employees don’t contribute much compared with those in the rest of the country – just 2.5% of wages and salaries in FY 2007. But New York City taxpayers contribute massively – equal to 20.8% of the wages and salaries of those still on the job in FY 2007, and likely to soon be much higher. And pension benefit payments equaled 33.7% of the wages and salaries of those still on the job, another figure likely to rise due to early retirement deals (like the 2008 teachers’ deal to retire years earlier) and the wages, salary and employment cuts needed to pay for them. And while the Census Bureau does not have separate data on public employee health insurance, let alone separate data for health insurance for retirees, it would not surprise me if in New York the current cost of health insurance for the retirees was as much in NYC as the cost for current workers actually providing current services. This data will be discussed in greater detail later.
Speaking of burdens from the past, as the FY 2007 State Government Expenditures & Debt table shows interest on state debts consumed $4.38 per $1,000 of New York State residents’ personal income in FY 2007, well above the U.S. state average of $3.61. That is because state debts totaled $161.63 for every $1,000 of New York State residents’ personal income, compared with just $124.14 nationally. But New York’s local government debts are also high (with most of the excess concentrated in New York City). State and local debts combined totaled $280.63 per $1,000 of New York State residents’ personal income, 38.3% above the U.S. average, up from just $228.52 in FY 1987 (before Pataki, Bruno and Silver took over), and approaching the $312.78 of 1972, before the City and State faced the fiscal collapse of the 1970s.
Back in 1972, pension payments equaled just 6.4% of the wages and salaries of public employees still on the job for the state system compared with 22.9% in FY 2007, and 12.2% for the City of New York system, compared with 33.7% today. And the cost of health insurance for retirees (and for everyone else too) was much lower in 1972 than in 2007. A soaring share of the one’s state income tax bill, local property tax bill, or transit fare will be going not to public services and benefits that benefit people today, but to deferred costs from the past: underfunded pensions, unfunded retiree health care, and debts used for maintenance rather than growth. Were it up to me, the base tax or fare owed would be cut to the level of services and benefits people were actually getting, with the additional money required for costs from the past assessed in a separate “sins of the past surcharge.” So everyone could see it.
Note that in Texas, local government debts are quite high as a share of the personal income of current Texas residents. But much of that debt is incurred to provide the new infrastructure for a growing population, which will contribute to paying it back. In New York, meanwhile, debts are high even as little new infrastructure has been added since the 1970s, and the state has barely kept up with maintaining and ongoing replacement of what it had 40 or 50 years ago. Give its low state debt total, moreover, the state and local debt burden in Texas is just slightly average the U.S. average and well below New York.
The Census of Governments takes place every five years. Between census years, aside from 2001 and 2003 (when budget cuts forced the Census Bureau to break a data series going back to the 1960s), the Bureau surveys state and local governments to produce state level data. That is, data for the state of New York, and for all local governments in New York State added together, but not local government in different parts of New York State separately, because the sample size does not allow for accurate local area estimates. Because individual data is available for the City of New York for each year, however, it is possible to also create separate data for local governments in the rest of the state in total, by subtraction. So I plan to produce local government data for the U.S., selected states and different parts of New York State for FY 2007 using Census of Governments from that year, and local government data for past years for the U.S., selected states, New York City and the rest of New York State.
Some years are better for the economy than others, and when the economy is bad personal income goes down and taxes and spending a share of personal income go up. That represents circumstances, not policy. A fair comparison over time, therefore, requires that data for similar years be used. As it happens FY 2002, the previous Census of Governments year, was a lousy one for the economy, as FY 1992 had been, with FY 1997 not much better. But FY 2007, the year of the most recent Census of Governments, was the peak of an economic bubble, and that presents a problem. Thus I will not be comparing FY 2007 with FY 2002, because that could make it seems as though the tax burden and spending were going down even if they were going up in reality.
