Census FY 2010 Public Finance Data: Background

The fiscal 2010 state and local finance data compilation has been released by the U.S. Census Bureau, and I spent one and one-half days of a weekend putting it into a readily comparable form for local governments in the U.S., New York State, New Jersey, New York City, and (by subtraction) the rest of New York State. You can follow my work step by step in the series of worksheets in the “Local Government Finance 2010” spreadsheet, which can be downloaded from Archive.com here. Look to the left and click on “Excel” to download it. I did the work on my own time because providing comparisons with the national average and other states is something neither the City of New York nor the State of New York, which between them spent $3.3 billion on agencies in the Census Bureau’s “Financial Administration” category, have seen fit to do. In the “Added” worksheet, you can hopefully print the FY 2010 data on two pages. The “FY 2002 and FY 2010” worksheet provides that comparison for those who have good eyes.

How much should people concern themselves with this data, and with the New York State legislators and New York council members who pass the budgets that have decided what the data show? Consider this. In FY 2010, the money New York City local governments (including the Port Authority and New York City Transit) directly spent equaled 20.8% of all of the personal income earned by all New York City residents. Of that amount, the equivalent of 12.8% of the income of city residents was extracted directly from city residents and others spending time here in taxes, fees, fines and other revenues, with the equivalent of 8.0% coming from the federal government and the State of New York (with some of the state money originating with the federal government). The State of New York exercises indirect control over the entire 20.8% of everyone’s income that is spent by the city, and also directly spends the equivalent of 12.8% of the income of state residents. Taken together, New York City’s state and local governments spent the equivalent of about one-third of everything New York City residents earn. On public services and benefits that are, or can be, absolutely essential, but which the city and state and those who work for it have no contractual obligation to provide with any quality.

As is my practice, I’m going to get the spreadsheet up with the background, and comment on the data in later posts. The data for most years is less geographically detailed than that available from the Census of Governments every five years, with the most recent data for 2007. If you haven’t already, I recommend reading this post and this post and this post and this post for that year, and downloading the associated spreadsheets. And if you haven’t already, you should read and download the public employment data I posted last month, and the public education finance data I put up earlier in the year. There is unlikely to be much new before the Democratic primary for NYC Mayor next year

Before repeating the background, however, let me summarize a few ways in which New York City and New York State have consistently differed from the national average over the twenty-plus years I’ve been compiling this data. This information will not be new to those who have read my posts over the years. And again, just because it is the national average doesn’t make it right, but substantial differences in either direction need to justified or at least explained.

New York’s state and local tax burden is very high. If New York City were separate state, it generally would have the highest state and local tax burden in the country, or second or third behind Alaska and Wyoming where most of the taxes are on extractive industries (oil, coal and gas) not residents or other businesses. In New York City, the excess burden is paid through a host of extra taxes that are rare at the local level, including a local personal income and business income tax. Local sales taxes are relatively high throughout the state. In the rest of New York State, local property taxes are extreme.

In New York City and, to a lesser extent, the rest of the state, some of this is explained by services residents receive that those in other places do not. A very large mass transit system, with public money spent on transit offset by personal money not spent on driving. A professional, rather than volunteer, fire department. Public trash pick up and street cleaning, rather than private carters you have to pay for yourself. Public water and sewer, rather than wells and septic tanks or private water utilities. A large public hospital system, and extensive local housing programs over and above the (increasingly less) federally-financed Section 8 and public housing.

But most of New York’s high taxes have not been explained by these factors.

The extra money, in large part, has gone not to more and better paid public workers on the job, but to richer pensions. Within New York City, in fact, in some cases and particularly in the past, the amount actually spent to pay for services has been below average, notably for schools.

Moreover despite consistently high contributions, at least in New York City, New York’s public employee pension plans are underfunded – especially in New York City. Meaning that a large share of today’s taxpayer pension contributions are going not to pension benefits public employees are earning today by working, but to pension benefits that were either earned or retroactively granted in the past but not paid for at the time. On top of this, New York’s state and (in New York City) local government debts are vastly above average. Add it up, and a substantial and soaring share of the extra tax money being paid today is being sucked into the past, with nothing in return.

