Tag: Albany

According to Governor Paterson, as quoted by The Daily Politics, “the temporary reinstatement of the 4% state sales tax on clothing and shoe purchases of $110 or less will put a strain on those who can least afford it.” The state had backed away from a proposal to tax hedge fund managers the same way those working in other industries are taxed, because doing so might drive that industry out of the state. But all taxes on residents hurt their standard of living, and all taxes on businesses and their owners drive economic activity away. Why should spending on clothing, or the hedge fund industry, receive more consideration than anything else? After all, we’ve lost plenty of industries in this state over the past 40 years, and have a high tax burden overall.

I had to cut my prior post on the cost of pension enhancements short because it was already too long, and I was out of gas in any event, so I’ll finish the analysis here. To review, according to the model described in this post and present in the attached spreadsheet, I found that for those now approaching retirement from New York City, New York State and other New York local governments, the state had promised, when the employees were hired, pensions that would cost the taxpayer 8.8% of payroll for most workers, 13.2% of payroll for those in physically taxing jobs such as sanitation workers, and 28.7% of payroll for police and fire. But they didn’t set aside enough money to pay for those pensions, using the stock market bubble of the 1990s as an excuse (and still doing so a decade after it popped), as I showed in this post. In addition, the pensions were drastically, retroactively increased compared with those promised, in a series of deals between the public employee unions, representing those workers who were already or about to retire, and politicians seeking political support. At the expense of the general public, particularly those worse off, and the future, now the present. For most public employees, as this post showed, the result was pensions that, for those getting early retirement incentives, cost double what had been promised. Little of this has been paid for, and under a proposal by Comptroller Thomas DiNapoli, local governments outside New York City would not pay for another 10 years, up from the three year postponement the state legislature just passed.

So what about the cost of pension enhancements and other deals for those in physically taxing titles, police and fire? Read on.

Year after year, the New York State legislature passes bills that enrich the pensions of New York’s public employees. The employees who benefit are often already retired or about to retire, and thus offer neither improved work nor gratitude in return. Even this year, with taxes rising and public services being gutted, dozens of such bills were introduced and many were passed, with the Governor already signing a bill to possibly allow tens of thousands of government workers to retire years earlier than they had been promised – and decades earlier that most New Yorkers in younger generations will be able to.

So how much do all these pension deals cost? Most are passed in the dead of night with no analysis, no debate and no announcement. An irrevocable decision that future state legislators cannot reverse, no matter how disastrous, is hidden from public view. But to the extent the state legislature, Governor and/or Mayor do put a price on these deals, it generally falls into one of two categories. Either they claim it costs nothing, or they claim it actually saves money. I beg to differ. As the model in the spreadsheet attached to this post shows, newly re-attached for those who had trouble downloading it, just the recent deals I am aware have vastly increased the cost of New York’s public employee pensions far beyond what had been promised or admitted. Public services and benefits will be devastated to pay for them. This massive, bi-partisan transfer of wealth from those who are worse off to those who were already better off marks the beneficiaries as selfish and the state legislators as despicable. Totally despicable. Particularly when the unions and legislators subsequently have the nerve to pretend to object to service cuts, benefit cuts, and tax increases, staging a hypocritical show of protest.

We are just a couple of days past a ten-year anniversary. On July 11th 2000, then-Governor Pataki signed one of the biggest of the recent pension enhancements. Comptroller Carl McCall had pushed for some of the changes, which had passed the legislature several times without any votes against but had previously faced Pataki vetoes, and New York City Mayor Giuliani had pushed other changes as part of a deal he had cut with the public employee unions. Pataki, Giulani and McCall, all looking for support (or neutrality) in runs for higher office at the time, claimed that the pension enhancements (which will be discussed in the next post) would cost absolutely nothing. Because the pension law passed in 2000 asserted that from the high point of the biggest stock market bubble in history, the New York State and New York City pensions funds would earn an additional 8.0% per year on average into the future, not the 7.0% that had previously been assumed. New York State and its local governments, and those throughout the country, had already cut the amount that was being contributed to the pension plans based on high stock prices, to levels below what my model finds would be required to pay for the pensions. So how accurate has that 8.0% rate of return assertion turned out to be, and what are the consequences?

New York’s pliable pension actuaries have been subject to severe criticism on this blog, and by actuaries that now write for publications and no longer need to be “team players” with politicians and unions in order to earn a living. After years of pension enhancements, pension funding cuts, and inflated estimated investment returns, we need to figure out what our situation actually is, and our future actually holds. So in the “do it yourself” spirit of an era in which there are few people and institutions left worthy of trust, I’ve decided to take a shot at it myself, with the simplified model in the attached Excel file. This post will describe the model, and attempt to estimate how much the public employee pensions promised (back when they were hired) to those approaching retirement would have cost (without any subsequent deals for pension enhancements in exchange for campaign contributions and political support), and how much should have been set aside to pay for them. The information discussed will be in the worksheet in the “promised” tab. A second post will try to estimate how much pensions have been underfunded due primarily to inflated estimated future investment returns, as noted in the “underfunding” tab. A third post will attempt to estimate the impact of some of the major pension deals I have been aware of over the years, among the hundreds passed and thousands proposed.

