I once heard Tom Seaver, providing color commentary on a baseball game, describe some advice a pitching coach had once given him. “What’s the best pitch in baseball?” the coach asked. “The fastball,” he said. “What’s the second best pitch in baseball?” he asked again. “The fastball,” he once again answered his own question. His point, Seaver said, was not to forget the fastball. Major league pitchers know they need a good second pitch to succeed, so often they focus on their off-speed pitch, whether a curve, slider or change-up, to the exclusion or near exclusion of the fastball. And that’s a mistake, because it’s the fastball that makes the whole thing work.
After writing about the economic problems of the state, real and imagined, this essay is about its economic strength. New York State has the best economic fastball in the United States – the Manhattan central business district and the neighborhoods, in Manhattan, in the outer boroughs, in the suburbs, and even in telecommuter and second home communities beyond, that feed into it the greatest concentration of talent in the world. Bureau of Economic Analysis data shows that, excluding the health and social services industries (which are mostly government-financed), Manhattan accounts for half of all the money earned at work in the private sector in New York State. Not New York City. The entire state!
And that’s just directly. Add in the money earned at businesses in the outer boroughs and suburbs that supply businesses in Manhattan, at retail and service businesses in the outer boroughs and suburbs that rely on the spending of commuters to Manhattan, and spending in Upstate New York generated directly or indirectly by taxes collected by all of the above, and you have perhaps 75% or more of New York State’s economy. And part of the economy of other states, that rely on federal taxes transferred from Manhattan, as well.
Unfortunately, New York State’s economy is nothing like Tom Seaver. It is more like a young Nolan Ryan, with the best fastball in baseball but unable to win because he couldn’t get the curveball over the plate. In New York City’s outer boroughs, the leading sector is the aforementioned health and social services, funded almost entirely by tax dollars, directly or indirectly. These boroughs haven’t even captured all the economic activity generated indirectly by their Manhattan commuters, with many of their residents shopping, and many of their businesses getting legal, accounting and other services, in the suburbs. Just compare the Bronx yellow pages with the Westchester yellow pages – lots of Westchester listings in the former, few Bronx listings in the latter. Upstate, state and local government has been the only growth industry for half a century, with downstate tax dollars generated by Manhattan footing the bill. The suburbs have also lost their independent economic base – headquarters in Westchester, defense and aerospace on Long Island, over the years. Manhattan is basically it.
Under the circumstances, it is reasonable that politicians and pundits focus their attention on these other areas. Like Nolan Ryan, New York State isn’t going to the economic Hall of Fame until it develops that good pitch. But the state cannot forget about the needs of the Manhattan-based economy. Without it, we’re going back to the economic minor leagues for the first time since 1825.
What does Manhattan need? Not much? It can pay more taxes with less complaint than perhaps any part of the United States, but the taxes cannot get so high that those who pay them get insulted and leave. Big talent goes with big ego, so yes they can afford it but may not want to pay it. The streets have to be safe and clean. Regulations have to be sufficiently flexible to allow new businesses and types of business to locate there as the economy evolves.
Most importantly, however, Manhattan needs the system that makes it Manhattan – the network of mass transit lines that allows its workers, shoppers, and visitors to gather there – to be maintained and improved. And it is here that the State of New York is threatening to destroy its main economic engine, by bankrupting the transit system. Governor Pataki, the New York State legislature, the TWU, the Straphangers, and several successive city administrations may have, or may yet, repeat the disaster of the 1970s by wrecking the transit system and collapsing the economy that depends on it.
The transit system needs billions of dollars each year, not to expand or improve, but just to replace existing systems on an ongoing basis as they wear out. Tracks. Subway cars and buses. Signals. Power systems. Fans. Pumps. Stations. When those replacements aren’t done fast enough, the system falls apart. This is an ongoing expense, and ought to be funded with current revenues.
But that isn’t what has happened.
