This post will compare trends in state government finance for the State of New York and the U.S. total for all states for FY 1972 to FY 2007. The data is in the spreadsheet attached to the previous post, a post contains background information on how it was compiled and what it means. Overall, the data shows that New York’s state and local tax burden is about at the level it had been decades earlier, but spending has shifted. A cut in taxes during the 2000s was not associated with falling spending, but rather with rising debt and deferred pension costs. Rising pension contributions and health care spending, particularly for senior citizens, are crowding out other public services and benefits, a situation that likely became worse following FY 2007. Without low interest rates, the state’s situation would be much more severe. Direct state spending on Parks, Natural Resources and Highways, in particular, is down from what it had been and well below the national average. (Public Transit will be discussed under local government). New York’s state education aid was above the U.S. average in FY1972 and, after a significant increase, FY 2007, but it had been below average in FY 1987 and FY 2000. New York’s state spending on public higher education is somewhat higher than it had been, but remains well below the U.S. average.
I recommend going back to the prior post, downloading the spreadsheet, and printing out the tables in the “Summary 2007” and “NY & U.S. 1972 to 2007” worksheets. The latter shows that the State of New York and the state’s local governments collected $142.55 in taxes for every $1,000 earned by state residents in FY 1972, $145.73 per $1,000 in 1987, and $144.88 per $1,000 in 2007. That was 28.5%, 40.8%, and 34.1% above the U.S. average at the time. But in 2000, New York’s state and local governments collected a lower $132.04 in taxes for each $1,000 of its residents’ personal income, still 29.5% above the national average but below the other years.
While taxes fell as a share of income over the 1987 to 2000 period, however, direct spending by New York’s state and local governments rose, from $231.54 per $1,000 in personal income in the former year to $242.99 in the latter year. Rising federal aid explains a lot of this, with most of the increase for Medicaid. State of New York spending on Medical Vendor Payments, mostly funded by Medicaid, soared from $16.94 per $1,000 in personal income in 1987 to $30.46 per $1,000 in 2000 – and on to $35.02 per $1,000 in 2007, well above the national average of $23.02 that year. We’ll have more data specifically on Medicaid later, but in past years I’ve found that while New York’s spending on the program is high in most categories (other than physicians), the greatest disparity is in New York’s high level of spending on services for senior citizens. A recent report by the Rockefeller Institute of Government performed a detailed analysis of state Medicaid plans, and ranked New York first in generosity for long term care with a score of 99.55, with Florida next to last at 4.28.
New York state spending on welfare, health and hospitals (mixed together because of the data categories for revenues) was 69.6% covered by federal and local aid and hospital charges in FY 2007, above the U.S. average of 61.4% and well above other Northeastern states, but below the 75.0% plus recorded for North Carolina and Texas. As mentioned, local to state aid is primarily a New York State phenomenon. The $7.7 billion in such aid in New York in FY 2007 was 38.4% of the national total.
New York’s local government debts soared during the 1987 to 2000 period, rising from $108.71 per $1,000 of personal income to $150.38, pushing the state and local total to $269.88 per $1,000 of personal income in 2000, 59.0% more than the national average. The U.S. Census Bureau no longer collects detailed data on debt by category, but I know from past research that much of the debt was used for the MTA Capital Plan, as the City and State of New York withdrew tax support and pushed for borrowing instead.
Contributions to the state pension funds, by New York State and local governments outside New York City, also plunged during the 1987 to 2000 period, with a smaller decrease recorded for the national average. As described in my prior post, New York’s public employees contribute far less to their own pensions than either private sector workers or public sector workers elsewhere in the U.S., putting the equivalent of just 1.8% of their wages on average in 2007 and 1.8% in 1987. The U.S. average for public employees those years was 4.5 and 4.6%. New York’s taxpayers contributed far more to the state plans – 13.9% of wages in 1972, 11.5% in 1987, and 9.0% in 2007. But in 2000, New York taxpayers put only 1.7% of wages into the pension plans. Meanwhile, pension payouts soared from 10.9% of public employee wages and salaries in FY 1987 to 20.8% of wages in salaries in FY 2000.
In 2000, then-Comptroller Carl McCall was preparing to run for Governor and then NYC Mayor Rudy Giuliani was running for Senator. They pushed deals in which public employees would get to put less into the plans and take more out, while taxpayers also put less in so money could be diverted elsewhere. Deals that the state legislature gleefully passed and Governor Pataki eventually signed. Payments by the New York State pension plans jumped from $5.6 billion in FY 1999 to $7.5 billion in 2001 according to Census Bureau data, an increase of 34.2% in two years, as many long retired received retroactive enhancements to their pensions. Pension contributions by local government employees, meanwhile, fell from $389 million in FY 2000 to $260 million in FY 2002, with payments by state employees down from $183 million to $106 million during the period. Taxpayer contributions by the state fell from $561 million in 1997 to just $64 million in 1999, while taxpayer contributions from local governments outside New York City fell from $1.1 billion in 1997 to $233 million in 2003.