I find that for a typical New York government employee now approaching retirement (or recently retired early under some deal), a pension was promised that would have cost 11.8% of total pay during their careers, with 3.0% paid by the employee and 8.8% by the taxpayer, plus retiree health insurance for three years before Medicare carries most of the burden after age 65. For those in “physically taxing” jobs like sanitation workers, the promised pension would have cost 16.2% of their pay, with 13.2% from the government, and 10 years of pre-Medicare retiree health care. And for police/fire, it would have cost 29.6% of their pay, with almost all paid by the taxpayer and perhaps 21 years of pre-Medicare health care. But future taxpayers and service recipients (if there are any more services) will face a drastically greater burden.

In my previous post, I looked at comparative public school spending per child in FY 2008 using data aggregated by the U.S. Census Bureau, with a flashback to the 1990s and a look ahead based on budget data. In the spreadsheet attached to this post, I compare the public school revenues and expenditures of the United States, New York City, the Downstate Suburbs, Upstate New York and New Jersey in FY 2008 with FY 2007, the year before the Campaign for Fiscal Equity Lawsuit was settled, and FY 2002, the last budget before the start of the Bloomberg Administration. The output pages of the spreadsheet are designed to print on two letter-sized pages. My review of the findings is below.

The U.S. Census Bureau has released elementary and secondary school finance data for fiscal year 2008, and I have once again come up with a couple of spreadsheets that I will write about in the next two posts. Attached to this post is a spreadsheet with data for the year for New York City, Downstate New York, Upstate New York, New Jersey, Massachusetts and the U.S., plus all school districts within New York State. The data includes revenues by source (federal, state and local), and spending by category (instructional vs. non-instructional, wages, benefits and other, interest and debts), all expressed per student. In high-wage high-cost areas – New York City, the Downstate Suburbs, New Jersey and Massachusetts – an adjustment is made for this.

Without that adjustment, just using the data as provided by the Census Bureau, one group has found that NY State’s public school spending per student is the highest in the United States. But even with an adjustment, school spending was sky high in New York State in FY 2008, even in New York City where it had historically been low. That year, total public school expenditures averaged $12,279 per child in the U.S. and $16,842 in Upstate New York, compared with an adjusted figure of $15,840 in New York City, $16,171 in the Downstate Suburbs, $15,616 in New Jersey, and $12,369 in Massachusetts. Take out the need for Massachusetts to pay its public school employees more to compete in a more expensive labor and housing market, in other words, and that state matched the U.S. average almost exactly, whereas New York and New Jersey were much higher. The unadjusted figures are $21,085 per student in New York City, $21,526 in the Downstate Suburbs, $18,637 in New Jersey, and $14,801 in Massachusetts. That New York City’s public school spending per child nearly matched the Downstate Suburbs and exceeded New Jersey is a stunning development, but the sky-high total is also stunning, and was probably affordable only due to a debt-fueled financial boom that started to collapse in August 2007, just before the kids headed to school in the fiscal year covered by this data.

From a complaint about Senator Pedro Espada, seeking to have has membership in the Democratic Party revoked. “Sen. Espada’s decision to affiliate with the Democrats is the result of opportunism and personal gain, not a commitment to Democratic ideals.” Of course. But does New York’s Democratic Party actually have ideals? And aren’t all the state legislators basically backed by those whose primary interest is personal gain? Isn’t that who is contributing to their campaigns, and collecting their signatures? Can’t the same be said of the Republicans?

My preference is to work backwards. Add up what is actually done, and attempt to infer the ideals from that. The ideals I get are personal gain, and the collective gain of Generation Greed, aside from a few symbolic social issues. “Quite clearly, Senator Pedro Espada, Jr. left the Democratic Party long ago in all but his official party affiliation. Through his repeated public statements and bad conduct, Sen. Espada has shown he is not ‘in sympathy’ with our party’s fundamental principles,” according to the letter that is circulating in the news. But the letter doesn’t list such principles. If it did, it would probably be easy to show they should all be thrown out.

I couldn't let this pass. The New York Post reports that most New Yorkers consider the state government to be dysfunctional. I've said in response that all levels of government, and corporations have been functioning very well for those siphoning money from them. Two kinds of people have been getting richer: the top executives that sit on each others' boards and vote each other compensation that even pro-business, pro-capitalist (but more or less honest) publications such as The Economist and the Financial Times call larcenous. And today's senior citizens, who have voted each other benefits they have refused to pay for, passing the cost to future generations who will be poorer. Especially retired public employees. Well guess who the Post's F. Dicker spoke to get man on the street complaints about dysfunctional government?

The sad thing for Generation Greed is that eventually it will have to end. It will have extracted so much from our future that there is nothing left to take. But in Albany, they don't think that far in advance. All they want is two more years to sign contracts with each other guaranteeing themselves even more future benefits and exemptions from cost, contracts that will be unassailable regardless of the consequences. And though elections are rigged, they still want to disguise the consequence of past deals until after the November takes place, so they can be assured of going back for more.

So how is it that a $400 million MTA budget deficit, now assumed to be a $525 billion budget deficit, just goes away? The answer is that the MTA will borrow $525 billion to get through November. In fact, it has already borrowed $475 million in "revenue anticipation notes" for revenue that was not actually anticipated to come. Since the MTA anticipated it, it could claim a balanced budget. Now it will just borrow $525 million more, for a total of $1 billion. Younger generations will be paying for that forever, with nothing in exchange. And they rejoice in Albany, while pretending $billions in borrowing does not exist.