THE TRUTH ABOUT THE
STATE OF NEW YORK

Data from the Census of Governments (U.S. Census Bureau),
and Local Area Personal Income (Bureau of Economic Analysis).

A detailed, comprehensive tabulation of relative state and local tax and spending data has been posted on the website of the Taub Urban Research Center at New York University. The internet address is: http://urban.nyu.edu/research/littlefield/index.html

That tabulation includes, in spreadsheets, data on every county in New York State and every state in the country, in addition to many more charts like those presented below.

According to the most recent Census of Governments, New York City's state and local taxes were one-third higher than the national average, as a share of its residents' income; taxes elsewhere in the state were also very high. If NYC were a separate state, only Alaska - where most taxes are on oil production - would have higher taxes as a share of income. Only Alaska and Maine have higher taxes than other parts of New York State. Unlike other states, New York State shifts many fiscal burdens to the local level, so New York's state taxes are below average as a share of income. Thanks to state decisions and this burden shifting, however, New York's local taxes are by far the highest in the nation.

Sources: Census of Governments, U.S. Census Bureau. Income: Bureau of Economic Analysis.

Note: This chart assumes that the burden of New York's state government taxes is distributed in proportion to personal income, and thus equals 6.2 percent of income in every part of the state.

The most important cost shifted to the local level is funding for welfare, social services, and Medicaid. In most of the U.S., state governments cover most of the non-federal cost of these services; in New York State local governments are required to pay a substantial share. The burden is greatest in poorer areas, including New York City and rural Upstate counties. Despite having the nation's most expensive Medicaid program, a state decision, the state taxes New Yorkers pay to fund these services are just average as a share of income. The additional burden is shifted to the local level. Therefore, New York State politicians can vote for higher spending, and get credit, without raising state taxes, and getting the blame. New York State accounts for half of all the "local to state" aid payments in the entire country, NYC alone for one-third.

WELFARE, SOCIAL SERVICES, MEDICAID AND HEALTH CARE
EXPENDITURES FUNDED BY LOCAL GOVERNMENT TAXES

Sources: Census of Governments, U.S. Census Bureau. Income: Bureau of Economic Analysis.

Note: This chart deducts federal and state welfare and social services aid from local spending in those categories; Medicaid counts as a state program with local to state aid in New York.

New York State's Medicaid expenditures are by far the highest in the nation. With 6.6 percent of the U.S. population, New York accounts for nearly 16 percent of its Medicaid expenditures. Some of this can be explained by above average poverty, but the main reason is extremely high payments to the health care industry - double the national average per Medicaid recipient in 1999, and far higher than any other state. In 2002, while other states are cutting back on Medicaid payment levels due to fiscal problems, the State of New York shockingly increased payments to the health care industry even further, even after the World Trade Center disaster. This is forcing county governments and New York City to raise taxes or cut spending in other categories.

1999 MEDICAID EXPENDITURES PER MEDICAID RECIPIENT

Sources: U.S. Healthcare Financing Administration, www.hcfa.gov, 2082 report and 64 reports.

By the time of the last Census of Governments, Medicaid had already accounted for an ever-rising share of spending "for the poor," with cash welfare payments shrinking. Now, to make up for soaring state mandated Medicaid payments, the City of New York has proposed deep reductions in social services for the homeless and vulnerable children.

Notes: In 1997, medical vendor payments (i.e. Medicaid) accounted for 97.6 percent of all vendor payments, while other vendor payments (i.e. for foster care, to social services, to non-profit homeless shelters, etc.) accounted for 2.4 percent. However, Medicaid "personal care" spending helps to support employment in the non-profit social services industry, since these services (unlike home health care) are not classified as health care. Medicaid payments to public hospitals are tabulated as public hospitals spending, not Medicaid spending.