The payouts have continued to soar, as enhancements continue to pass, and public employee pension contributions to the pension funds remain close to zero. But taxpayer contributions to the New York State pension funds soared to 9.0% of employee wages in FY 2007, and that isn’t nearly enough. New York City taxpayer contributions to the city’s separate pension funds equaled 20.8% of the wages and salaries of those still working for the city in FY 2007, and that figure has gone up since.
Late in the administration of former Governor Mario Cuomo, the state dedicated related revenues to state transportation spending, the way dedicated MTA taxes were supposed to be for the MTA. Those revenues were both cut and raided, however, during the 1987 to 2000 period, with debts making up the difference, and now much of that transportation trust fund goes to interest payments, not transportation spending. New York State motor vehicle license and fuel taxes equaled $1.61 per $1,000 of personal income in FY 2007, well below the average for $4.90 per $1,000 for the U.S. and even the $2.41 per $1,000 in low gas tax New Jersey. Low car ownership and use, and therefore less gasoline use, is part of the explanation. But New York’s motor vehicle fuel and license taxes had equaled $6.55 per $1,000 of its residents’ personal income in 1972, $2.87 per $1,000 of in 1987, $1.87 in 2000 and then just $1.62 in 2007. State revenues in these categories also nationwide fell over the years, mostly because the gas tax levels and license fees lagged inflation and incomes, but not by as much as in New York. Also in New York, several tolls were eliminated in the Downstate Suburbs during the 1987 to 2000 period, just as EZ pass made toll collecting easier.
Predictably, New York’s direct state spending on Highways has fallen from $7.88 per $1,000 of state residents’ personal income in FY 1972 to $4.96 per $1,000 in FY 1987 and $4.58 per $1,000 in FY 2007. State to local government aid for transportation had risen from $1.28 per $1,000 of personal income in FY 1972 to $4.21 per $1,000 of personal income in 2000, but that includes “dedicated” MTA taxes sent to New York City Transit. And the amount fell to $3.31 per $1,000 of personal income in FY 2007, before being cut even further.
So how has this policy of deferred taxes, increased debts, increased and deferred pension costs, and reduced infrastructure investment worked? As a practical matter, the MTA is now broke and in a downward spiral reminiscent of the 1970s. A bridge over Lake Champlain had to be abandoned and demolished, and the Tappan Zee Bridge over the Hudson River may be heading for the same fate. The state pension fund requires soaring taxpayer contributions, to be paid for by soaring taxes and drastically reduced services, but this may be deferred but made worse by still more borrowing. The New York City pension funds, worse off to begin with but affected by the same deals as the state funds, is worse off still, as we shall see.
But for some people the policies have worked out splendidly. People would have revolted against those pension enhancements if honestly told how their future would be affected, but now the costs have been deferred for a few years and the enhancements are set in stone. Those who got lower taxes around 2000 won’t have to pay the higher taxes required to pay off the debts now if they are retired public employees, since their income is exempt from state and local income taxes in New York (the Social Security income of private sector workers is exempt, as is pension income up to $20,000, but only at and after age 65). And they can always move to Florida, which has no personal income tax, and then move back when they run out of money and need Medicaid services. And public employees get reserved free parking by placard in New York City, rather than rely on mass transit. Most importantly, Carl McCall got the nomination for Governor, Governor Pataki served three terms, and members of the New York State legislature get continually re-elected by helping the few people and interests that keep them there.
Things, however, could be a lot worse for those paying taxes and hoping for public services today, and may become so in the future. While New York’s state debts were at about the same level relative to income in FY 1987 and FY 2007, the interest on those debts fell from $8.25 per $1,000 of personal income to $4.38 per $1,000 of personal income, as interest rates fell. A spike in interest rates could lead to devastating consequences for taxpayers and public services if the state cannot afford to pay off its debts as they come due. Or sooner, since to save a little money in the short run the state has often chosen variable interest rates. The same is true of New York’s local governments, whose debts have soared.
Lets go line by line, and hit a few other key highlights. Sales taxes are the greatest source of revenue for most states, but New York’s general sales tax revenues had fallen from over $15.00 per $1,000 of personal income in FYs 1972 and 1987 to $11.76 per $1,000 in FY 2007. The U.S. average was just over $20.00 per $1,000 in FYs 1987 to 2007. In reality, as we shall see, New York’s sales taxes are not low; rather its local sales taxes are much higher than average. But the drop is real, due to growing exemptions, particularly of clothing to compete with the State of New Jersey which collects almost double the general sales taxes as a share of income of the State of New York despite exempting clothing.
