Census 2007 Local Government Expenditures: Where New York City’s Money Goes

In my previous post, I showed that extremely high public school expenditures drive the high taxes, generally high property taxes, in the portion of the state outside New York City. But what about New York City? Its public education spending, according to the U.S. Census Bureau, is and recent decades always has been below average as a share of its residents’ personal income. Spending on community colleges, parks, recreation, natural resources and libraries is and almost always has been low. So where does the money go?

New York City’s spending, as a share of its residents’ income, is far above average in means tested social benefits, in spending on housing and community development, public housing, social services, and cash welfare – although cash welfare expenditures are now a pittance compared with the other categories. Spending on police and corrections, as well, is and has been high. Another group of spending categories where New York has always been high, however, accounts for a growing share of the city’s tax burden, and a growing cause of spending cuts in other categories: debts, pensions, and employee health care, for retirees in particular. After a brief respite, and as in the terrible decade after the fiscal crisis, city residents are facing rising taxes due to the past, with less and less in public services return in the present, as those who benefitted walk away with a bundle of loot.

To see the tables I am referring to, download the spreadsheet attached to this post.

The data show that New York City spent $8.82 per $1,000 of its residents’ personal income on housing and community development in FY 2007, compared with an average of just $3.13 for all local governments in the United States. The New York City Housing Authority provides public housing to an estimated 600,000 New York City residents, and Section 8 vouchers for thousands more, while the Department of Housing, Preservation and Development funds other below-cost housing programs. Most localities, on the other hand, do not even have subsidized housing. Spending in this category was well below the U.S. average in other parts of New York State, and in New Jersey, Connecticut, North Carolina and Texas. Massachusetts, California and Illinois are above average in this category, though well below New York City.

Subsidized and public housing is not a public service most local governments provide, but New York City has always been a national leader, and has received a disproportionate amount of federal aid in the category. The current head of the Department of Housing and Urban Development is from New York City. Candidate for New York Governor Andrew Cuomo was the head of HUD, and several other New Yorkers have held the post as well. New York State has not had any of its residents appointed to head any federal infrastructure agency, such as the Department of Transportation, in my memory.

New York City’s spending is also high, compared with the average local government, on public hospitals, thanks to its large Health and Hospitals Corporation. The city’s spending was $13.32 per $1,000 of its residents’ personal income in FY 2007, compared with a national average of $5.97. Most localities do not have public hospitals, and the averages for most other states is low. One exception is North Carolina, with public hospital spending at $11.26 per $1,000 of personal income. Within New York State, extensive public hospital spending may be found in Nassau, Rockland, Westchester, Lewis, St. Lawrence and Wyoming Counties. As mentioned previously, a substantial share of public hospital spending is funded by the Medicaid program.

New York City’s spending on social services, though agencies such as the Administration for Children’s Services and the Department of Homeless Services, was also relatively high at $12.42 per $1,000 of city residents’ personal income, compared with national average of $2.98. The Downstate Suburbs and most other states tabulated were either at or well below the U.S. average, with Texas and Massachusetts having less than 30 cents in spending on social services for every $1,000 of their residents’ personal income. The Upstate urban and rural counties, however, were also above average at $7.77 and $10.74 per $1,000 of personal income. Surprisingly, cash welfare spending as a share of personal income was also nearly as high Upstate as in New York City, at $2.46 per for urban counties and $2.15 for rural counties compared with $2.75 in NYC. The national average was $0.77.

While New York City’s spending in the housing, hospital and social services functional categories was relatively high, these services are substantially funded by federal and state aid and hospital charges, which covered 62.9% of the total cost of the city’s spending in these categories (compared with 76.4% nationally). State and federal aid covered less than half of all local government public health, public hospitals and welfare spending in Upstate New York. But that may be because much more of the aid to these areas was in the form of Medicaid spending on private health care providers rather than public hospitals, and thus not recorded as state to local aid.