The rich "Tier 1" public employee pensions handed out during the 1960s "nifty-fifty" stock bubble nearly bankrupted New York's local governments. By 1972, New Yorkers had to pay almost an additional one percent of their incomes in taxes, not for services, but for contributions to excessive pensions for those who were cashing in and moving out. To make up for this, employees hired since the 1980s have had less valuable pensions and lower wages. This has hurt the ability to hire qualified, motivated workers to provide quality public services. Then in 2000, at the peak of another stock market bubble, the State once again drastically increased pension costs for its local governments. This is crippling their ability to provide services and offer wage increases to recruit new employees - NYC's labor costs will soar over the next four years even with zero wage increases.

CONTRIBUTIONS TO EMPLOYEE PENSION FUNDS

Sources: Census of Governments. Income: Bureau of Economic Analysis.

New York City's State and local debts are already high - about double the national average as a share of its residents' personal income. After falling in the 1980s, NY's debts rose right through the 1990s boom. Only high-growth states such as Utah and Arizona, and Alaska, have debts this high. Many of those who ran up these debts and benefited from the related spending have left New York City and State. For those who remain, hundreds of millions of dollars in tax revenues are spent not for services, by just to service outstanding debts. Lower debt service costs alone made New Jersey residents and businesses one percent better off - due to lower taxes, more spending, or both - than those in New York City. That was in 1997, before all the additional debts run up since then.

Sources: 1997 Census of Governments. Income: Bureau of Economic Analysis.

Note: This chart assumes that the burden of repaying state debts is distributed in proportion to personal income, and that therefore state government debts as a share of income are equal in every part of the state. Note that, for historical reasons, the Census of Governments counts most MTA debts as NYC local government debt.

New York City spends more than the national local government average on just a few categories of public spending, at an additional cost of over three percent of its residents' personal income: social and health services, housing, police and correction, and interest on debt. For the most part, this situation is outside the control of NYC officials. The State of New York, court decisions, and the decisions of past administrations force the City to spend more on these categories.

** Local tax funded expenditures, with aid revenues deducted and mandatory local to state Medicaid aid added in.

Note: local government pension contributions not included for New Jersey, because they appear to have been recorded incorrectly.

Sources: 1997 Census of Governments. Income: Bureau of Economic Analysis.

In general, the average pay of local government employees in different parts of New York State differs from the national average by about the same percent that private-sector pay differs from the national average. However, the average pay of NYC teachers and police officers is low relative to the private sector. The relative average pay of teachers is very high in other parts of New York State and New Jersey; the average pay of police officers is high in the Downstate Suburbs and New Jersey. State PERB decisions inflated the pay of police officers in Nassau and Suffolk Counties, nearly bankrupting Nassau, and causing Suffolk's local taxes to be as high (as a share of income) as New York City's, despite a smaller low income population.

March 1997 PAYROLL PER EMPLOYEE
Private Sector and Local Government, vs. National Average

Sources: Local government: 1997 Census of Governments, March 1997 payroll divided by full time equivalent employment. Private Sector: Bureau of Economic Analysis, 1997 annual private earnings by place of work divided by annual average private employment.

* Private figures for New York City and the Downstate Suburbs are aggregated because they constitute an integrated labor market; data for finance industry workers in Manhattan are excluded since their average pay is so high as to be irrelevant to the labor market for most workers.

The reason NYC's police, correction, and judicial expenditures are high, even though its police officer wages are not, is a high level of employment in these categories - nearly three times the national average relative to population. New York City's local government employment is also above average in the welfare, hospitals and housing categories and in mass transit. In many other categories (aggregated in the gray bar), New York City is below average in public employment relative to population, while other parts of the state are above average.

LOCAL GOVERNMENT EMPLOYMENT

Sources: 1997 Census of Governments. Population: 2000 Census of Population, unadjusted data.

Note: The Long Island Railroad, MetroNorth, New Jersey Transit and most upstate NY transit agencies count as state government, not local government, according to the Census Bureau. Their employment does not appear in this chart. NYC transit is counted as NYC local government.