In addition, New York City has always spent an unusually large amount of money in what generally referred to as “public welfare” services. In part because city residents are more likely to be poor are require such services. But in part because New York’s Medicaid-financed services for senior citizens are perhaps the most generous (or wasteful or corrupt or all three) in the country. The State of New York determines what those services are and what they cost, but unlike most states it makes local governments pay a large share of the cost. For that reason, in the past most of New York’s excess state and local tax burden has been at the local government level, not the state government level.

In the rest of the state the sky-high spending has traditionally been on the schools rather than the seniors. In part because New York’s schools, aside from those in New York City, have been better than those found in most of the country. In part because New York’s schools, including those in New York City, have traditionally functioned as a sort of public welfare system for politically connected people outside New York City who wanted to maintain the conceit of being against welfare recipients. As other high-paid high-benefit job opportunities in the suburbs and upstate have fallen in number, so public school spending as a share of income and public school to population has risen there, in the 1990s along with rising enrollment, but ever since regardless.

While these are the main differences between New York City and the Rest of the State vs. the rest of the country, New York City’s spending on police has also been far above average relative to the income city residents how to pay for it.

I’ll talk about what has changed from the FY 2002 to FY 2010 in a later post or posts. These were both years in which NYC struggled to recover from recessions that had been at their worst the year before.

Now the background. Much of the following is repeated from previous posts with earlier data, so if you have taken the trouble to study my compilations of Census Bureau Governments data in the past, you can skim through this. Otherwise, it should be read carefully.

I express government finance data as a share of personal income because places where average personal income is high also tend to have a high cost of living. With their higher incomes, residents of such places can afford to pay higher taxes per person without it reducing their income as much, but local governments must pay their public employees and contractors more to attract workers of equal quality, given the higher cost of living. Measuring revenues and expenditures as a share of personal income adjusts for both these factors. So the fact that New York is expensive has already been taken into account in these comparisons, in a fair way.

Bear I mind, however, that spending per $1,000 in personal income can change due to both factors: changes in spending, and changes in income. If a part of the state becomes poorer but still employs the same number of local government workers at the same level of pay, adjusted for inflation, it will have to raise taxes on the falling income of other residents to pay fund the same cost of government. Taxes and spending per $1,000 of personal income will rise even if inflation-adjusted spending does not. Removing the effect of the business cycle on personal income is one reason to use comparable economic years. Neither FY 2002 nor FY 2010 were great years economically.

Every five years, the U.S. Census Bureau conducts a Census of Governments, adding up public finance and employment information on every state and local government in the United States, and presenting the local government totals for every county in the country. The last was 2007. The next is 2012.

In general, between census years the Bureau surveys some of the local governments to produce estimates of total state and local government activity, for each state and the national average. It also, however, provides individual government data for those included in the survey. New York City and the Port Authority of New York and New Jersey are always included, and (other than a harbor commission with virtually no employment or spending) they are the only local governments in New York City. So by adding the two up one can get data on local government in New York City between census years, and by subtracting New York City from the state total one can get an estimate of the rest of New York State as well. For other states, the estimate for all local governments in the state is all that is available for FY 2009. In some past years I had divided up the Port Authority, allocating some of its spending to New Jersey, but I did not do so this year, to save time. Bear in mind that all the revenues, expenditures and debts of the Port Authority are assigned to New York City in this data set.

There are several government functions that are generally local government activities, but are sometimes state activities. Some states, notably New Jersey, operate local schools in districts they have taken over, and virtually all the mass transit in New Jersey and New York State outside New York City is counted as state government, not local government. To adjust for this, I compare the state and local totals with New York City in these categories. State and local government totals for the U.S. and New Jersey are also compared with New York local government for cash welfare, which is recorded as local government spending in New York and most other places, even though most of the funding comes from federal and state taxes.

I focus on local government because local governments do most of the work of government, while state governments generally just collect and then pass on money to either local governments as aid, or the private sector as payment for public services (ie. the health care and social services industries), or individuals (unemployment compensation). States are generally directly responsible for public universities, state prisons, and state unemployment and worker compensation insurance programs.

