Author: Larry Littlefield

This post appeared previously on "Saying the Unsaid in New York." While the public schools account for the highest total amount of New York City spending overall, with health and social services coming in second, a substantial share of the funding for those services comes from the federal and state governments, not city taxes and fees. Of the $50.7 billion in “city funds” in the proposed FY 2014 budget, according to the “Budget Summary” document, the four so-called uniformed agencies – police, fire, corrections, and sanitation, account for $16.8 billion. The Department of Education accounts for $13.9 billion, with $10.6 billion for the health and welfare agencies and $9.4 billion for everything else put together.

While the Department of Education has been favored at the expense of other public services in this fiscal/pension/debt crisis, the uniformed agencies have been favored in virtually every crisis – the latest being no exception. While inflation will have increased 11.9% from FY 2008 to FY 2014 (and most people’s wages going up by far less), total city spending will have gone up 20.7% under the FY 2014 budget proposal. Spending on the four uniformed agencies combined will have gone up even more – by 26.9%, with much of that increase having already happened. Total New York City personal services spending is projected to have increased 11.8% from FY 2008 to FY 2014, or about the rate of inflation. The projected increase for the four uniformed agencies combined is 22.3%, or about double, including 26.0% for the NYPD. And yet the head of the Patrolmen’s Benevolent Association, the Uniformed Firefighters’ Association, and the Uniformed Sanitationmen’s Association show up at City Council hearings each year to tell New Yorkers they deserve less protection, less clean and passable streets, less work overall unless they get even more money. Why do they make such claims? Unless you are reading my posts for the first time, you know why.

This post appeared previously on "Saying the Unsaid in New York." During the Bloomberg Administration, no public service has received a greater increase in funding, received more attention, and been the source of more conflict than the New York City public schools. As I noted in this post with spreadsheet attached, funding for the schools increased enormously from FY 2002, the last pre-Bloomberg budget, to FY 2008, just before the recession fully hit. That funding had also increased enormously from FY 1997, when the city’s share of state aid was at a low, to FY 2002 thanks to pressure from the Campaign for Fiscal Equity Lawsuit. As a result the city’s schools, which had historically been underfunded, were highly funded on a per-student basis in FY2008 – and very highly funded if one looked at spending on instructional employees alone.

Since the start of the recession city spending has continued to grow faster than inflation, as discussed in the prior post. Total spending by the Department of Education increased more than overall city spending during the FY 2008 to FY 2011 period, and less from FY 2011 to FY 2014, due mostly to the influence of the federal stimulus package and its expiration. For the entire FY 2008 to FY 2014 period, if the Mayor’s budget proposal were adopted, overall city spending will have increased 20.7%, and inflation will have gone up 11.9%, but Department of Education spending will have grown by 23.6%. More than average. Personal Services spending, which excludes the fast growing Medicaid and debt service categories, will have gone up 11.8% overall, slightly less than inflation, and 12.1% for the Department of Education, slightly more. But wages and salaries at the Department of Education, which affects how many teachers and other workers may be hired and how much they may be paid, would have actually fallen 2.5% from FY 2008 to FY 2014. So why is that?

I wrote a series of posts on the New York City budget last February, at a time when Room Eight was not working. Only one could be posted on this site at all. With the new budget set to take effect, and with candidates for Mayor publicly promising us all the extras we are going to get for nothing, while quietly negotiating how much less we are going to get for how much more, I am going to repeat them.

Since the financial crisis morphed into the Great Recession in 2008, Americans have been told to pay more for government, accept less, or both. That has been true in New York City as well, with ongoing service cuts in every budget despite a 7.0% property tax increase, a state income tax increase, and a new MTA tax on all workers (but not the retired or investment income). Along with fare increases, toll increases, and other increases. The recession, as officially measured, is long over, and New York City’s private employment is not only higher than it had been before the recession started, but also probably reached a historic high in 2012, finally surpassing the level of 1969. And yet New Yorkers are still being told to accept less and/or pay more to the government. This post and those after are about the reasons why.

Two groups of people have been getting richer: the executives who sit on each other’s boards and vote each other a rising share of private sector income, and retired public employees whose unions have cut political deals for retroactive pension increases. Everyone else is getting poorer. There is, in other words, the executive/financial class, the political/union class, and the serfs.