Therefore, I have created tables with data for FY 2007 (the peak of the housing bubble), FY 2000 (a non-census year and the peak of the tech bubble), FY 1987 (the peak of the junk bond boom), and 1972 (the first year available, another good year, and one year before the peak median wage for most Americans). Moreover FY 1972 was just before the fiscal crisis in New York City, which saw taxes soar and services collapse, and may be a useful point of reference for many places in FY 2007. The 1972 to 1987 period starts out with New York City Mayor Lindsay and New York State Governor Rockefeller, and includes the fiscal collapse and partial recovery during the Koch and (Mario) Cuomo years. The 1987 to 2007 period shows the influence of the Silver, Bruno and Pataki era at the state level, while 2000 to 2007 shows the Bloomberg years in the New York City, with trends from FY 1987 to FY 2007 perhaps attributable to the Giuliani regime.
Interestingly, while New York’s state and local debts have climbed relentlessly as a share of state residents’ personal income during the 1987 to 2007 “Generation Greed,” era, the extent to which New York is higher than the U.S. average actually fell from FY 2000 to FY 2007. State and local debts in the rest of the country, having fallen as a share of income from FY 1987 to FY 2000 (when the federal government was also run more responsibly in the wake of the Reagan debt binge), soared from FY 2000 to FY 2007 (as federal and private debts also soared). Sadly when it comes to the future New York, a state controlled by the sort of people moving away and whose children have moved away, has been ahead of its time. This time, New York and other older central cities will not be alone if facing a debt and pension crisis.
Next, a discussion of local government geography. There are really only two local governments operating within the boundaries of New York City, the City of New York and the Port Authority of New York and New Jersey, but that is not the norm. In general, the same neighborhood may be taxed by, and have services provided by, a county government, a municipal and/or township government, a school district, and other special districts. Data for one type of government only, such as comparing the City of New York with other city governments, therefore does not provide a useful basis for comparison. The public school spending by the City of Los Angeles, for example, is zero. Instead, all the local governments within a state or county need to be added together into a single figure.
The U.S. Census Bureau still provides data for all local governments added together in each state, but does not plan to provide a “county area” file for comparisons within states. For all the counties in New York State, however, I have created such a file for 2007. I have also created aggregate local government finance data for four regions of New York State for simplified tables: New York City; the Downstate Suburbs (Nassau, Suffolk, Westchester, Rockland, and Putnam counties); Upstate Urban counties (Albany, Broome, Dutchess, Erie, Monroe, Niagara, Oneida, Onondaga, Orange, Rensselaer, Saratoga and Schenectady counties), and Upstate Rural (all other counties). Mass Transit revenues and expenditures attributed to the State of New York are divided between these four regions.
Creating the “county area” file for New York was only the second most difficult work I have done to date. The most difficult data was lining up the same category of data in the same row for each unit of geography in each year. One can see this process in the “Reorganized” worksheet in the attached spreadsheet. Census Bureau categories have shifted over the years, and in some cases (notably what debts are used for and the type of capital spending) the level of detail has been reduced. One can see data items with no date, for example, and others for which the data begins to be provided at some point, having perhaps been lumped into “Not Elsewhere Classified” previously. To save money, and due to the classification changes of 2006, the public use files that provide data by year for the history of the program are no longer being updated. I attempted to match codes and, for New York, the U.S., and the selected states indicated, add data for 2007 and 2008. I then had to calculate the totals myself, limiting the work to those totals I wanted to use. Which is why you see many “total expenditure” fields blank for FY 2007, as I only required total direct expenditures.
If you want to fully understand the data from the Census Bureau’s governments division, you can read this classification manual. But the simple summary is this: I have taken data collected by the U.S. Census Bureau and made adjustments to make the data as comparable as possible from year to year and place to place. The goal is a series of tables and charts to show how the tax burden by type of tax, and spending by type of public service or benefit, compares between New York State, the United States, and representative other states, and between different parts of New York State.
Looking at “direct expenditures” only, nationally, local governments directly spent $124.5 per $1,000 of U.S. residents’ personal income in FY 2007, while state governments spent just $84.23. And of that $84.23, a substantial share was just cash out rather than work done by state employees — $23.02 for Medical Vendor Payments, $2.43 for Unemployment Insurance Payments, $1.00 for Worker Compensation Payments, and $3.61 in interest. While the next post will discuss state government expenditures, therefore, most of the data I plan to present is for local governments, where the rubber meets the road. But the tax burden of and spending by local governments are a state issue, too. The largest item in the average state budget is not a direct expenditure, it is state aid for local government education at $24.96 per $1,000 of personal income nationally and $26.83 per $1,000 in New York.