In fact, public employees account for 25 percent of the money earned at work in rural upstate counties, and 18.5 percent in urban upstate counties like Albany, Erie and Monroe. In many parts of the state, state and local employment is considered a jobs program, rather than a source of services. Similarly, in many other parts of the country, federal employment and contracts are considered jobs programs. The Downstate Suburbs have little federal and state employment and earnings, but their local government earnings, as a percent of total earnings, are well above either the national average or New Jersey. Meanwhile, New York City's public sector earnings, as a share of the total economy, are well below the national average.

1998 PUBLIC SECTOR WORKER EARNINGS
PERCENT OF TOTAL EARNINGS BY PLACE OF WORK

Source: U.S. Dept. of Commerce, Bureau of Economic Analysis.

In New York City, on the other hand, it is private, non-profit health and social services employment that is soaring - from 300,000 in 1983 to more than 500,000 today. Most of this growth is financed by rising Medicaid expenditures. This includes the "social services" industry, which is increasing providing Medicaid-financed "personal care" services for the elderly rather than more traditional services such as help for neglected children, homeless addicts and alcoholics, and families with other social programs. In New York City and other counties under fiscal stress, such programs are proposed to be drastically cut back in order to pay for the local-tax financed portion of Medicaid. With a booming late 1980s economy, New York City had been able to increase its public education employment. Now this is also proposed for reduction.

NEW YORK CITY EMPLOYMENT (000's)

Source: New York State Department of Labor, Current Employment Survey data.

Despite its high taxes, New York City spends less than the national average on many categories of public services, while other parts of New York State spend more. These categories of services, along with business taxpayers without special tax deals (who face high taxes), are the budget priority losers in NYC. They have been for decades.

Sources: Census of Governments, U.S. Census Bureau. Income: Bureau of Economic Analysis.

** Net of transport taxes, motor vehicle fuel taxes, transportation aid revenues, transit fares, airport fees, tolls, parking fees, etc.

Despite its high debts, New York's state and local infrastructure construction expenditure was only slightly higher than average in the years for which data is readily available. If data for the fiscal crisis years from 1973 to 1976 were added, NY's spending would presumably be below average. Much of New York City and State debt was used, illegally, to cover operating expenses, so current residents receive no benefit from them. The high level of Thruway Authority and Metropolitan Transportation Authority debts run up since 1990 make it less likely that the state will be able to make transportation investments that are critical to its economic future and quality of life.

1972 AND 1977-97 CUMULATIVE STATE AND LOCAL CAPITAL
EXPENDITURES AS A PERCENT OF PERSONAL INCOME

Sources: Census of Governments, U.S. Census Bureau. Income: Bureau of Economic Analysis.

The main reason for New York City's low public school spending is low state aid. New York City's representatives in Albany vote in favor of budgets that shortchange the city's children in exchange for having the rest of the state contribute to the state's extremely high level of Medicaid and housing spending, much of which takes place in New York City. The recipients of this spending keep the city's state legislators in office. With the STAR program diverting even more state school aid away from the city, primarily to affluent suburbs, the city's share of state school aid is declining further. Moreover, the high cost of the local share of Medicaid prevents the city from using its own tax revenues for services such as schools, parks, and infrastructure, the way the suburbs can.

1997 ELEMENTARY AND SECONDARY SCHOOL REVENUES
BY SOURCE OF FUNDS

Sources: Within NY State: Website of the NY State Education Department (Board of Regents). State data: National Education Association as cited in the Statistical Abstract of the United States. Income: Bureau of Economic Analysis.

The extremely high public education spending in the rest of the New York State outside New York City buys a quality education, but much of it is for other things. In particular, Upstate and Suburban schools are a patronage equivalent of New York City's Medicaid program. Spending is high as a share of income - higher in Upstate New York than just about anywhere else - to support an unusually large number of school employees. This is especially true of non-teaching employees, a category in which New York City - for all the complaints about bureaucrats at 110 Livingston Street - is far below average. High public employment and high public employee wages relative to private sector wages - not money lost to New York City - is responsible for the high taxes in the rest of the state.