New York City, however, has to pay for its high spending on police and corrections for the most part, itself. The city’s spending in these categories equaled $9.18 and $3.22 per $1,000 of city residents personal income in FY 2007, about 50% higher than the U.S. averages of $6.12 and $2.03. But this data item does not include the type of police and corrections spending that is much, much higher than average in New York City – spending on retirees (see below). Police spending was above average as a share of residents’ personal income in the Downstate Suburbs (and in particular in Nassau County, where it was higher than in NYC) and below average Upstate. Local government corrections spending, meanwhile, was almost as high in Upstate New York as a share of its residents’ personal income as in New York City. Upstate, of course, is where almost all of New York’s state prisons are located, so there is a large workforce looking for that sort of job.

In order to evaluate the burden of the past in different parts of the state, I had to make some adjustments and assumptions.

Census Bureau data on state and local government pensions is data for the pension systems themselves, not the state and local governments that participate in them. Local government employees in the portion of New York State outside New York City are covered by the State of New York pension system, while New York City has its own pension system that also covers New York City transit. To come up with an estimate of pension benefit payments to former local government employees in the rest of the state, separate from benefit payments to former state employees, I assumed that the benefit payments to former state/local employees are in proportion to the pension contributions by the State of New York and by local governments.

Based on that assumption, the pension benefits of former New York State employees equaled $5.73 for every $1,000 of New York State residents’ personal income. Assuming the cost of those pension benefits is divided between New York City and the rest of the state based on their respective shares of the state’s personal income, the burden of paying those pensions is $5.73 per $1,000 of personal income in both locations.

Based once again on assumption that the state/local share of payments out equal the state/local share of payments in, former local government employees retired from the rest of New York State collected $9.41 in pension benefits for every $1,000 of personal income current residents of the rest of the state earned. For other states, data can only be provided for state and local government combined, because states often provide pension contributions for local government employees.

Adding state and local together, one finds that state and local pension benefit payments equaled $15.15 for every $1,000 of personal income for portions of New York State outside New York City, above the national average of $13.61 but about the same as New Jersey at $15.11. New York City’s pension benefit payments plus its pro-rata share of state pension payments, however, equaled $26.78 per $1,000 of city residents’ personal income, far above the U.S. average. None of the other states were even close to New York City in pension benefit payments to ex-state and local government workers. Illinois came closest at $18.00 per $1,000 in personal income.

Taxpayers, however, don’t have to pay taxes to directly fund pension fund payments. They pay taxes to fund employer contributions into the pension funds, which later pay benefits out. Here again, New York City is sky high. In FY 2007, pension contributions by the City of New York equaled 20.3% of the wages of its active workers, compared with a national average of 9.5% for all state and local pensions, just 6.5% for local governments in the rest of the state, and 7.9% for all state and local governments in New Jersey. Taxpayer pension fund contributions for state and local government workers ranged from 9.5% to 12.6% of public employee wages in Connecticut, Massachusetts, California and Illinois, but were just 2.2% in North Carolina and 6.6% in Texas.

On the other hand, New York City’s employees kicked in just 2.5% of their own wages for their pensions, below the U.S. average of 4.5% and the 5.1% in New Jersey. Employees of local governments elsewhere in New York State kicked in just 1.1%. Employee contributions in the other states surveyed ranged from a low of 3.7% in Connecticut to a high of 9.3% in Massachusetts.

New York City’s pension payments are also equal to a percentage of its employees’ wages – 33.0% of wages in FY 2007. That means for every three dollars the city paid in cash to its employees, it was paying out one dollar in pension benefits to its former employees. This compares with a national average of 21.2%, and 17.4% for the New York State pension system. In New Jersey, California, and Illinois, where pension systems face collapse and state government are flirting with bankruptcy as a result, the figures are pension benefit payments at 23.2%, 23.2% and 28.7% of active employee wages. One reason for collapse: New Jersey’s pension payments totaled 9.3% of its pension plan assets in FY 2007, before those assets shrunk due to the financial crisis. But New York City’s benefit payments at 6.7% of assets were well above the U.S. average of 4.9%, or the rest of the state at 3.8%.

