Census FY 2009 Public Finance Data: Taxes, Other Revenues, and Debts

The following post analyzes changes in local government revenues per $1,000 of personal income for FY 2002 and FY 2009, comparing New York City, the rest of New York State, and New Jersey to the U.S. average, using data linked from this post. My general take on this data over the years is that everything is locked in in New York and nothing ever changes, but in this case some things definitely did.

The upshot on revenues? In FY 2009 New York City’s state and local tax burden, as a percent of its residents’ personal income, was 53.2% higher than the national average, up from 34.4% above average in FY 2002. This despite the fact that the U.S. average increased as well, from just under 10.2% of personal income to just over 10.4% of personal income. New York City, based on long term Census Bureau data attached to this post, had not been that far above the U.S. average since 1987 – it had been more than 50.0% above average from 1977 to that year. The combined state and local tax burden for the rest of New York State, taken together, increased from 22.2% higher than the U.S. average to 34.4% higher. The rest of the state had never been that high above average according to the data I have available, for 1972 and all years from 1977 to 2009 (except a couple when the Bureau did not collect it). The tax burden of New Jersey had been about average in FY 2002, as it had been for some time before, but was 12.2% above average in FY 2009.

Let’s begin our overview of revenues with taxes, and start with the totals. Hopefully, the reader has already printed out the table linked from this post and printed the output, and read that post to understand how the data was compiled and what it means. The data show a slight decline in the total U.S. state tax burden as a share of personal income, from about 6.0% in FY 2002 to about 5.9% in FY 2009, more than balanced by a slight increase in local taxes. Both state and local taxes increased substantially as a percentage of personal income from FY 2002 to FY 2009 in New York City, the rest of New York State, and New Jersey, reaching 16.0%, 14.0%, and 11.7% of income respectively in the latter year. Although, as in the past, most of the excess tax burden in New York State is at the local level, in FY 2009 it was significantly above the U.S. average at the state level as well, at 7.1% of income in New York compared with 5.9% for income for the U.S. and 6.25% of income in New Jersey.

I didn’t break out the state data by type of tax, but best as I can figure out the state “millionaire’s tax” surcharge associated with the 2001 to 2003 recessions was not in place at any time in FY 2002, going into effect in 2003. But it was in effect in part of FY 2009, having been in force during for 2009. That might explain some of the increase in New York’s state tax burden.

But state income taxes may be increasing as a percentage of personal income for another reason: in New York, as elsewhere in the country, a rising share of total income is concentrated at the top, where it is taxed at a higher rate. The ongoing loss of manufacturing jobs in Upstate New York and back office “pink collar” jobs Downstate is reducing the size of the middle class, as people fall into or are replaced by those in lower tax brackets who pay little in income taxes. Meanwhile, more people are wealthy, and paying a great deal. According to this report (figure 2), the share of total state income taxes paid by the wealthy as soared, presumably because of an increase in their share of total income. 

More taxable wealth at the top, and taxes collected from Wall Street, is certainly the reason why New York City’s local personal income tax and corporate income tax revenues were higher as a percent of city residents’ income in FY 2009 than they had been in FY 2002. I don’t recall the city’s tax rates increasing between those years – in fact, the unincorporated business tax was liberalized so this second income tax would fall less heavily on the city’s growing band of self-employed “freelancers” (or de-facto employees without benefits). New York City’s local income tax, on top of the federal and state income taxes, is virtually unique, and it falls heavily on those working since all of the income of retired public employees, and some of the income of retired private sector employees, is exempt. The new MTA payroll tax similarly only falls on those who are working. So does the unincorporated business tax, still in force for freelance, small business self-employment and partnership income in excess of $100,000.

This growing dependence on taxes on the wealthy, and on Wall Street, is a threat to New York’s public financial future, because the evidence suggests much of it was not really earned. And because it was not really earned, it is possible that it may go away due to regulation, due to a revolt by shareholders demanding a higher share of company income for investors rather than executives, or due to a revolt by customers moving their money to companies those fees bear a closer relationship to their returns, companies located in other cities with less predatory financial cultures. Dependence on these tax revenues has caused New York politicians such as Mayor Bloomberg, Senator Schumer, and Governor Paterson to defend the indefensible – the soaring pay on Wall Street initially rationalized by higher investor returns during the stock market bubble, but today not even explained at all.

City residents might remember an 18.0% property tax rate increase by Mayor Bloomberg to improve the city’s public schools when he first came into office. And New York City’s property tax burden, as a percentage of its residents’ personal income, was in fact 19.8% higher in FY 2009 than in FY 2002.