The pay and benefits of the serfs is determined in negotiations with people who have an interest in keeping them as low as possible, either to keep more money for themselves or to be in a better position to offer better value to their customers. Everyone wants to get more for less, whether they are shopping for labor or as consumers, but in the end these relationships are voluntary, so an equitable agreement has to be reached. But the public employee unions and executives negotiate their pay and benefits in secret with their cronies, and then pass the bill on to powerless others who are made worse off, taxpayers/public service recipients and shareholders. Here in the U.S. they continue to take more and more, and express outrage at anyone who dares to question their entitlement, even in the wake of a Great Recession that made everyone else much worse off. But things are different elsewhere. And that may be instructive.

The U.S. Census Bureau has released its public education finance data for FY 2011, and I have once again downloaded and compiled it. That year New York City spent $22,517 per student, somewhat lower than the average of $23,382 for the Downstate Suburbs but far more than the $17,440 for New Jersey, $18,945 for Upstate New York, and $12,367 for the U.S. as a whole. As usual I have adjusted some of these figures for the higher average private sector wage and cost of living in some locations, notably Downstate New York and New Jersey. This reduces the NYC figure to $17,548 per child, still 41.9% higher than the U.S. average but below the average for Upstate New York.

New York City’s “non-instructional” spending has always been very low compared with other areas. In FY 2011 the city’s “instructional” spending was $11,791 per student with adjustment, above the adjusted averages of $11,258 for the Downstate Suburbs and $7,895 for New Jersey, above the average of $10,726 for Upstate New York, and 82.5% higher than the U.S. average of just $6,461. Examining instructional wages and benefits alone, New York City’s adjusted figure of $10,326 per student was 81.5% above the U.S. average – nearly double — but slightly below the average for the Downstate Suburbs at $10,645. The city’s instructional wages and benefits per student had been above the average for the Downstate Suburbs the year before. The city remained well above the average for Upstate New York and New Jersey by this measure. Moreover, on an unadjusted, straight dollar basis the city spent $13,250 per student on instructional wages and benefits in FY 2011. That is $265,000 for every 20 students, or $159,000 for every twelve. Based on city budget documents, this figure has gone up considerably since. Additional commentary, and the spreadsheets, may be found on “Saying the Unsaid in New York.”

The Federal Reserve credit market debt data (Z1) was released for 2012, and I checked to see how the deleveraging was going. Back in 1952 the total of America’s debts, business and personal, federal, state and local, and financial was the equivalent of 135% of U.S. GDP. Despite the blandishments of the growing credit card industry and the “guns and butter” policies of the Great Society in the 1960s, that figure was just 168% of GDP in 1981, the year Ronald Reagan took over and the great national party began. The torch was passed to a new generation, as the “Greatest Generation” that had faced the depression and World War II was gradually replaced by the richest generations, those born between 1930 and 1955 or so, in control of our institutions. By 2009, as Barack Obama took office, total U.S. credit market debt had soared to 381% of GDP.

All the economic pain of the Great Recession, all the mortgage and credit card defaults, all the bankruptcies, all the diminished lives and expectations, only reduced total U.S. credit market debt to 359% of GDP in 2012, still more than double what it had been back in 1981. At that pace, it will take 38 more years for America’s debts to get back to where they were in 1981. But believe it or not, that’s the good news. If one were to exclude financial debt, the debt financial companies owe each other through instruments such as swaps and derivatives, the deleveraging has not yet begun. Total non-financial debts, public and private, were 253.9% of GDP in 2009 and 253.8% of GDP in 2011. In 2012, debt by this figure rose to 255.7% of GDP, which is perhaps the only reason our so-called economy more or less improved. An economy of people and governments spending money they don’t have, because businesses aren’t paying people as much as they want to sell to them. The spreadsheet and more commentary can be found on “Saying the Unsaid in New York.”

News broke yesterday that the doctor who helped hundreds of perfectly healthy LIRR employees retire with enriched disability benefits was sentenced to eight years in prison. "Ajemian, 63, had pleaded guilty to conspiracy and fraud charges as part of a massive $1 billion scam. Between the late 1990s and 2008, Ajemian recommended that more than 700 LIRR workers receive disability benefits — the vast majority of whom were perfectly healthy."

http://www.nydailynews.com/new-york/lirr-scamming-doctor-sentenced-years-article-1.1354240#ixzz2UIyLnoPh 

At one point virtually everyone at the LIRR was retiring with a disability pension, compared with just 25.0% of MetroNorth workers. Not just the line workers, but the managers too, were in on the scheme. Here is what makes it worse. Do you believe that grifter attitude toward the rest of us suddenly appeared just before retirement? Or does the LIRR have a grifter culture that affects the way it works from the first day on the job to the last day on the job? You may recall the reaction of those in the northern suburbs to a possible merger between MetroNorth, which just restored rail service very rapidly after an accident, and the LIRR — no way! That grifter culture is killing off not only the LIRR but all of Long Island, and as the non-grifters move away to avoid paying for it, that burden will be shifted to other parts of the state.