Beginning in the early 1990s, the city and state governments virtually eliminated the tax money they contribute to the MTA Capital plan, which aside from a few improvements that are promised but never built, is really a maintenance plan. After 1995, transit fares were drastically reduced, relative to inflation and MTA costs, through a long-term fare freeze and the addition of Metrocard discounts. Even after the fare increases put through when fiscal disaster began to set in, actual fares are much lower in nominal dollars than in 1995. New York City Transit would be collecting much more money with the $1.50 fare as it was in 1995, with no discounts or free transfers. At the same time, the TWU, like other public employees, benefited from a massive pension enhancement in 2000, vastly enriching those who are not working. Higher retirement benefits, lower taxes, and lower fares. Gee, aren’t Pataki, Bruno, Silver, Giuliani, the City Council, the TWU and NYPIRG’s Straphanger’s Campaign wonderful?
Only if you are planning to leave New York State and hope, as you do, to leave it in ruins.
To make up for all that diminished revenue, the MTA under-funded its pension plan and borrowed massively. So massively that it faces a fiscal disaster within the next few years. But that disaster assumes no more money will be borrowed after 2009, when the current MTA Capital Plan ends. So how will ongoing normal replacement, let alone the long promised improvements, be paid for in 2010 and beyond? There is no plan for this to happen. The entire MTA balance sheet is predicated on the assumption that the entity has no legal obligation to provide transit services, and can simply shut down when it is no longer able to do so. Go ahead and try to find such a legal liability on its balance sheet. Rather than resign, the MTA board signed off of financing plans that they knew well would lead to a post 2010 collapse. Ask the MTA how the 2010 to 2014 plan will be financed. You’ll find they have no idea.
The fiscal games are breathtaking. The MTA now considers painting a capital improvement to be borrowed against. The TA labor required to support capital improvements – flagmen, work train drivers, station personnel giving directions was assigned to the capital budget in the early 1990s, to make operating expenses seem lower and allow these expenses to be funded with 30-year bonds. The state passed an MTA sales tax increase to help pay for the capital program. The next 30 years of revenue from that increase will have been spent by 2009. Moreover, given that no one has to sacrifice in the short run to pay for borrowed money, the cost controls in the MTA capital plan have become weaker and weaker. Unlike the operating budget, where every cent is watched. As anyone who has worked in budgeting for the capital program knows, capital money is less green! The temptation to shift costs from the operating budget to the capital budget, and in effect borrow for the former, is ongoing and massive. Just like it was under Lindsay. All this is over and above the reality that what is called capital spending is really an ongoing expense.
This is a clear case of “everybody wins”: the contractors, the taxpayers, the former workers (the unions don’t care about current or future workers), and most of all those politicians. Everyone is playing chicken, refusing to give up anything, hoping the other side will be sacrificed. They are, in fact, demanding more, with the Staphangers objecting to a reasonable policy of ongoing small fare increases that would lock in the lower share of expenses funded by the fare, and the TWU demanding the right to work for just 20 years and then retire to Florida at age 50 for 25 years of sucker-funded leisure and the legislature approving this giveaway without a single no vote! Suck some more blood out of the beast before it dies!
And why are bondholders willing to fund this disaster in progress. Because they know what I just told you: that without the Manhattan economy, the state collapses, and without the transit system, Manhattan collapses. So the bondholders know they have us hostage. We’ll eventually have to do whatever it takes – eliminate kindergarten, pre-K and high school, double taxes, triple fares – to keep the system running. So the bondholders win too. That is why Pataki has loaded all the additional debt of his administration (relative to income) on the MTA. Because it is the only way he could.
But in the end, everyone is going down – except the politicians, with their guaranteed pensions and on-street parking permits. New York’s economy may collapse to the level of West Virginia, but they’ll still get paid, and since rationalization is their stock in trade, they won’t even feel bad about what they have done. The bomb is timed to go off in the next administration. Eliot Spitzer, it’s all your fault!
So if our future Governor reduces maintenance and ongoing normal replacement, and defers major projects like East Side Access and the Second Avenue subway, and tries to tell us we don’t really need these things, understand that we will have been lied to. Trapped in a corner, the next Governor would just be trying to defer the fiscal and economic disaster until the end of his term.
Don’t forget the fastball, and don’t let this happen. Do whatever is necessary to stop it, or sell out and move away. Any and all other options must be considered – up to and including taking the MTA through bankruptcy, having the city reclaim the subway system debt free, stiffing creditors and health benefits for retirees. And action needs to be taken immediately, so the blame for the resulting pain is properly assigned. Better to bite the bullet now than bite the dust later.