Author: Larry Littlefield

In the last month I received a couple of financial communications from the City of New York: a $400 property tax refund check and a $170 property tax increase bill. Even factoring in the cost of the stamp and the hassle of going to the bank to deposit the check, I guess this makes me a “winner” in the special deal sweepstakes that is our government. A winner, that is, assuming that I don’t care about anyone who is a renter, and thus did not get a check, is likely worse off than I am, and if they are in a rent regulated apartment will have the cost of the property tax increase passed onto them (my guess is that in the coming real estate environment market-rate landlords will be eating that increase and much else). And assuming that either my employer does not have a commercial lease that allows such increases in cost to be passed on, or can absorb a higher tax burden without adversely affecting my job. And assuming that I won’t be interested in, or forced to seek, a job with another firm that might be discouraged from opening here by the higher commercial tax burden. But here on Room Eight let’s not talk about what the $400 check means to me. Let’s talk about what it means to Mayor Bloomberg and the New York City Council.

All of a sudden, I read everywhere that the U.S. national debt is around 35% of GDP, although the massive deficits resulting from past fiscal recklessness are likely to increase it to 60% or more, a new post-war record, over the next few years. I’ve read the 35% of GDP figure in the Financial Times, Bloomberg News, Wall Street Journal, MSNBC, etc. Everywhere the national debt is discussed. Funny but until I few months ago I had been reading for years that the national debt was already around 60% of GDP. And that’s what I find in the Statistical Abstract of the United States. So what disappeared? Among other things, the Social Security Trust fund.

That trust fund is the result of all those extra payroll taxes low, moderate and middle-income workers have paying in, in excess of what Social Security has paid out, since the huge payroll tax increase of 1983, which was coupled with benefit reductions for younger generations of workers. The federal government spent the money on income tax cuts and extra senior citizen health care for the generations in charge, and left IOUs. But now the federal government needs to borrow $trillions more over and above the amount it is diverting from Social Security, and our foreign creditors are beginning to worry (as well they should) that the United States could never pay both them and Social Security back. And all of a sudden — poof! — the trust funds are no longer part of the national debt. Get the picture?

I have questioned, on this blog, whether my teenage children will still have health insurance as young adults. The answer, provided by Governor Paterson, is yes. Because my wife and I have health insurance through our employers, under Paterson's proposal we would be able to pass that gift onto them through age 29. Presumably with tax advantages, which means (given our marginal tax rate) the federal, state and local governments would in reality be paying for about half of it. Meanwhile, those whose parents do not have health insurance, or who have moved here from other states and countries, would not receive this benefit and its back-door taxpayer subsidy. And not just them. It is estimated that 800,000 would be eligible for the program, but just 80,000 would take advantage. Which 80,000? The richest of course, since they could afford it! This is what I fear about the Democratic road to "universal health care." Rather than figure out what the government can provide for everyone, and leave other to pay for more themselves, an open-ended commitment to ever rising expenditures (or back door tax expenditures) could be kept open for those who matter, even as others get nothing once limited resources intrude. More deals and breaks, and programs, layered onto the current mess, could take the place of root-and-branch reform. Governor Paterson's heart may be in the right place, but ironically our first Afro-American Governor has just proposed a Grandfather Clause for health insurance in New York.

In case you are wondering, the title is optimistic. A pessimistic scenario, which I will share below, would have future years that are progressively worse. I expect the value of assets — stocks, bonds, real estate — to fall farther before bottoming out, because I do not believe their current value could have fully anticipated and “priced in” an economic disaster that (outside Michigan) is really just getting started. What has happened, and will happen, is enough to make one look behind the economic artifice that has built up over the decades and ask more fundamental questions, such as “what is real wealth.” In response to a query on the subject on another discussion board, a man from Virginia put it this way: real wealth “is an asset for you that isn’t a liability for someone else, whose value to you does not rely on other people’s opinions.” What a brilliant statement, perhaps even more so than he intended, because in the current environment it seems to eliminate just about every possible place one could put their savings.