In addition to the cost of pensions, there is the cost of retiree health insurance. The Census of Governments doesn’t tabulate data specifically on the cost of health insurance for retirees, or public employee health insurance. Since local governments generally don’t provide data on the health insurance costs of one agency versus another, that cost gets lumped in as a part of “General Expenditures Not Elsewhere Classified,” or “Other” in the table I created. In this category, New York City’s expenditures totaled $18.71 per $1,000 of its residents’ personal income in FY 2007, nearly triple the national average of $6.72. The Downstate Suburbs, Upstate urban counties and Upstate rural counties were well above average at $11.62, $14.76 and $11.23 per $1,000 of personal income.

Very few local governments set money aside for retiree health care while future retirees are working, and those that do set aside money do not set aside much. By not pre-funding retiree health are when public employees are working and providing public services, fast growing suburban (now exurban) area can to defer that cost to the future. After all, a growing area has relatively few government retirees (since during its unpopulated past it had few public employees), and many more taxpayers to fund their health insurance. Thus spending on “other” in the table, dominated by employee health insurance costs, totaled only $3.38 per $1,000 of personal income in fast growing Texas and $5.22 per $1,000 of personal income in North Carolina.

When a community has been built out for some time, however, suddenly it has a lot of retirees to whom it has promised retiree health care, with no money having been paid by past taxpayers who received the public services they had provided. That is the situation New York City found itself in during the 1970s, and that’s the situation that many suburbs developed from 1950 to 1980 find themselves in today.

Underfunded pensions and unfunded retiree health insurance are off the books debts. But New York City has plenty of on the books debts as well. As discussed previously, in total New York State’s state and local government debts equaled $280.63 for every $1,000 of personal income of state residents in FY 2007, 38.3% higher than the U.S. average of $202.97. Assuming that the burden of repaying state debts will fall to different parts of the state in proportion to their personal income, the burden of state debts was $119.00 per $1,000 of personal income in every part of the state.

But New York City’s local government debts are much higher than elsewhere in the state. As a result, its state and local debt burden is $361.35 per $1,000 of personal income, 78.0% higher than the national average. The state and local debt burden for the Downstate Suburbs and New Jersey are 2.9% below average, Upstate urban counties are at 12.3% above average, and Upstate rural counties are at 14.9% above average. To put this is perspective, total state and local debts in California, a state many believe is going bankrupt, summed to $210.12 per $1,000 of that state’s residents’ personal income in FY 2007, only slightly above the U.S. average and far below New York City. For New Jersey, where every dollar of revenues paid into the dedicated transportation trust fund will be going to past debts within a couple of years, state and local debts totaled just $197.02 per $1,000 of personal income.

Just as high pension benefits and generous employee health insurance mean high pension contributions and employee health insurance spending, so high debts mean high interest payments. Interest on local government debt absorbed $12.33 for every $1,000 of personal income of New York City residents in FY 2007, more than double the U.S. average of $5.32. Other parts of the New York State and New Jersey were below average.

Put another way, New York City residents need to pay 1.2% of their income in taxes just for past state and local government debts. And 1.9% of their income just for General Expenditures Not Elsewhere Classified, most of which is non-pension employee benefits, perhaps half of which goes to retirees. And 1.3% of their personal income for taxpayer contributions to pension funds for local government employees. That adds 4.4% of their personal income paid in taxes for the past with no public services in return. The average local government tax burden as a share of personal income in FY 2007? Just 4.4% of personal income. And while payments for the city’s housing and social services agencies and programs have been going down relative to personal income, Medicaid-funded services for seniors aside, spending as a result of burdens shifted from the past have been going up.

That was the situation as of FY 2007. What is more interesting is how things have changed over the 35 years from 1972, just before New York City and New York State faced a catastrophic fiscal crisis, to 2007 just before they faced another one. That will be the subject of my next post, and spreadsheet.