The public sector institutional collapse approaches. With the help of lies by actuaries, Generation Greed is absconding with all the resource we have, and will have. In the future, the vast majority of taxes, extracted from younger generations and exempting those older, will go to past debts, early retirement pensions, other retiree benefits such as health care, and other services for senior citizens. (Until younger generations face old age in the absence of such services for senior citizens).  Other public services and the social safety net will ebb away. Taxes will be paid for nothing, seized with nothing in exchange. And now we have a Democratic State Senator refusing to increase taxes to pay for a government largely operated by taxes, so as not to be associated with the ripoff that it is. After all, his job, pension, his relative’s jobs, and the sinecures of associated people with connections will be the last to go, and his generation’s needs will be taken care of.

The private sector is no different. All our institutions are being drained of all they have, with only IOUs left behind. I suggest reading this article to the end. It is but one example. And there seems to be no stopping it. And no one pays attention until its too late, and at that point they are manipulated to blame other victims.

Back when the Brennan Center was releasing reports showing how undemocratic and phony the New York State legislature is, I recall reading comments from Sheldon Silver and Joe Bruno, its leaders, in the newspaper. They didn't come right out and say it, but reading between the lines they pretty much implied that if New Yorkers knew what those who grab and perpetually hold sinecures through our non-elections were like, they would be glad there were only three men in the room when anything important was at stake.

I bring this up without comment, other than to point out that decisions to sell out New York's future (now the present) to free up money to hand out to interest groups in the present (now the past) were generally bi-partisan and had the support of both leaders, and many member of their generations. Is that really worse than what has been going on recently? In any event, credit to Gatemouth, whose history of the last time the Democrats were sort of in charge in the 1960s meant that no one who read it is surprised. I'm never surprised by something bad for ordinary people, particularly those in younger generations, coming out of Albany.

Following public policy in New York is like watching the same horror movie over and over again, while knowing that what appears on the screen will eventually happen to you, your children, and/or people you care about. Case in point, the long series of “screw the newbie, flee to Florida” public employee union contracts that both inflate the cost of public services and degrade their quality, while cheating younger generations.

Just 18 months ago, Bloomberg and the United Federation of Teachers (UFT) cut a deal, the state legislature passed it (virtually zero no votes), and then-Governor Eliot Spitzer signed it, to allow existing teachers age 55 and up to walk out the door into retirement up to seven years early, receiving unlimited untaxed health insurance from the city without assistance from federal Medicare for ten years rather than three, without contributing an extra dime. Those just under age 55 would have to pay more for just a few years before retiring seven years early, and receiving pension income free of New York City state and local taxes. Because that deal also cut the take home pay of future teachers by 5 percent for the first ten years of their careers, and because a historically (looking at long term data) impossible rate of return on pension assets was assumed, the undebated, unvetted, unannounced deal was described as costing nothing. Well guess what? This week, for the umpteeth time, we got the first phase of the inevitable second half of that deal – the screw the newbie and the children half.

The U.S. Census Bureau has released 2007 data on the financial status of state and local government pension plans in the U.S. The data is at the state level, and is at present separate from data from the rest of the finance phase of the 2007 Census of Governments, so only limited conclusions may be drawn from it, but I’ve calculated some ratios to see how New York compares. What the data shows is that New York State’s pension plans, and in particular New York City’s pension plans, tend to be on the extreme end compared with other states by a variety of measures. There are more retirees relative to the number of workers in New York. Public employees contribute less to their own pensions here. For New York City, payments to pensioners and others are draining existing assets at an above-average rate. And, perhaps in an attempt to get out of the hole, New York’s plans were among the most highly invested in risky stocks in fiscal 2007.

On June 29th 2007, the last trading day of that fiscal year, the S&P 500 was at 1,505.70, while as I write this it is at about 925, a loss of 38.6%. Based on the assumption that the pension funds earn 8 percent per year, it should be at 1,756 by now starting at June 2007. Then again, starting at June 2000, when that assumption was made by state law, it should be at 2,960, or triple its actual level. It’s based on assumptions like those that all those pension enhancements over the past decade were described as “free.”

