Author: Larry Littlefield

For those of you wondering why I believe a universal health care financing system would be a major stimulus to the economy, I have fixed the hypertext error on this post so you can read the whole thing. Included as an attachment is a complete overview of the problems, proposals and solution I wrote in January 2008.

A recent MSNBC story, however, illustrates some of the issues nicely.

As the health care debate ramps up, I’m not entirely pleased with what I read coming out of Washington and in the press. It seems that too much deference is being given to a broken system by those who are afraid to take on vested interests, and too much money might be being added to a system that doesn’t work — community rating and health insurance tied to place of work. There has been some discussion of the inequity of the current system, in which younger generations and the less well off lack health insurance and yet pay taxes to subsidize the better off people who have it. And there has been some discussion of the soaring cost of health insurance, and the need to slow it down. But there has been less discussion of the negative economic consequences of the tie between place of work and place of employment. Getting rid of that tie, more than almost anything else, could stimulate the economy.

You might have read about the results of school district audits conducted by the staff of New York State Comptroller Tom DiNapoli over the past year. In a state with the highest public school spending relative to its residents’ incomes, and therefore the highest state and local taxes as a share of income collected for schools, DiNapoli’s staff has found that the school districts waste nickels and dimes, and sometimes follow only 49 steps in 50 step financial procedures. According to the New York Times, “state auditors found that the Niagara Falls, N.Y., school district overpaid 272 employees by more than $500,000 in 2006, apparently incorrectly sending out an extra paycheck to each of them. Separately, they discovered that a laptop computer assigned to a school administrator in Vestal, west of Binghamton, had been used to visit Internet sites for pornography. And they determined that districts in Mount Vernon, Newburgh, North Syracuse, Schenectady and Williamsville could have saved a total of $212,000 on electricity if they had shut off computers at night and used power-save settings.” Superintendents and school board members “complained that the audits could be too focused on relatively minor infractions and accusatory in tone.”

I agree with the superintendents and school board members about the minor infractions, but believe the tone could be even more accusatory. Without any staff at all, using only widely available public statistics, I’ve been able to find far more telling explanations of why New York’s school spending is so high, as reported in prior posts. Based on that data, the real story is the questions DiNapoli didn’t ask.

As part of the rescue package designed to put off the collapse of our transit system for five years, the State of New York proposes the creation of a single regional bus authority for the entire MTA region. The proposal would supposedly create operating efficiencies, by merging administrative functions, and improve coordination, by allowing bus routes to run between suburban and New York City counties, if that is where the demand is. What I suspect, however, is that merging the bus systems is just an excuse to combine the lower cost city routes with higher cost suburban routes, so the former could be used to subsidize the latter. And the geographic area covered by such an agency would simply be too big to allow hands on management by its top officials, so any efficiencies would be lost by layers of management.

In my prior post, I pointed out that because San Francisco requires a public referendum for pension changes, the types of deal-in-the-dark pension privileges that have been handed out, in New York and elsewhere, hadn't happened there. But a tip came from the Pension Tsunami folks that perhaps San Francisco isn't so great on generational equity issues after all. That city (like our city) has a huge retiree health care liability, due a provision that allows employees to retire after just five years and receive free health care for life. And to reduce it, the politicians and unions have cooked a scheme worthy of the New York State Legislature.

I've probably written about this before, but in case you missed it, the place without a pension disaster is the City of San Francisco. And the reason it doesn't have a pension disaster is that all pension changes in that city are subject to a public referendum, and have been for 120 years, as descrbed here. So the irrevocable pension heists of the past 12 years didn't occur there, because the sort that occured in New York and many other places could not stand up to public scrutiny. Not when people understand that their taxes would soar and their public services would be devastated as a result, as ours will be. Not when people are allowed to compare the retirement benefits they would possibly be forced to pay for, and the retirement deal public employees are willing to pay for by shopping at the place where they work. They could only go through as unannounced deals in the dark, which is what we have here in New York. I'll bet those New York City public employees who actually live here would be embarassed to confront their neighbors with the consequences of their demand.

It generally doesn’t make sense to talk about budgets until the actual spending and revenues have been recorded and verified, let alone before the budget has even been passed. But it sounds to me like we are about to get $1 trillion in new taxes without univeral health insurance. Just a “downpayment” for universal health insurance. Today’s seniors will get plenty of Medicare, although tomorrow’s seniors — today’s young and middle aged — probalby will not. Public employees get unlimited coverage, for free in NYC. But everyone else gets a downpayment. Kind of like all those “downpayments” on the Second Avenue Subway, used as an excuse to borrow more money the generations in charge wouldn’t be around to pay back.

That’s not good enough.

For the past three years I’ve tried to call attention to the inequities in the tax code at the expense of younger generations. But it seems no one who matters really cares about younger generations. There are, however, also tax inequities among older generations. And to see what those inequities are, one merely needs to fire up the Turbo Tax and compare the New York state and local income tax liability for two fictional couples, the Goldrakers and the Schlubs.

The Goldrakers are former New York City school teachers who happened to turn 55 right when the pension plan was changed by state legislation, allowing them to retire with a full pension at that age, rather than age 62, without contributing an extra dime. With an average salary of $110,000, if overtime/summer school/after school are included, they are now entitled to $110,000 in combined pension income per year, and health insurance without charge. They took the deal (along with how many others and at what cost no one has said). The less affluent Schlubs, an administrative office worker and a store clerk, were pushed into retirement at age 60 in 2007, in the early phase of the recession. Though not entitled to pensions, the Schlubs had diligently saved $500,000 for retirement on their modest salaries, subsequently reduced to just $360,000 by investment losses. Forced to pay $15,000 to continue their modest health insurance in 2008, they withdrew $60,000 to live on that year.

I've been asked by an acquaintance in Boston to comment on the plan by the Governor of Massachusetts to solve the state's transportation problems. And since the issues are the same here and there, I thought I’d post and expand on my response on Room Eight as well. My general sense is that the Governor, like all politicians it seems, is unwilling to state the simple fact that the generations now in charge have demanded and received a better deal for themselves, getting more out and putting less in, at the expense of a future that has now arrived. And the damage is so great that they cannot bring themselves (and others who control our public and private institutions) to impose the sacrifices needed to put things back on a firmer (though diminished) foundation. Even as they are forced to hand out sacrifices and ripoffs, whereas prior politicians handed out special favors, deals and handouts, today’s politicians keep deferring costs and sucking up future revenues, creating more and more problems for the future. At least Deval Patrick is sort of willing to say so. Massachusetts is a state with a declining and aging population, whose leaders are deeply worried that young people — many educated there — choose to move away. Frankly, why wouldn’t they? The only question is where can you go?

The New York State legislature is frequently called dysfunctional, but that assumes its function is to make the people of the state better off. In fact, the goal of the state's Republicans has been to force most New Yorkers to accept less in public services and benefits, and the goal of its Democrats has been to force them to pay more for it, particularly in the long run, all while rewarding insiders. And both have succeeded. For example, the Associated Press reports that, adjusting for lots of things, "New York's Medicaid program spends more on long-term health care than other states, but it delivers only average or slightly above average quality." The analysis was not complete because it did not adjust for power and a sense of entitlement, the factors most critical in Albany.