The New York State Department of Labor has rebenchmarked the Current Employment Survey data for the last couple of years, using more detailed data that comes in later, and reported annual average statistics for 2009. The data, in an attachment, gives an indication of why New York State is having a budget crisis. From 2008 to 2009, excluding the substantially government-funded Health Care and Social Assistance sector, New York City lost 117,700 private sector jobs (4.4%) while the rest of the state lost 152,700 (4.6%). Even so the Health Care and Social Assistance sector, which claims funds from the city and state budgets via Medicaid and health insurance premiums for public employees, added 10,700 jobs in the City (1.9%) and 14,300 jobs (2.1%) in the rest of the state. Local government employment in New York City inched up by 1,600 (0.3%) from year to year, while local government employment in the rest of the state surged by 9,100 (1.4%). Looking at one year of data, one might conclude that the problem is that we are in recession and yet government spending has carried on much as before. Looking at 20 or 40 years of data, one reaches other conclusions.

The data show that from 1990 to 2009, New York City’s private sector employment fell by 26,900 (1.0%) when the Health and Social Services sector is excluded, while private employment in the rest of the state fell by 110,300 (3.3%). Much of the difference between the two parts of the state has been since 2000; before that the rest of the state had fared better over the long term than the city. This data, moreover, does not include the soaring number of self-employed workers (freelancers, independent contractors, etc.) in the city.

Meanwhile, employment in the Health Care and Social Assistance sector has surged by about 50 percent in both areas, by 192,800 in New York City and 235,400 in the rest of the state. That is a burden that a flat number of private workers in other sectors in New York City, and a falling number of such workers in the rest of the state, have to carry. This problem is a national problem, though it is worse in New York than elsewhere. The fact that New York’s Medicaid program is extremely expensive is now much discussed in the media and understood by the public (though they don’t understand that most of the difference is richer benefits for senior citizens). Another difference between New York and the rest of the country, and New York City and the rest of the state, is less understood.

New York City’s local government employment has fallen by 12,400 (2.6%) over the 20 years, with an increase of 10,700 (7.7%) in the schools offset by a decrease of 23,100 (6.9%) in everything else, including New York City Transit. In the rest of the state, local government employment has surged by 130,300 (23.8%), including 79,900 (27.6%) in the schools and 50,400 (19.6%) in everything else.

In New York City, at the stare of this period, the public schools were underfunded and inadequate, while public services were good in the rest of the state. The city’s population has grown, while that of the rest of the state has been stagnant. So why did local governments in the rest of the state need an extra 130,300 workers?

The answer is, local government in the rest of the state has become a high-class welfare program, over and above a means of providing public services.

When New York City’s industrial base collapsed in the 1960s and 1970s, those who might have been employed by it ended up on welfare and the subject of scorn, particularly from those in the rest of the state. Much of the cost of those recipients, which was never as high as people believed, was shifted to the city through a virtually unique local government contribution to the program, but every dollar the rest of the state contributed to the city provided to the city’s poor two were taken away for other things.

For example, see the attached chart of New York City’s share of public school children, state education aid, and state income tax payments over the years (the data really lags, particularly the tax data). Not until the Campaign for Fiscal Equity lawsuit was settled did the city’s share of state aid finally exceed its share of public school children, even though its children were more needy than average. Except it didn’t – that year the “Middle Class Star” program, not in the chart, was added, meaning the city’s share of school aid was actually cut. Moreover, it will probably be cut further, as it was in every recession, particularly in FY 1996 – the state budget that permanently and irrevocably stuck it to my children’s generation and those many years before and after. (But of course, thanks to the 25/55 pension deal for teachers, the schools are now doomed no matter what, so this doesn’t matter anymore.)

Eventually even welfare was taken away, fortunately offset by a boom in low wage jobs with no health or retirement benefits, and self employment options in which the employee doesn’t even get unemployment insurance or have the employer contribute to Social Security.

So what happened when the rest of the state faced a similar economic decline? Basically everyone got government jobs, with pensions and retiree health care, while continuing to castigate New York City residents as being a bunch of lazy freeloaders. It’s as if Bella Abzug had gotten her way in the early 1970s, and all those New York City residents living in poverty on welfare had been given middle-class government jobs instead, whether needed or not.