In addition to the tax increase, other factors affect the city’s property taxes as a percent of personal income. As a result of assessment increase limits put in during 1982, when New York area housing prices were below the U.S. average (believe it or not that is true), the property tax burden as a share of income tends to fall for the city’s one to four family homes, as the permitted increase per year and per five years is generally lower than the inflation rate. The homeowner break is by far the greatest in gentrifying “yuppie” neighborhoods, where the low housing prices of 1982 were locked in for property tax purposes, even as the income of the people living those neighborhoods – and their actual property values — continues to rise relative to the rest of the city. In the case of two- to four-family houses, these lucky homeowners benefit from higher rents even as their property tax burden is kept down. Meanwhile, rising rents in larger buildings mean higher property assessments, and higher taxes passed on to renters, particularly those in non-rent regulated buildings.

In much of New York City, new buildings have been exempted from property taxes for years, an artifact of the dark days when people were fleeing the city and no one wanted to invest here. Over time, however, those buildings become taxable, and with the city having experienced an office boom in the 1980s and a housing and retail boom starting in the late 1990s, some of the increase in property tax revenue may be due to previously exempt buildings finally coming onto the tax rolls.

Despite the revenue from its virtually unique local personal and business income taxes, New York City’s property tax revenues were above the U.S. average. Property tax revenues totaled 3.6% of city residents’ income in FY 2009, up from 2.9% in FY 2002 and above the U.S. average of 3.4%. For those not benefitting from the break for 1 to 4 family homes, the city’s property taxes are probably significantly higher than average. Without the benefit of a local income tax, but with the same high spending and costs shifted to the local level, the FY 2009 property tax burden in the Rest of New York State, at 5.3% of personal income, was much higher than the U.S. average and much higher than the 4.7% of income it had been in the rest of the state in FY 2002. New Jersey’s property tax burden was about the same as the part of New York State outside New York City.

One state cost shifted to local governments is Medicaid, for which New York State has a virtually unique local matching share. It was originally intended to shift the burden of the poor, old and sick, concentrated in New York City at the time, onto city taxpayers and away from taxpayers in the rest of the state. New York State accounts for most of the local government to state government “aid” in the U.S., and most of this is for Medicaid.

My recollection is that the increase in the amount New York’s local governments have to pay to the state for Medicaid was somehow limited by legislation passed after the issue was raised by candidate for Governor Tom Suozzi in 2006. And in the rest of New York State, in fact, the local to state aid in the Welfare and Hospital categories, all of which is for Medicaid, fell from $5.18 per $1,000 of personal income in FY 2002 to $4.08 in FY 2009. In New York City, in contrast, local to state aid in this category increased from $9.99 per $1,000 of city residents’ personal income in FY 2002 to $17.20 in FY 2009. That’s 1.7% of city residents income collected in local taxes and sent to New York State for Medicaid, over and above the federal and state taxes city residents pay for the program.

Meanwhile, federal and state aid to welfare, health and hospital programs administered by the city fell as a share of city residents’ income from FY 2002 to FY 2009, from 2.35% of income to 1.9% of income. There was a large decrease in federal and state funding as a share of total personal income in these “aid to the poor” categories in the U.S. and the rest of New York State as well. On the other hand, federal and state aid and charges for services (such as rent at public housing projects and health insurance payments at public hospitals) covered 78.6% of total New York City spending in these categories in FY 2009, up from 65.1% in FY 2002 and similar to the U.S. average of 78.1%. Or course New York City taxpayers are covering just over 20.0% of a much larger social service burden that local government taxpayers elsewhere.

As these trends – less federal and state aid for health, housing and social services to the poor, but federal and state aid covering rising share of total NYC spending in these categories–seem to conflict. Someone with more knowledge of changes in social services, public hospital and social housing funding policies over the past decade will have to explain them. One possible explanation is less New York City spending on “only in New York” programs that the federal government, and perhaps the state government, do not cover part of the cost of.

The data shows that state (and federal via state) aid to New York City’s public schools was below the U.S. average as a percentage of personal income in FY 2002, but above average in FY 2009. But the “fiscal equity” promised by the “Campaign for Fiscal Equity” was not achieved. State aid to the high spending schools in the rest of the state, as a percentage of the income of those living there, increased as well, from already above average levels. School aid as a percentage of personal income totaled 2.66% of personal income in the U.S. in FY 2009, compared with 2.72% in New York City, 3.53% in the rest of the state, and 1.9% in New Jersey.

Meanwhile, the local government resources invested in public schools decreased slightly in the U.S. and the Rest of New York State, as a percent of personal income from FY 2002 to FY 2009, and increased hugely in New Jersey. Local government tax resources for education actually fell in New York City, from 2.34% to $2.25% of personal income, and the share of NYC school spending covered by federal and state aid rose from 52.1% to 54.2%. But wait a minute, didn’t New York City increase property taxes for the schools, and doesn’t the education finance-specific Census Bureau database show a huge increase in spending in the city?