If you want to know what Obama and the Congressional Democrats could do to aid state and local governments in an equitable fashion, read this.  Tom Suozzi proposes that in lieu of other state and local government bailouts the federal government to pick up the full tab for Medicaid (eliminating the state government matching share), allow more people (especially the newly unemployed) to be covered, and require cost reductions, rather than keep the current structure intact and merely add more money temporarily. “For a modest investment of $50 billion, our new President could deliver real and immediate relief to state and local governments, and ultimately our taxpayers. The benefits would be distributed equally to every state, and we would take a big step toward achieving his vision of a comprehensive health care.” Why does it take a Suozzi to state the obvious — that rather than having separate funds of money shifting all over the place in a series of special deal bailouts, federal-state fiscal relations and the government health care finance system should be restructured? Perhaps because his proposal would not benefit those who have lucrative health benefits, who are powerful, and might limit the amount of money the health care industry can receive.

The New York State Department of Education has released its public school finance “masterfile” for the 2006 to 2007 school year. It may be found here. I’ve taken some of the data items in the file, attached more easily understood titles from the glossary, and done some summations, calculations and adjustments. The results are attached, and are discussed after the break. The data is for the school year impacted by former Governor Pataki’s last budget. It was Pataki’s first budget that slashed New York City’s state school aid, always low in proportion to its number of children, while increasing aid to the rest of the state. The observable results, among other things, sent my children out of the public school system and some of their friends out of the city. Later, Pataki instituted the STAR program, which directed more resources to school districts with the most, sending spending outside New York City to the moon. For a while it seemed that total state aid per student to the affluent downstate suburban counties, on average, would exceed the amount provided to New York’s generally impoverished children. But perhaps under pressure from the Campaign for Fiscal Equity lawsuit, Pataki reversed course. For fiscal equity, ironically, his last budget may be as good as it gets for the city’s children.

Mayor Bloomberg and Governor Paterson have both threatened public employee layoffs. The purported goal is to induce public employee unions to agree to smaller and more widely dispersed sacrifices among all their members, in order to avoid the greater pain of layoffs for some of them. This, for those who haven’t been in a public agency or public employee union, and/or haven’t been paying attention for the past 25 years, is a farce, because when there isn’t enough money unions prefer layoffs to any other alternative. As their top priority, the unions look out for number one — the people who work for the unions. Next up are the retired and those about to retire, followed by the least motivated workers, who often require union hearing and grievance services. Those who just do their jobs and have the city and state ship part of their paycheck to their “representatives” don’t count for much, and those not yet hired count for nothing (thus all those “screw the newbie flee to Florida” contracts). But those who are laid off count for less than nothing, since once they are gone they can’t vote in union elections. So who cares? The unions only have to pretend to care until they are gone, and by threatening layoffs, the Mayor and Governor merely invite ritualistic shadow play while engaging in some of their own.

I think they are serious. As far as I can tell, the American City Business Journals organization doesn't have a sense of humor. "A new report by the U.S. Army War College talks about the possibility of Pentagon resources and troops being used should the economic crisis lead to civil unrest, such as protests against businesses and government or runs on beleaguered banks. 'Widespread civil violence inside the United States would force the defense establishment to reorient priorities in extremis to defend basic domestic order and human security,' said the War College report.

Anyone who knows even a little about public finance, and cares even a little about public services, particularly future public services, is sick of this bullshit. But if you feel the need to hear it from someone other than me, read this.

The AARP-eligible people who control out institutions can never do enough for their contemporaries. In Albany, they have joyfully handed out pension enrichments that public employees have neither worked nor bargained for, over and over, for a decade. And when there isn’t enough money to go around, do they ever tell those of their own generations they will have to give something back? Never. They decide that those in younger generations will have to be worse off, without saying so. So Governor Paterson and Mayor Bloomberg have decided that future hires should have much less generous pensions, and thus much lower total pay overall, a few years after Bloomberg agreed to cut the retirement age for teachers from 62 to 55 and Paterson voted for all those pension enhancements as a member of the state legislature (they generally pass the legislature unanimously). Do they truthfully say “shared sacrifice” means that because those of their generation have shared, future generations will be sacrificed? No, they do not. Thus, they are frauds, as are the news organizations (with their aging readers and viewers) which don’t point that out either. The New York State legislature, of course, is far worse.