I’m going to repeat the style I used to discuss public employment this year, and toss off some comments on trends in public finance rather than provide, yet again, an exhaustive number-laden description. I assume there are many Room Eight readers who have read these over and over are as bored with it as I am, but I’ll keep doing it as long as New York’s public agencies – the City Comptroller, the State Comptroller, the Independent Budget Office, etc. do not.
There is much in our relative situation that doesn’t fit the propaganda narrative that the public employee union and contractor interests that control most of our state and local politicians wish to hear. Notably the high tax burden here, which raises questions about what is being provided in return, even among those who would otherwise be inclined to be “pro-government.” Thus to the extent you see government finance data discussed, in its totality rather than selectively only when favorable, it is generally the right wing Manhattan Institute and its Empire Center doing the talking. But the facts don’t fully fit the right wing narrative either. Notably the fact that the high taxes cannot be entirely or even primarily explained by the minority immigrant urban poor. And the fact that costs deferred from the past do explain a great deal of the excess burden, given that somehow since 1980 “conservative” has come to mean “buy now pay later.” But on to an attempt to say the unsaid and, unusually for me, say it briefly.
As in my post on public employment, I’m not going to get into specific numbers and attempt to exhaustively document everything I say (again). So if you haven’t already, download and print out the spreadsheets linked from this post and located at center left here, and have it in front of you.
State and Local Taxes: The Gap Grows
In the back of the recession year of FY 2002, New York City’s state and local tax burden, as a percentage of its residents personal income, was 34.4% above the U.S. average. In the similar year of FY 2010, it was 51.4% above the U.S. average, though down from FY 2009. The U.S. average has been fairly steady at just over 10.0% of personal income, and was 10.3% in FY 2010, compared with 15.5% for NYC. In the rest of New York State and in New Jersey the tax burden is not as high as in NYC, but it is higher than the U.S. average and up from FY 2002. In the U.S. as a whole the local tax burden rose as a percentage of personal income, but the state tax burden fell. Both increased for NYC, the rest of New York State and New Jersey.
New York City’s property taxes increased by nearly one-third as a share of city residents’ personal income from FY 2002 to FY 2010, as Mayor Bloomberg requested and received an 18.0% rate increase “for the city’s schools,” and new buildings that were built with tax breaks under various incentive programs came on the tax rolls. (But property taxes continue to fall as a percentage of income for most one- to four-family homeowners in places such as gentrifying areas of Brooklyn, where the increase in assessments is held down by state law).
Personal income tax revenues also increased as a percentage of personal income, most likely because more of that income is concentrated among affluent residents with high tax rates. Corporate income taxes increased due to excess profits on Wall Street in the wake of the federal bailout. In the rest of New York State and New Jersey, higher local taxes mean higher property taxes alone, but although property taxes are higher in those places, the FY 2002 to FY 2010 increase was greater in NYC.
Fees and Fines: Exaggerated by NYC Politicos?
New York City’s political class and its backers never have a problem with higher taxes, but often grandstand in opposition to increases in fees and fines. And yet NYC’s total charges for services, as a percentage of its residents’ personal income, are not much higher than the U.S. local government average, even though in most places in the U.S people don’t pay public housing rents, public hospital charges, and public transit fares. (Though in many places, unlike in NYC, there is a charge for solid waste pick up, or a requirement that residents hire private carters themselves). Moreover, total NYC local government fees for services fell as a share of NYC residents’ personal income from FY 2002 to FY 2010. Fines and other miscellaneous revenues also fell as a percentage of income. Of course if more of city residents’ personal income is concentrated among those at the top, the rest might still find the fees increasingly burdensome. But mostly people just whine. And with taxes increasingly going elsewhere, in the future those unwilling to pay for public services – in fees and/or donations — will not have them.
Note that motor vehicle taxes, tolls, transit fares, state and federal transport aid, and other transportation-related revenues accounted for 55.0% of New York City (including part of the Port Authority and New York City Transit) transportation spending in FY 2002, but 83.0% in FY 2010. Transportation spending, that is, on actual transportation — not including spending on pensions and interest on debts, which is where New York City’s taxes are increasingly going. But it could be worse. With lots of transportation-related debt, transportation-related aid and charges amounted to more than New Jersey’s local transportation agencies and transit systems had left over to spend on actual transportation.