The Census Bureau distinguishes between “direct” expenditures and “inter-governmental” expenditures — the latter are simply transfers between one government and another. Based on total expenditures, one can count the same dollar multiple times. For example, if a dollar is spent in a New York City public hospital, it is counted as “direct” local government public hospital spending. But if that dollar came from Medicaid, it is also “spent” as state to local aid for public hospitals. But since New York State requires New York City to fund part of its Medicaid program, which it is credited for administering, that same dollar may be counted a third time as local to state aid for public welfare. Money is only spent “directly” once. The data shows direct expenditures except where specified.

Nearly all Medicaid payments to private health care providers, classified as “Medical Vendor Payments,” take place at the state level. Some Medicaid funding, however, is used to pay for services at public hospitals, including those of the New York City Health and Hospitals Corporation. This data, therefore, includes just part of the Medicaid spending in New York City.

One of the advantages of accessing detailed data from the Bureau, as opposed to the spreadsheets it publishes, is that more detail is available on revenues. In summary tables, charges for services and revenues from other governments are summed to totals. Using the details, I’m able to figure out how much of NYC’s local government transportation expenditures are paid for by charges for services and motor vehicle taxes, and how much of its social services spending is paid for by federal and state aid. Local government to state government aid, generally not reported in summary tables because New York State is the only state with very much of it, can also be analyzed.

Another quirk of the data concerns pensions, which the Census Bureau records from the point of view of the pension plans. Thus what are “expenditures” from the point of view of New York City’s budget, contributions to its pension plans, are tabulated as pension plan “revenues” in this data. The pension plan “expenditures” are actual benefits payments, according to the Census Bureau. In general, local government workers are covered by pension plans administered by states. The New York State plan covers all the local government workers outside New York City, while New York City has its own plans. It is possible to tabulate the contribution of local governments outside the city to the state plan, but not the benefit payments to former local government workers in the rest of the state, because that is mixed with the benefits paid to former New York State workers. For a detailed comparative analysis of state and local pensions over time, see this post.

One key point about pensions for the data presented here is that the data on expenditures by function generally excludes them. Thus, New York City’s police and education spending, in this dataset, does not include the money the city has to pay into the pension plans for its retired teachers and police. That is tabulated as a single number, for all city employees, down at the bottom of the expenditures table. Other data, for example another Census Bureau data series specifically on public schools, shows that in general New York City’s pension and other benefits spending is far higher than just about anywhere else, one factor keeping its funding for workers on the job lower than it would otherwise be.

Speaking of benefits, if local governments do not provide the Census Bureau with sufficient detail on, for example, employee and retiree health insurance by function, the health insurance for all employees and retirees ends up lumped together under “other.” That is the case for New York City, one reason its “other” spending is so high. In other places, with multiple local governments each doing perhaps one function, that health insurance spending may be included with the individual spending by function. So New York City’s spending for a given function compared to the average may be higher than it seems. Health Insurance and Judgments and Claims are not tabulated separately by the Census Bureau’s Government Finance series because that series was designed in the 1950s, when those categories of costs were less significant. The series have not been updated to include them because the work of the Governments Division has been gradually de-funded, with data items lost but not added.

In a couple of cases, for total taxes and for debts, I elected to produce a combined state and local government figure. So how does one produce a state tax and state debt figure for New York City compared with the rest of the state? I assume that the burden of state taxes is distributed in proportion to personal income, and thus the burden of repaying state debts will be as well. But that isn’t quite true, as MTA taxes are only collected in Downstate New York, but are tabulated as New York State taxes in this data. With some of those “dedicated” taxes having been spent in Upstate New York in recent years, it may be fair to say that there are two different levels of state taxes in the state.

Finally, anyone viewing the FY 2002 data should bear in mind the effects of 9/11. Police, Fire, and to a lesser extent Sanitation spending was inflated in FY 2002 by massive overtime in the wake of the attack. A post or two with my interpretation of the data will follow, but if you read this much you are in a position to print out the tables and make up your own mind.