Back in the mid-1990s, after we had purchased and fixed up our home, we had a little savings left and decided to set it aside for the next big expense, the education of our children, toddlers at the time. With a long time horizon, and willing to settle for whatever the average U.S. stock would return, we put it in a Total Stock Market index fund with a low-cost mutual fund company. With college looming we removed the money from that fund last week, and so I have a pretty good idea what savers who invested in stocks, on average, have received over the past 13 years. Despite reinvesting dividends (such as they were), dividends on which we paid taxes from other funds, despite not putting money in at one of the bubble peaks, and despite the low fees charged by our mutual fund company, we merely got the same amount of money back. Money that is now worth 25% less based on overall inflation, and far less relative to the cost of higher education, which is a whole additional discussion in itself.

I bring this up on Room Eight not to complain about my return, because you pay your money and take your chances. I mention this to show that the excuse used to justify the soaring share of national wealth paid to top executives over the past 15 years, the purported need to attract the greatest superstars to enhance shareholder value, has been a fraud. Because the average team of corporate executives has delivered zero shareholder value over the long term -- or far less, adjusted for inflation and taxes -- while being richly rewarded for it. They took everything for nothing.

Loyal Democrats and Republicans would prefer to look at the goings on in Albany these days as an aberration, one that doesn’t reflect the deeply held values of their particular tribe. I don’t see it that way.

The attached spreadsheets compress National Transit Database data for 2007 operating costs into two three-page tables. The first shows operating costs per each hour a revenue vehicle (bus or rail car) is operated in revenue service, per unlinked trip, per passenger mile and per employee work hour. The second shows fare revenue per trip, and the percentage of operating costs covered by the fare. Data is provided for all automated guide way (AG), commuter rail (CR), heavy rail (subway or elevated) HR, light rail (LR), and ferry boat (FB) systems. My chief contribution to the tables is to limit the number of demand response (DR) handicapped paratransit systems, and bus (MB) systems, that are included, to the largest and a few others in New York State, as there are many such systems throughout the country, most quite small.

The data shows that the total cost New York City Transit pays to operate a subway car for an hour is lower than any comparable system other than Chicago, which apparently wasn’t paying enough of its pension, retiree health care, and track maintenance cost in recent years, resulting in a massive fiscal collapse and a near meltdown in service. Long Island Railroad and MetroNorth costs to operate each rail car for an hour were much higher than the subway -- and other similar commuter rail systems. NYCT buses do not have a similar advantage per revenue vehicle hour, and are in fact relatively expensive due to relatively high costs per employee work hour. NYCT bus costs are among the lowest per trip, however, as its buses are fuller. The subway covered 67% of its operating costs in 2007, down from prior years but better than virtually any other public system, MetroNorth (59.3%), the LIRR (46.3%), or PATH (41.4%). NYCT buses covered 36.9% of their operating costs, better than most but about the same as Westchester’s Bee Line (36.2%) and Long Island Bus (34.9%), something I hadn’t expected.

The National Transit database is out for 2007, and this time there is data that is either new or at least new to me. For selected items, time series data is presented for each year from 1991 to 2007, showing how the MTA (and perhaps other transit agencies) got into this mess. I’ve analyzed the data for two MTA subsidiaries: New York City Transit (NYCT), my main concern and former employer, and the Long Island Railroad (LIRR), for comparison’s sake. The “download” portion of the attached spreadsheet also contains the same information for other MTA subsidiaries and New Jersey Transit, for those who want to go further. The expenditure detail doesn’t include such relevant items as pension costs, borrowing, debt service and retiree health care expenditures, which can be used by those skilled in political deception (or perhaps self-deception) to shift costs to, and suck revenues, from the future.