MARCH 1997 EMPLOYMENT
PUBLIC ELEMENTARY AND SECONDARY SCHOOLS

Sources: 1997 Census of Governments. Population: 2000 Census of Population, unadjusted data.

New York City's local government transportation expenditures are high, but only because the Census Bureau counts NYC Transit (the nation's largest transit system) and the entire Port Authority (including operations in NJ) as NYC local government. Net of all the transit fares, tolls, airport fees, parking fees, motor vehicle fees and fuel taxes, etc., that New Yorkers pay, and federal and state transportation aid, virtually no NYC general revenue is spent on transport. If dedicated MTA taxes and parking fines could also be deducted (they are lumped in with other similar revenues), NYC's net transport spending would be negative, and New York State's nearly so. Tolls on the bridges to Manhattan would, in theory, permit more transportation investment. If other revenues were diverted to pay for rising debts, Medicaid and pension expenditures, however, New York City's transportation system would be no better off.

Sources: 1997 Census of Governments. Income: Bureau of Economic Analysis.

The State of New York, through mandated spending and aid to local governments, in large part determines local government tax levels and spending priorities in every part of New York State. As a result of the state's unique fiscal arrangements, however, the blame for high taxes and, in some cases, inadequately funded services, generally falls on local officials. Meanwhile, state legislators arrange to act as heroes by handing out small sums of money - member items - in the very categories in which local spending is low, and arrange special tax deals for narrow interests. State politicians tell people that other parts of the state are responsible for their problems, but there are in fact a small number of winners and a large number of losers Upstate and Downstate. The State of New York determines who those winners and losers are.

Sources: 1997 Census of Governments. Income: Bureau of Economic Analysis.

Ask yourself the following questions:

• Why do New York City residents pay double the national average in local taxes, and higher taxes as a share of income than just about anywhere else? Why do new businesses pay two local income taxes on the same income in New York, while the city and state give huge tax breaks to large existing companies, many of whom then leave the city or state, merge, or go out of business within a decade? Why are local property taxes such a burden on the state's remaining viable farms?

• Why, despite these high taxes, is New York City's spending on education, parks, recreation and culture far below the national average year after year? Why is New York City's per child spending on education among the lowest in the state?

• Why does the state legislature oppose any major reform of New York City's school system, even though nearly everyone who cares about the children agrees that structural reform is needed. Why are the schools so much worse than they were 30 years ago? Why were the school buildings allowed to fall apart?

• Why have two tracks on the Manhattan Bridge been out of service for 20 years, increasing travel times and crowding for tens of thousands of Brooklyn residents, with barely a mention from Brooklyn's politicians? Why is New York City the only city in the nation with a rail transit system that did not put a new line or extension in service during the 1990s? Why was 1990 to 2001 the longest period without the delivery of a new car since the opening of the subway? Why didn't the Long Island Railroad buy new cars for nearly 30 years?

• Why is it such a big deal for the State to build a few additional miles of limited access highway on the future I-86, a highway that is hundreds of miles long, in some cases on land it has owned for this purpose since the 1960s? Why has the Tappan Zee Bridge been so poorly maintained that it must be replaced after less than 50 years, with millions in tolls paid during all those years? Why hasn't the Thruway Authority widened I-90 between Syracuse and Buffalo? Why can't a lane be added to the Northway for express commuter buses to Downtown Albany?

• Why did Nassau County nearly go broke, and many other New York State local governments feel fiscal stress, in the middle of a boom? What will happen as a result of the recession? Why are the credit ratings of New York City and State so low? Why are debts so high? Why did the City and State borrow so much in the middle of the boom, while other states were cutting their debts? If New York City has had a $2 billion surplus for each of several years, why doesn't it have $8 billion in the bank to use next year now that a recession has arrived, instead of nothing?