The state corporate income tax burden has fallen in New York compared with FY 1972 and FY 1987, but it is up compared with FY 2000. The figures for FY 2000 and FY 2007 are $4.21 and $5.85 per $1,000 of New York State residents’ personal income. The FY 2007 figure is well above the national average of $4.45 per $1,000 in personal income, but lower than in New Jersey. But New York City has a local corporate income tax on top of this.
New York’s state personal income tax burden jumped from $24.79 per $1,000 of state residents’ personal income in FY 1972 to $36.79 per $1,000 in personal income in FY 1987, and has been at about that level in similarly good economic years since. The FY 2007 figure of $37.38 per $1,000 in New York was far above the U.S. average of $22.38 per $1,000 that year, but the U.S. average is brought down by states with no personal income tax, such as Texas and Florida. New York’s personal income tax is among the highest in the country, and the burden is even higher on workers since much retirement income is exempt here. New York City imposes a local income tax on top of this, from which much retirement income for private sector workers – and all retirement income for public sector workers – is also exempted.
Among public services typically provided directly by states rather than local governments or the private sector, higher education is the most costly. New York State’s spending on public colleges and universities was $9.07 per $1,000 of personal income in FY 2007, well below the national average of $14.38. In part this is because, according to the New York State Statistical Yearbook, only 57.2% of New York’s higher education students were enrolled in public colleges and universities in 2008 compared with around 80.0% nationally, with low public shares being common in the Northeast. But New York’s state spending on educational assistance payments, which includes payments such as the Tuition Assistance program, was also below average in FY 2007 at $1.54 per $1,000 of personal income compared with $1.67 nationally. Spending on public colleges and universities was up from $8.88 per $1,000 of personal income in FY 1987, while spending on education assistance was down from $2.17 that year, with a big drop to FY 2000.
Tuition and fees, along with federal and local aid revenues, covered just 37.5% of the cost of New York’s public colleges and universities in FY 2007, well below the U.S. average of 47.9%. Among the states included in the data, only North Carolina was lower in FY 2007. New York’s higher education fees and aid revenues covered an even lower share of costs in FY 1972, FY 1987, and FY 2000; the national average also shows a rising share of cost covered by something other than state taxes. The City University of New York, now part of the state system, was once free. Bear in mind, however, that this is a comparison of prosperous economic years, and recent New York State policy has been to suppress fee increases (tolls, transit fares, college tuition) during such periods to pander to shortsighted voters, than nail them will massive increases in recession when their incomes are lower and they are also paying higher taxes.
The recent controversy over SUNY and CUNY tuition increases has two sides, about which one of which fair minded people can differ, about the other they cannot. The timing of increases has been reprehensible. It almost appears as if the state legislature, which does not care at all about young people or the future of the state, seeks to hold the future of the state public education system as a hostage to cut deals with those who do care, to get concessions in other areas. While claiming to keep tuition down, the legislature has end up with costs that are as high as they would be with smaller annual increases.
At the same time, however, on the private side the cost of college education has soared, as the U.S. now provides the best education no one but the rich can afford. In addition to the changing the timing of increases, SUNY is proposing to raise the level of tuition relative to other places, particularly at its most prestigious schools. The state legislature could argue that by keeping SUNY and CUNY revenues low, it has forced its employees and managers to squeeze the most value out of every dollar, to maintain these institutions as a source of upward mobility. In no other category of public service, however, has the state legislature made the interests of consumer of public services, rather than producers of public services such as unions and contractors, a priority. And while the soaring level of private college tuition may be a bubble that is about to burst, a cheap college education that is so poor no one but the poor would want it is no more useful to most than a gold plated education only the rich can afford.
Spending on New York State’s parks and natural resources agencies fell from $1.41 per $1,000 of the income of state residents in FY 1972 to $1.17 per $1,000 in FY 1987. After increasing to $1.31 per $1,000 in FY 2000, it fell again to just just $1.06 per $1,000 in FY 2007. That is half the national average. State services have generally been squeezed by more politically powerful interests in recessions, when money becomes scarce. While spending on Parks and Natural Resources was low in New York relative to personal income in a good year such as FY 2007, the recession has likely brought disproportionate reductions.
While nearly half the state’s population lives in New York City, where state park and recreation facilities are few, many such facilities were developed elsewhere specifically to allow working New Yorkers from the cities affordable access to natural settings. Spending in this category is popular with voters, which is why an environmental bond issues is one of the few increases in debts in recent years the legislature has deigned to allow the public to vote on. A dedicated environmental trust fund was also created – and raided. The beneficiaries of state parks and natural resources services have been paying a higher share of the cost of services through fees, which equaled 29.2% of total spending in FY 2007, up from 12.2% in FY 1987. Nationally, the share of state parks and natural resources spending covered by fees fell from 33.6% in FY 1987 to 26.4% in FY 2007.