What the data does show, however, is that during the 1990s the amount of revenue provided to NYCT, both in fares and subsidies, was drastically reduced adjusted for inflation, both per-ride and per hour a revenue vehicle was in service. In 1993, just prior to the start of the administration of He Who Must Not Be Named, the NYCT had $2.92 per unlinked trip in revenues (operating and capital), including $1.30 from the fare, in 2007 dollars. By 2000 that had fallen to $1.90, a decrease of 35 percent, including $1.01 from the fare. For each hour it operated a revenue vehicle (bus or subway) in1991 NYCT received $264.65, including $94.50 from fares. By 2000 that had fallen to $155.64, a 41.2 percent decline, including $82.87 in fare revenue.

What will happen to all those excess McMansions built in recent years across suburban and exurban America, as energy costs rise and household sizes and incomes continue to shrink? From the American Planning Association comes a report with a suggestion -- why not covert these houses, built for the affluent, into multiple dwellings less well off households could afford to rent and maintain? Here is the kicker -- the report was written in 1949, and the subject was older Victorian-era houses in central cities. Many urban homes were in fact converted to multiple dwellings and rooming houses in the post-war era, as the housing units reached 50 years old, were no longer attractive to the affluent, and were passed down the economic ladder. Indeed it is passing down of housing built for the affluent, not subsidized housing newly built for the less well off, that has been responsible for much of the improvement in housing conditions for the less well off in the past century.

Having nearby homes within one’s taxing jurisdiction become affordable to the less well off, however, is not the typical suburbanites idea of a good thing. Particularly in the balkanized Blue States, where local government jurisdictions are many and small, and tax burdens and public service quality vary greatly depending on local success in getting business taxpayers in and keeping less well off service recipients out. That will be one side in the coming political war. The other will feature desperate homeowners seeking rental income to help with the mortgage, former residents who moved away but couldn’t sell and need to rent instead, speculators seeking profit, and working families and increasingly less well off seniors living on Social Security only (once Generation Greed finishes with us) seeking affordable housing. In some places, the battle is already underway.

Those who follow the news might have read of a report by the State Comptroller, Thomas DiNapoli, that the state pension plans have lost lots of money over the past year. In 2011 (after the current members of the state legislature have been re-elected) local governments will have to pay more into the pension plans as a result. And as a consequence, residents of those localities would face soaring taxes, deteriorating public services, or a combination of the two. In response Comptroller DiNapoli proposes that such localities be allowed to defer the additional required pension contributions, in effect borrowing from the pension funds at eight percent interest per year, and thus shift the cost to future taxpayers, perhaps those around after current taxpayers have cashed in and moved out or died off. More off the books debt to add to the massive on the books debt. Governor David Paterson responded that what the state really needs to do is reduce pension benefits for future public employees which, if as a result of lower total compensation those employees are less motivated and qualified, would reduce public services for future state residents.

In the press, this was presented as a conflict between the two, but to me Paterson, DiNapoli, and all politicians of their generation, regardless of party, have more in common than they have differences. Neither Paterson nor DiNapoli is willing to call out those who received the past benefits associated with our current predicament. And note the word in common to both proposals with regard to sacrifices: future. For Generation Greed, that is what (and who) has been sacrificed over and over again.

At one time all localities in New York State were allowed to limit their desirable local government jobs to local residents. Beginning in the late 1950s, however, a series of state laws have gradually prohibited New York City from excluding suburban residents from taking city local government jobs, while continuing to allow the suburbs to exclude city residents from suburban local government jobs. Often New York City’s own elected officials, as part of contract or political deals with public employee unions, specifically requested the very state laws that discrimnated against the city. In part because their backers were moving to the suburbs and wanted to keep their city jobs in the family. Now, according to the Daily News, unions and members of the City Council are proposing lifting the remaining restrictions, including those on managers.

Whether residency restrictions in public employment make sense in general is debatable as far as I’m concerned. Whether it is fair to permit them outside New York City but not for New York City is not. But I have never once, in all the years I’ve followed public policy, read about a single NYC politician demanding that local governments in the suburbs also be forced to open up their civil service jobs to New York City residents. Not once. Ever. Have I missed something? And if not, how can it be explained that this gross inequity is among the unsaid?