Speaking of the Past…
The total amount of money sucked into the past for state and local pension contributions and debts increased from 2.4% of all the income earned by New York City residents in FY 2002 to 3.7% of income in FY 2010. To put that in perspective, NYC has to pay more than one third of the U.S. average 10.3% state and local tax burden, with no public services in exchange. All of the NYC increase from FY 2002 to FY 2010 was accounted for by taxpayer pension contributions, because the burden of state and local debts on NYC residents actually fell slightly. But NYC’s state and local debts increased significantly as a percentage of income from FY 2002 to FY 2010, with relief provided by lower interest rates. If interest rates rise, particularly with New York City, New York State and the MTA taking on variable rate debts (to hide the cost of rising indebtedness) even as fixed rates were at all-time lows, the amount of city tax dollars sucked into the past could soar.
Note that New Jersey’s overall indebtedness is not that high. It is just that its debts and the interest needed to service them are concentrated on transportation. On the other hand, New Jersey has been underfunding its pensions, for decades, and was still doing so in FY 2010. The state faces a hard reckoning that has just begun.
Capital Spending: All is Vanity
Thanks to the debt binge, capital construction spending on infrastructure – transportation, water, sewer, etc. — by NYC agencies fell as a share of NYC residents’ personal income from FY 2002 to FY 2010. It remained above the national average, but NYC has more public capital to renew than most places. Other types of capital construction spending, on buildings for example, increased as a share of NYC residents’ personal income from FY 2002 to FY 2010. Some of this may be WTC rebuilding. Some of it may be schools. Some of if may be “economic development” projects. But the point is, NYC spent less on the basics, and borrowed to do it.
State Aid to Local Government, and Local Government Aid to the State: A Shift
As documented previously using other data, the rest of the state pretty much has stopped ripping off New York City on state school aid, although the damage from past decades remains. But some of the money was taken out of New York City’s hide in other categories. Aid payments by New York’s local governments to the State of New York increased for New York City, while falling in the rest of the state, although payments associated with the MTA’s takeover of the former private bus lines accounts for some of this. And general state aid, other than for the poor, health care, and transit, was shifted from New York City to the rest of the state. If New York City is becoming less poor relative to the rest of the state, this may be justified. But New York City’s general aid has been eliminated, while general aid to more affluent communities has been retained.
Triumph of Public Sector Unionism
Note that the spending by NYC local governments on public employee wages and salaries fell from 7.7% of the personal income of all NYC residents in FY 2002 to just 6.9% of the income of city residents in FY 2010. And FY 2010 was before the salary freezes, with NYC public employees getting raises far in excess of the rate of inflation while many of the city’s private sector workers were experiencing wage freezes or cuts. What the decline represents, therefore, is fewer public employees on the job providing less in services. And sure enough, one NYC public union after another has let it be known that NYC residents deserve less in exchange – less protection from crime, less education, etc.
At the same time, however, thanks to the increase in pension costs, total spending on working AND retired NYC public employees actually increased from 8.2% of all the income of all city residents to 8.7%, with taxes rising along with it. (With more retiree and fewer workers on the job, it is likely that health insurance benefits also shifted from those working to the retired). For this NYC’s public employee unions, having won retroactive pension increases, show no gratitude at all. They are charging more, and providing less.
Note that while taxpayer pension contributions soared as the percent of the wages and salaries of working NYC local government employees (though not by enough – more is needed to avoid bankruptcy), the public employee contributions fell as a percentage of wages and salaries. It had been temporarily elevated by the added contributions of city workers who, under a 1995 deal, were allowed to retire at 57 instead of 62 if they paid 1.85% of their salaries extra toward the pension –and bought back the years they had already worked. Under the 2008 to deal for NYC teachers, which allowed retirement at 55 instead of 62, however, no buybacks of past years were required.