Yes. But remember, in THIS database spending on the pensions and health benefits of retired teachers is NOT included in public school spending. It is tabulated separately, under pension fund revenues and under “other” expenditures. Therefore, more than 100 percent of New York City’s additional school spending from FY 2002 to FY 2009 went to retired teachers and, perhaps, health benefits for those working. Spending in the city’s schools had previously increased substantially from the lows of FY 1997 to FY 2002, but after FY 2002 and with the bursting of the stock market bubble the retroactive pension enhancements of the past 18 years started to be paid for. That sucked up all the higher taxes for schools and much else.

The city to state transit aid, and state to city transit aid, may confuse people. Remember that all the mass transit revenues in the rest of New York State are counted in this database as state government, so state aid the LIRR or MetroNorth is NOT included. Federal and state aid to New York City Transit increased from FY 2002 to FY 2009 as a percentage of city residents’ income, but much of that is from dedicated taxes collected only downstate. In fact some of that is sent by New York City to the MTA (state government) before being passed down to its New York City Transit subsidiary (counted here as part of New York City). The city had slashed its contribution to the MTA in the early 1990s recession, when New York State did, and never restored it even when tax revenues were rolling in. But the city did increase payments to the MTA, as part of a deal to have it take over what had been private bus lines, now MTA Bus.

One of the criticisms of the Bloomberg Administration is that it has nickled and dimed city residents to death with fee increases. But New York City’s charges for services, as a percent of its residents’ personal income, were virtually unchanged from FY 2002 to FY 2009. At 3.7% of personal income in the latter year, New York City’s fee for service revenues were above the average of 2.95% for all local governments in the U.S., but remember that New York City operates many enterprises that other local governments do not, including the transit system, a vast public housing system where 600,000 people live, and a vast public hospital system. On the other hand, it is common for local governments elsewhere in the country to charge for solid waste removal, which New York City does not, and some local governments operate electric or gas utilities. Charges for services accounted for about 1.0% of New York City spending on Solid Waste services in FY 2009, compared with 66.8% for local governments in the U.S. as a whole.

If a public service operated by a local government isn’t funded by federal and state aid, or charges for services, one other possibility is that it is funded by local tax revenues. Another possibility is that it is funded by borrowing. New York City’s water and sewer charges covered 79.0% if spending on the city’s water and sewer system in FY 2002, but just 53.0% in FY 2009. The reason, as described in the last post, is a big increase in capital spending paid for by bonds, with retention tanks to prevent combined sewer overflows and a filtration plant for city water joining work on the third water tunnel. With a $2 billion repair required for a leaky aqueduct, more borrowing is coming.

Including the Port Authority, New York City Transit, and the Triboro Bridge and Tunnel Authority as well as the New York City Department of Transportation, the share of New York City transportation expenditures covered by motor vehicle taxes, federal and state aid (including dedicated MTA taxes sent to NYC Transit), fares and tolls increased from 58.1% of total spending in FY 2002 to 76.2% of total spending in FY 2009. The share covered by other taxes – and by borrowing – presumably fell.

FY 2002 was the end of a long period in which effective transit fares were deeply cut due to the creation of the Metrocard and associated discounts, tolls were frozen and some were removed, and transportation capital spending (though perhaps not what is received in exchange for capital spending) sharply increased. To make up for this sweet deal, money was borrowed. Now both the MTA and the state’s transportation trust fund are broke, and money all these funding sources are more are going to the past, with less in return.

The data show, in fact, that New York’s state and local debts rose enormously in New York City from FY 2002 to FY 2009, from 38.4% of the personal income of city residents to 42.5% of that income. The largest gains were at the local level. In the Rest of New York State, the debt burden edged up from 23.8% of income to 24.0% of income and the local debt burden actually fell. The pension funds that cover public employees in the rest of the state are also better funded than those for New York City public employees.

This, perhaps, might put the city’s higher tax burden in a different perspective. Taxes were high in the late 1970s and 1980s, during the Koch, Carey and Cuomo administrations, because the city and state had to pay back the debts and pay for the pension enhancements of the Lindsay, Wagner, Beame, and Rockefeller administrations. Money also had to be spent to repair the infrastructure neglected by those earlier leaders in favor of more glamorous spending priorities. Subsequent tax reductions, it seems, were funded by borrowed money, and subsequent pension deals were not paid for either. And New Yorkers are now paying more and getting less again as a result, modestly at present, potentially catastrophically soon.