I posted for the first time on this site three years ago today. During that time I’ve written about 470 posts, generally three to four typewritten pages long, or about three per week, many with extensive spreadsheets based on data I had downloaded, tabulated and analyzed. More recently I’ve been slowing down. At this point, anyone who has read my posts from the beginning should be able to understand how I think, what my values are, and what the information is that informs my opinions on a variety of subjects in great detail. If someone has been reading right along, it should begin to seem repetitious, as a comparison between my first post and this one shows.  It isn't because I don't have an open mind, it is because the same pols backed by the same interests remain in charge in Albany, the therefore same things keep happening. And some things that have and will happen are pre-ordained by irrevocable decisions of the past. More and more in my new posts I summarize, and back link to more detailed posts I have already written. For anyone not familiar with what I have to say and show, on the other hand, I don’t want to leave things out. Particularly things I’m not reading elsewhere, as I explained last year. My Room 8 writings, however, are an extension of a mostly losing battle going back far longer than three years, and that gets discouraging. And thus my offer and request.

The New York Times reports that the budget of individual NYC public schools will be cut 5 percent next year, following a cut of 3 percent last year. Despite the federal government borrowing $trillions our children and grandchildren will have to sacrifice to repay to provide stimulus money to those schools. Despite a huge New York State tax increase for the well off, to be followed by additional state tax increases on everyone else, to increase school state aid. Despite NYC property and sales tax increase, disproportionately directed to the schools. Despite the fact that total spending on the New York City schools, including retirement benefits, will be going up not down, even as the money most New Yorkers earn, and wht they can afford, is going down. Total spending up, spending in schools down. But the Times doesn’t ask the question why.

Recently we read that teachers that no principal wants to take responsibility for, previously paid to do nothing, will be stuck in some children’s classroom. Today the Times reports that Fair Student funding, which would have ended the practice of qualified teachers moving on to the schools of the affluent while the poor get a revolving door of the uncertified and unqualified, will be postponed a year -- and probably forever. The teacher’s union is thrilled. Also reported by the Times the schools face “deep cuts in after-school and weekend programs,” the kind that give disadvantaged children a chance. An end to summer school and a return of fiscal social promotion seems certain. That is where the money isn’t going. Where is it going? No one will say. 

So rather than require the retired to pay the same taxes on the same income as everyone else (it is their debts, Medicaid costs and pensions that are destroying public services after all), the senior citizens in the New York State Legislature chose to raise New York’s already high taxes on wages to bail out the MTA. But, according to the legislature and councilmember Lew Fidler, who first came up with the idea, businesses will pay the 0.34% payroll tax, not workers. The New York City Partnership, which represents large businesses, was in favor out of the goodness of its heart. Or was it?

For the benefit of the hack attorneys who are running our governments into the ground, I have braved the dust to pull out Public Finance In Theory and Practice, a textbook from my student past. Tax levies, the book (and common sense) informs us, impose “burdens which the individual taxpayer will try to avoid or pass onto others. To determine who pays, we must thus look beyond the tax statutes and the pattern of statutory incidence, i.e., beyond those on whom the legal liability rests.” So who will be paying the MTA payroll tax? I’ll bet it isn’t those who ran up the debts and retiree obligations it will be going to pay for.

With the cynicism that has been beaten into me over 25 years of observing New York public policy, I find myself agreeing with the New York Post as to what our state government probably wants the next MTA head to do: cover up the problems, run up the debts, cut back on maintenance and reinvestment, protect vested interests in the present while destroying the common future, and take the blame. In other words, more of the same. I might add there is one thing no one in Albany wants the next MTA head to do: make a fair accounting of how we got into this mess and who benefitted, since those in power are and represent the beneficiaries.

The MTA, however, is something I happen to know a lot about. So for interest’s sake if nothing else, I have decided to write down a series of exercises and analyses the next MTA head should undertake and publish -- to help improve, or at least raise real understanding of, the agency. These are briefly listed below; I’ve decided to pass on writing multiple posts on the details of who each analysis ought to be conducted.