Fewer employees earning less money (adjusted for inflation, post FY 2010) means the unions are collecting less in dues. But they ought to start collecting from the pensioners who are less than 65 years old. That’s who they have represented, after all.
Public Schools: Won’t Get Fooled Again
Speaking of education, after decades of being lower, often far lower, in FY 2010 NYC public school spending as a share of NYC residents personal income (even excluding pensions) was higher than the U.S. average. This is a historic reversal, and a comparison that I made repeatedly back in the day, going back to the first additions of NYC Planning’s Annual Report on Social Indicators when I worked for the agency. With a smaller than average share of NYC residents being children, and a larger than average share of NYC children attending private school, public school spending per student is now very high in NYC, even higher than the average of the downstate suburbs or New Jersey – as I have shown using other data. Another historic reversal.
So what did we get for the money? Well in a recent poll of NYC residents, more than half said the schools were worse than they had been 20 years earlier, when funding was far lower. And what you hear from the UFT is nothing but resentment. By the way, the increase in spending on actual education matches up pretty well with the increase in state aid. What about the far greater increase in City of New York education funding as asserted by the Mayor, and as shown in the other Census Bureau data source? Well in this data source, with pension spending separate, NYC’s own contribution to the public schools was actually somewhat lower in FY 2010 than it had been in FY 2002. That’s right, all that extra NYC tax money for education went to the retired.
MTA: The Cuts Are Real
Cuts in actual education, as more money was sucked into the past, would have been far deeper if Mayor Bloomberg and the City Council had not forced other agencies to take disproportionate hits. One agency that has been hit hard is the MTA. Actually, it was hit hard by the city AND state back in the early 1990s, but it served its political masters by borrowing to cover up the problem for a decade or two. But with more and more money going to debt service and pensions, spending on actual transit fell 3.3% of the income of NYC residents in FY 2002 to 2.8% in FY 2010 — even as more and more young people chose a car-free or low driving lifestyle and ridership increased. This data includes both operating and capital spending. (To put the 2.8% of personal income figure in perspective, according to the Consumer Expenditure Survey in 2011 the average U.S. household spent 12.9% of its income on the purchase and operation of their own motor vehicles).
The data shows cuts in transit spending in the rest of NY State and New Jersey also, (although my NJ figure appears to be an error – have to check it). In the U.S. as a whole transit spending as a percentage of income increased with ridership from FY 2002 to FY 2010, but based on what I read the data for subsequent years will probably show drastic cutbacks – despite even more ridership gains. Again, if debt service and pension costs are excluded.
Police and Sanitation: The Suburbs Are Allright
Using the Census Bureau’s employment data I showed how the number of NYC police officers relative to population plunged from 3 times the U.S. average in March 2002 to a mere 2 ½ times the U.S. average in March 2011. The Bureau’s finance data shows a far smaller decrease in police spending as a percentage of NYC residents’ personal income. The police got retroactive pension enhancements too, notably an increase from half pay to three-quarters pay pensions for a variety of ailments, and the inflation adjustment retroactively granted in 2000. Although unlike the NYC teachers they didn’t get their retirement age and service time cut, from any age no matter how low and 20 years worked (except for new hires).
With fewer officers on the beat, now we hear the PBA claim they are unable to keep New Yorkers safe anymore. Worse, to pay part of the soaring cost of police pensions Mayor Bloomberg had the bright idea to pay rookie cops just $25,000 per year. “Please don’t throw me in that briar patch” cried the PBA, laughing under its breath. With the quality of people we have walking around with guns thus reduced, the level of police misconduct (as measured by judgments and claims against the city) has soared. The city had to fight the PBA to get starting salaries up again (to a level not as high as it was, relative to former officers in their first year of retirement).
Although the Department of Sanitation has been hit with cuts, spending in this category wasn’t that much lower relative to the income of NYC residents in FY 2002 to FY 2010. I guess the garbage has to be picked up, after all. Or perhaps the cuts came after FY 2010. Wasn’t it late December 2010, in the next fiscal year, when the Sanitation Worker’s union claimed it was unable to prevent the city from being paralyzed in the wake of a blizzard because it was understaffed? But perhaps the problem wasn’t a lack of workers, but their inability to get to the job from the suburbs where the state legislature, over the city’s objections, now allows them to live. The police had been granted that right something like 50 years earlier.