Public schools employment in the rest of the state was already high, and teachers already highly paid, in the early 1990s. The real surge to absurd levels, however, began when Governor Pataki decided to shift school aid away from the city via the STAR program, which gave more money to the school districts that spent more and had richer people. The result was a predictable surge, and when aid for and spending on New York City was increased, the rest of the state insisted on spending even more, to maintain that gap. Outside New York City, most of the excess local government employment is in the schools, other more detailed data show.

The growth of local government, added onto the growth of Medicaid, has been a tremendous burden on those residents in the rest of the state, particularly Upstate, who haven’t been in on it. But not on them alone.

For further insight into state trends, look at the attached spreadsheet of Local Area Personal Income data from the Bureau of Economic Analysis from 1969, the first year readily available, to 2007, the most recent available (other columns there but most are hidden). The data shows per capita income as a percent of the U.S. average, and in both years New York State as a whole was 120 percent of the average (or 20 percent above average). Pretty stable, it would appear, particularly given that both years were peak years of the economic cycle. But look at the data by county.

In 2007, just a handful of New York counties were above the national average in per capita income: New York County (Manhattan), the richest in the country, at more than triple the average, Westchester at nearly double the U.S. average, Nassau and Suffolk, 63 and 23 percent above average, Rockland, Putnam and Dutchess, 39, 32 and eight percent above average. Just one New York City outer borough, Richmond County (Staten Island) at 10 percent above average, and just three counties upstate of Dutchess, Monroe (Rochester) at two percent above average, Saratoga at five percent above average, and of course Albany at nine percent. Most of these counties are above the national average by more, sometimes far more, than in 1969, with Monroe County and Richmond as the main exceptions.

It is fair to say that all of the state’s wealth is concentrated in Manhattan among those who live there, and those who commute there from the most affluent suburbs. Meanwhile, in 2007 the other boroughs of New York City, home to some six million people, and the other major urban counties of Upstate New York were much poorer than average. But that wasn’t true in 1969. Then Broome (Binghamton), Erie Buffalo), Onondaga (Syracuse) and Schenectady County were well above the national average in per capita income, and Monroe County (Rochester) was to a far greater extent. Orange County was average, with Niagara County just one percent below.

Back in 1969, moreover, per capita income in Queens was 32 percent above average rather than seven percent below in 2007; it was average compared with 18 percent below average in Kings County (Brooklyn) and just six percent below average rather than 33 percent below in the Bronx. Those worried about New York City gentrification perhaps shouldn’t worry too much. Per capita income in these boroughs was lower, or unchanged, relative to the national average in 2007 than in the previous economic peaks of 2000 and 1987 as well as 1969. Though not getting any worse relative to the national average since 1987, these boroughs, while improving in other ways, have not recovered in income from the 1970s.

In a sense, the upstate and suburban local government employment boom has been financed in part by wealthy people working in Manhattan, while austerity has been imposed on New York City. But it has also been financed by borrowing and deferred and enriched pension expenditures, inside and outside the city. And now, it has become clear to the entire country, that a portion of the concentrated wealth in Manhattan and the Downstate Suburbs was not really earned, it was seized. Not all of it. These places have concentrations of extremely talented and hard working people. But a lot of it. What happens if the wealth of Manhattan and the suburbs merely shrinks back to what it was in 1969, relative to the national average?

One of two things. Either those excess public employees in the rest of New York State, and Health Care and Social Assistance employees statewide, public employee pensioners and tax free seniors will truly sacrifice and face the conditions most New Yorkers have faced, despite their control of state government. Or everyone else in the entire state will face the kind of economic and institutional collapse that hit New York City in the 1970s. Including New York City for a second time, and perhaps hit harder than everyone else as in past. The decision will be made by the New York State legislature. I’m betting on an institutional collapse. But one thing is clear.

The state legislature will eventually not be able to cover up the damage they have done to rest of us to favor powerful interests at the expense of the equally rapacious rich or the future any more. Because the rest of the country has had enough of the rapacious rich, and the future has arrived. The legislature is now refusing to face reality, because it is unwilling to tell the winners they have take too much, or to actually vote to destroy millions of lives of people it doesn’t care about, people who are already struggling. It is seeking a solution. Having millions of people’s lives ruined so those who matter can get all they are entitled to, while not having to vote for it. Just having it sort of happen.

Call it what you will, but it isn’t dysfunction when it functions so well for those with power.

Attachment	Size
CES Data NY State and City 2009.xls	46 KB
BEA Per Cap Percent of US 2007.xls	40 KB
NYC School Aid Long Term V4 --.xls	72.5 KB