How 9/11 Changed the NYC Local Government Budget

I have finished compiling the census bureau’s state and local finance data for Fiscal 2004, and you can have the spreadsheet if you e-mail me at vampire-state (at) att (dot) net, putting state and local finance in the subject so I know the e-mail is not spam.  Since the Bureau also compiled data for Fiscal 2002, the last budget before 9/11, we can see how that event affected the city’s finances, and thus how that affected us all.  The answer is the city became worse off, in part because when all the dollars are counted, Albany and Washington reacted to the tragedy by directing more money away from New York City.  And the many ways in which New York City and state differ from the national average became more pronounced.

Revenues, debts and expenditures are here measured as a share of personal income, for two reasons.  First, since people in Downstate New York (and other similar places) have higher than average incomes, they can afford to pay higher taxes and support higher than average debts without an undue burden.  And second, because the cost of living is also higher here, public employees and contractors must be paid more if those of equal ability are to be hired.  Measuring state and local revenues, spending and debt as a share of residents’ income adjusts for this.  The numerator – revenues, expenditures, and debt – and the denominator – the income of area residents – both affect the result.  Because income in 2002 was depressed by the post-9/11 and post crash recession, the total personal income of New York City residents was 8.9% higher in 2004 than in 2002.  Anything in the budget that increased by less than 8.9% fell as a share of that income, which is to say if failed to keep up with the economy.

Here are some of the lowlights.

The city’s taxes soared.  Assuming the burden of state taxes is distributed around the state in proportion to personal income (not true because MTA taxes are only collected Downstate), New York City’s state and local taxes were 34% higher than the national average as a share of income in FY 2002.  They were 43% higher in FY2004, at $149 per $1,000 of personal income vs. $104 nationally.  You may recall that as the income of city residents fell, tax revenues fell, so the city responded by increasing the rates – for the sales, local income, and property tax.  All of these taxes captured a higher share of NYC residents’ personal income in FY 2004 than in FY 2002.  State and local taxes as a share of personal income were also higher than the national average, as a share of income, in the rest of the state; by 23% in FY 2004 compared with 22% in FY 2002.   The rest of the state took a much smaller hit.

The city fell deeper into debt.  If one were to allocate the MTA’s debts two-thirds to the city and two thirds to the suburbs, New York City’s state and local debts rose from $256 for ever $1,000 of income earned by city residents in FY 2002, to $272 per $1,000 of personal income in FY 2004.  The FY 2004 national average for local governments was just $124 per $1,000 of personal income; in the rest of New York State the average was just $104 per $1,000 of personal income, lower than the national average and lower than in fiscal 2002.  You may recall that $1.5 billion was borrowed to cover operating expenses in FY2002, and another $1.5 billion in FY 2003, plus $2.5 billion of new debt was issued to pay off old debt from the 1970s fiscal crisis.  I believe the situation is worse than this data indicates.  The Census Bureau recorded just $15 billion in transit debt in both FY 2002 and FY 2004, but the MTA reports $19.9 billion in debt at the end of the latter year.  No wonder local government interest payments were $12.51 per $1,000 of personal income for NYC in FY 2004, compared with a national average of just $6.12.

Federal aid direct to NYC was cut.  Most federal aid to New York City first passes through the state, and the Census Bureau then lumps it in with state aid.  However, New York City did receive $9.37 per $1,000 of personal income in Housing and Community Development aid in FY 2002, but only $7.35 per $1,000 in FY 2004, as the cost of the city’s large public housing stock, previously covered by the feds, is increasingly dumped on its budget.  Although other direct federal aid increased, the net was a loss to the city.

State aid was cut,but  the amount the city has to pay to the state rose.  Including federal aid passing through the state, NYC received $63 per $1,000 of personal income in state aid in FY 2002, but just $62 in FY 2004.  Meanwhile, the aid that the City of New York was required to pay to the state rose from $12.94 to $17.40.  For the rest of the state, local to state aid rose as well, but state to local aid rose more, so the rest of the state came out ahead on the transaction.  Much of New York City’s federal and state aid is for its large low-income population, for welfare, hospitals and housing.  Otherwise, the city’s state aid is below the national average as a share of personal income.  The city is also above average in transit aid from the state, but as mentioned much of that is from dedicated MTA taxes that are not collected Upstate.

Spending Fell In Many Categories.  The national average for spending on elementary and secondary education was between $46 and $47 per $1,000 of personal income in FY 2002 and FY 2004.  New York City, which has typically been far lower, almost reached the national average in FY 2002 at $45 in spending per $1,000 in personal income.  So close, but no closer.  By FY 2004 public school spending in the city was down to $43.25 per $1,000.  In rest of New York State, the already extreme level of public school spending rose further, from $64.8 per $1,000 of personal income in FY 2002 to $65.49 in FY 2004.  Police and fire expenditures, which are relatively high in NYC, and parks and culture expenditures, which are low, also fell.  No wonder your City Councilmember and State Legislator is so anxious to make parks, recreation, and culture grants, to deflect attention from the overall decision to spend less of your income on these services than the national average, despite high taxes.

Total Public Employee Wages Fell, But Pensions Rose:  Total local government wages and salaries fell from $77.04 per $1,000 of NYC residents’ personal income to $70.68, but pension payments by NYC local governments rose from $5.07 to $7.66 – compared with a national average of just $3.07.  But that’s nothing.  In FY 2004, employer pension payments equaled 10.8% of wages and salaries; in FY 2006, according to the city’s five-year financial plan, pension contributions reached 21% of wages and salaries.

Medicaid funding for the non-profit providers increased relative to our income.  Because Medicaid is a state program, Medicaid payments to private vendors (including the non-profits) are counted as state expenditures, not local expenditures.  We know, however, that such payments increased relative to our income because the city’s required payments to the state increased relative to our income.  On the other hand, spending in the city’s public hospitals, much of which is funded by Medicaid, and direct payments to health care vendors by the city, fell relative to income.  Spending on Public Health rose only slightly relative to income, despite concerns about bio-terrorism, SARs, and bird flu, but remained higher than the national average

At its moment of greatest need, the city’s priorities were more funding for public employee pensions and the repayment of ever-increasing debts, while the federal and state governments found other priorities than New York City.  City residents can expect these trends to continue, with an ongoing choice between ever-diminishing services and ever-increasing taxes, until the priorities change.