It may be that many New Yorkers, during the credit fueled consumption boom, no longer required an upstate New York State campground as an important vacation option. A trip to Florida or Las Vegas for some, Europe or more exotic destinations for others, might have seemed more appealing. But the credit fueled consumption boom is over. I tried to find an annual report to get information of the occupancy level of the state’s campground facilities in a recent year, but was unable to do so on the state website.
Prisons are another of the services primarily provided by state governments, not local governments. New York State’s Corrections spending, at $3.26 per $1,000 of personal income in FY 2007, was below the U.S. average of $3.71 per $1,000 in FY 2007, due in part to the prisons being located in low-cost Upstate New York financed by personal income collected in high income Downstate New York. But the state’s spending in this category has dropped only modestly from $3.43 per $1,000 of personal income in FY 1987, despite much lower crime. Spending had increased with crime from just $1.23 per $1,000 of personal income in FY 1972. The national average shows similar trends – a big increase, and then only a small decrease.
Another primarily state function is unemployment insurance. New York has a maximum payout that is low compared with the high incomes in Downstate New York, much lower than in other Northeastern states, but overall the state’s UI spending, at $2.21 per $1,000 of state resident’s personal income, was only modestly lower than the U.S. average of $2.43 per $1,000 in FY 2007. New Jersey’s UI spending was $4.05 per $1,000 that year. New York’s UI spending, as a share of its residents’ personal income, is at about the same level as in FY 2000 but lower than in FY 1987, when it was $3.24 per $1,000 of personal income. It may be that stress on the unemployment insurance system has been increased by welfare reform, which pushed former recipients off the dole and into unstable jobs where unemployment is frequent. Trends in cash welfare will be discussed under local government, because it is a local government function in New York.
As in the case of the pension system, New York State has taken advantage of the business cycle to underfund its unemployment insurance system, benefitting existing businesses which paid lower past UI taxes before closing or moving out of state. With the trust fund now empty, New York has borrowed $billions from the federal government to keep making payments to the unemployed, with plans to drastically increase UI taxes to pay that money back. New businesses that open in New York, which didn’t create unemployment and didn’t benefit from the lower past UI taxes, will be forced to pay the increase, a policy consistent with other state policies on the relative treatment of those cashing in and moving out and the state’s future. Since the deep recession, much worse elsewhere than in New York, has put many more responsible states in the same position, however, there is the possibility of a federal bailout, but federal budget pressures work against this.
Worker Compensation is another state, rather than local, function, but it is difficult to evaluate using this data since many states require businesses to purchase private insurance rather than operate the program directly. That is why worker compensation benefit payments by the state government were zero in North Carolina and near zero in Illinois in FY 2007. What we can say is that worker compensation benefit payments by the State of New York rose from $1.22 per $1,000 of personal income in FY 1987 to $2.47 per $1,000 of personal income in 2000, before dropping back to $2.12.
There has been some controversy in services provided by employees of the State of New York in recent years, over the possible closing of increasingly empty state prisons, the possible closing of state parks, and more fiscal independence for SUNY and CUNY. These issues are paid more attention in Upstate New York, where most state-run facilities are located and most state workers live. While these are important issues, elementary and secondary school spending and Medicaid spending are a much bigger part of the state and local budget and tax bill. The government-funded portion of the private health insurance industry and the public schools dwarf any services the state provides directly.
A mentioned, New York’s state school aid fell from $29.17 per $1,000 of personal income in FY 1972, well above the U.S. average, to $21.50 per $1,000 in FY 1987, slightly below average. It remained at about that level in FY 2000, whereas the U.S. average had risen, to $24.33 per $1,000, and then increased to $26.83 per $1,000 of personal income in FY 2007, well above the U.S. average of $24.96 per $1,000 that year. A large increase in New York’s state school aid followed in FY 2008, and in turn was followed by a large decrease in the personal income of state residents in FY 2009. Education spending data from the Census of Governments, measured per $1,000 of personal income, will be discussed at length in later posts about the finances of local government, where the spending occurs. But for those who want more detailed data on how New York compares sooner, this post and this post contain spreadsheets with much more detailed FY 2008 data from another data series from the Governments Division of the Census Bureau specifically on public education.
As for Medicaid, the nice folks at the Medicaid Statistical Information System (MSIS) have just sent my several spreadsheets with 2008 data, since I can no longer access their Datamart now that I have switched from a PC to an I-Mac. Barring carpel tunnel problems, I’ll tabulate and write about that data over the next few days. My compilation of 2007 data from that source is here.