Parks, Culture and Libraries: Nice While It Lasted
I’ve often noted that city residents live less expensive lives by relying on shared amenities such as public transit, public parks, and public libraries instead of their own motor vehicles, backyards, and books. In the case of parks and libraries, however, these shared amenities were neglected during the Dinkins and Giuliani administrations. The FY 2002 to FY 2010 data shows the shift in priorities under Mayor Bloomberg and Speaker Quinn, with city spending on parks, recreation, culture and libraries rising as a share of the income of NYC residents. But this was before the increase in pension spending, and diminished ability of Wall Street to rip off the rest of the world, really began to hit the city budget. I’d expect the FY 2013 data, or perhaps the FY 2015 data, to show a reversal.
Health Care is the Only Public Welfare
At one time, NYC and state spent a lot of money on giving poor people actual money so they would be less poor. Later, as the federal government cut its funding for housing programs (other than the massive, hidden tax-based and Fannie and Freddie contingent liability subsidy for owner-occupied suburban housing), the city and state stepped up with their own resources. But cash assistance spending didn’t amount to much in FY 2002 and only amounted to slightly more in FY 2010. Housing and community development spending fell, as did spending on social services.
NYC funding for the health care industry, meanwhile, continued to increase. This includes a small increase in spending public hospitals and other medical vendors by the City of New York, and a somewhat larger increase in NYC “aid” payments to New York State for the state’s Medicaid program. These increases in the share of NYC residents’ income going to health care, however, are far less than they had been the 1980s and 1990s. Even worse, from the point of view of the health care industry, it has been required to provide actual health care in exchange. According to 2011 American Community Survey data, only 54.4% of NYC residents had private health insurance coverage that year, compared with a national average of 64.4%. But only 14.6% of NYC residents were uninsured, compared with a national average of 15.1%, thanks to greater public coverage.
For decades the trend throughout the U.S. had been more and more public health care spending – directly on Medicare, Medicaid, and private insurance purchased on behalf of public employees, and indirectly via the tax break for employer-funded private health insurance, which is larger the higher health care costs are and the richer you are. But fewer and fewer people benefitted from this higher and higher taxpayer spending on health care, as more and more people became uninsured. But there seems to be a partial reversal underway. Isn’t Denis Rivera still on the job? Well, the Republicans promise to make things go back to the way they were – more and more public money for fewer and fewer people – in any event.
Water and Sewer: NYC Rebels on Mandates
Finally, note that water and sewer charges paid for 79.0% of NYC spending on its water and sewer spending in FY 2002, but only 50.1% in FY 2010. So what paid for the rest? Borrowing, to pay for capital projects mandated by the federal government, including the new water filtration plant and holding tanks to prevent combined sewage overflows. These mandates have accounted for more and more of the money NYC spends on actual infrastructure, and finally the city rebelled and the EPA eased up a little. Unfortunately, it appears that a large section of one of the city aqueducts will have to be replaced, requiring even more bonds. And water and sewer charges will keep rising to pay for the money already borrowed.
Coda
Well, that’s all the Census Bureau Governments’ division fun until this time next year, or perhaps later if the Bureau’s budget is cut again. Because data lags, it will actually be four more years before we can see the shift in revenue and spending patterns during the Bloomberg Administration from end to end. FY 2010 actually represents his term limit repeal and re-election budget. In four years, perhaps the consequences of the past, and the recession, will be fully reflected on the city’s books as measured by the Census Bureau. Or perhaps some of the consequences will dumped on the next Mayor, in FY 2015.
One thing for sure. Take any promises by nest year’s Mayoral and City Council candidates to give people more in exchange for less with an ocean of salt. Unless they are promising not to object to union orders for the state legislature to retroactively enhance their pensions, and making the promises in private.