• Why do so many New Yorkers lack access to health care, given that New Yorkers pay so much more than the national average in taxes to pay for the nation's most expensive Medicaid program? Why are representatives of the state's health care providers begging for money each year, when they already receive double the national average per Medicaid recipient? And given that overall payments are so high, how can New York have among the lowest Medicaid payment rates for doctors in the country? Why did the state decide to pay the Medicaid industry even more money, even amid calls for "shared sacrifice" from everyone else in the wake of 9-11?

• Why is the pay for many categories of public employee in New York City so low that competent workers cannot be recruited? If pay is so low, why is the cost of government labor so high? The State of New York claimed that the big pension giveaway it passed in 2000 would be "free," since the City and State pension funds were over-funded. Then why is the City of New York being forced to drastically increase its pension contributions, at a moment of financial crisis, leaving absolutely no money for wage increases?

After thinking about it, I have reached some sad conclusions.

• The State of New York is one of the most inequitable state governments in the United States.

  It is the land of the special deals for the "special" people. While most state residents and businesses face relatively high taxes, poor services, and difficult regulations, politically influential businesses get obscene tax breaks, politically influential non-profits and unions get special budget grants and a high level of funding, and regulations are enforced in an uneven and discriminatory way. Those who benefit from unearned privilege in New York, even those in the private sector or in local government, generally have some state law or regulation ensuring that privilege. For New York State's political leaders, both Democrats and Republicans, the equal protection clause of the constitution is more honored in the breach than in the observance.

• The State of New York is the most stagnant state government in the United States.

  For at least 30 years the same set of politicians, backed by the same set of interests, have shared power in Albany, with Democrats controlling the State Assembly and Republicans the State Senate. And they have done very well for themselves. If the goal of the Republicans is to force ordinary people to accept less in public services, and the goal of the Democrats is to get them to pay more for it, in New York State both have succeeded. With both major parties in on the "deal," the public, though dissatisfied, has nowhere to turn. People get one choice in voting for the state legislature: the incumbent. Moreover, with the state's population changing, but the same old faces in Albany supported by those who are moving away, the state runs its finances as if the future will be someone else's problem. New York State cheats its future to enrich those with one foot out the door

• The State of New York represents feudalism, American style.

  Under capitalism, you get what you earn, at least in theory. Those who believe that people need an incentive to work and innovate can agree with that. Under socialism, you get what you need, at least in theory. Those who believe that we are all part of one human family can agree with that. But over time, when you have the same group of people in power, both capitalism and socialism degenerate into feudalism, under which the privileged expect to continue to get what they have been getting, and perhaps a little more, whether they need it or not, deserve it or not. For those who have real needs, and who produce real earnings, it's just tough luck. The feudalism of unearned privilege explains much about the state of the State of New York.

In short, one of the worst state governments in the country is threatening to ruin one of the best states in the country. It's not the Empire State, it's the Vampire State. The state motto should be changed from Excelsior (ever upward) to Tondere Et Aufugere (fleece and flee).

Those who are not benefiting from existing arrangements should be aware of them, and do what they can to change them. They should understand where the important decisions were made, and could be unmade, who made them, and why. The big decisions, even those that show their effects locally, are made in Albany, by the Governor and the State Legislature. Whether it is local taxes, local schools, local anything - it is ultimately the State of New York that is responsible. Don't blame Osama Bin Laden, though he didn't help. Don't blame other parts of the state. Blame Pataki, Cuomo, Bruno, Silver and McCall, their predecessors, lobbyists, friends and supporters. No amount of lobbying, rallying, and cross endorsing has any hope of changing things. New York State's prospects will not improve until a way is found to throw the bastards out. Without putting the other bastards in.

We welcome submission of essays for posting on this web site. Send to webmaster@ipny.org.
Opinions expressed do not necessarily represent those of the Independence Party.

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