I’ve downloaded the public employee pension data for FY 2011, and find that New York City is in the same situation. Which is no surprise, because it will probably be in that situation for years, perhaps decades. The city’s pension funds are in something close to a death spiral, with 13.8% of total assets paid out that year. The national average is 7.7%, the figure for the New York State pension funds, which also cover local government workers in the rest of the state, is 6.3%. The city has 1.30 workers to every retiree receiving benefits, compared with the U.S. average of 1.69 and the 1.57 for the state pension funds. That is one year paid for a permanent vacation in retirement for every one year, four months worked, on average. City taxpayers contributed $24,701 to the pension plan for each public employee in FY 2011, compared with the U.S. average of $6,622 and the average of $6,731 for the rest of the state.

The City Actuary has said that New York City is contributing $1 billion less per year to these pension funds than is needed by his own calculation, which will have to be made up later many times over. This is the City Actuary has been in office, and seems to have felt there was no problem, for the 20-plus years when one retroactive pension increase after another has passed, the city’s pension costs have soared, and taxes have been increased and services cut to pay for it. And it has already been announced that the city will have to contribute an extra half $billion a year from now, because the rate of return was below expectations a couple of years ago. But if one looks at the actual rate of return the city is likely to achieve, and how underfunded the pensions have become under the watch of City Actuary Robert North, two Comptrollers who are running for Mayor, and a former budget director who is running for Mayor, I would say that taxpayers ought to paying into the pension funds 100.0% of benefit payments out, to prevent a death spiral that would bankrupt the city. The actual figure in 2011 was 78.9%. The spreadsheet and additional commentary may be found on “Saying the Unsaid in New York.”

So as one state legislator after another is indicted, or revealed to have engaged in behavior that would be unacceptable in anyone I would call a friend, everyone is huffing and puffing. Let me clue you in on the reality. State legislators have no real power, but do not face real elections. Sheldon Silver and Dean Skelos have real power over your lives, but you don't get to vote in their elections. Those who are under indictment do. If Silver and Skelos want to keep their jobs, and engage in the big time (if technically legal) corruption, these men need to have the backs of their actual constituents, despite their small time (and sometimes illegal) corruption.

Since quite a few of the state legislators recently exposed have been Black, one Black state legislator had this to say. “Why are we allowing folk who’ve been in power longer–who are perhaps smarter and slicker, who are are more dangerous under those conditions and perhaps robbing far more–we leave them alone and we target these over here?”

http://politicker.com/2013/05/state-senator-speculates-and-debates-attack-on-black-leaders-corruption-or-conspiracy/

That sort of says it all, doesn't it?

What would I say about Obamacare, compared with the health care finance problems I identified, and solutions I proposed, in early 2008 before President Obama was elected? (You can read my entire series on health care in the MS word document attached to this post). I would say that legislation makes reform possible, but it is not reform in itself. As I noted at the time, U.S. healthcare is mostly government financed, directly or indirectly, but with complicated flows of public money under a wide variety of deals, the distribution that money is horribly inequitable. The tie between government health insurance subsidies, via a tax break, and a particular place of employment is bad for workers, entrepreneurs, and the economy. The U.S. healthcare system is extremely expensive, and delivers poor value. From the point of view of consumer protection, it engages in abuses that would not be tolerated in any other industry. 

While Obamacare will reduce some of the inequities, it left the most of the complex and inequitable U.S. healthcare finance system in place, and punted much of the responsibility for further progress to the states. Which is not a good thing if you have a corrupt and poorly run state. The only reason New York will have a state health insurance exchange, as mandated by the Obamacare legislation, is that Governor Cuomo somehow was able to get around our parasitic legislature and create one by fiat. Yet there are many abuses that a state could get rid of, if it were not controlled by a legislature whose MO was to allow abuses in exchange for campaign contributions. In a major development, the federal government shined a light on one just last week. I’ll talk about it, and how a more “progressive” (the early 1900s version, not the self-interest group politics of so-called NY “progressives” today) state might respond, on Saying the Unsaid In New York.