Larry Littlefield's blog
According to the Wall Street Journal, Governor Cuomo is negotiating with public employee unions to use pension funds to pay for infrastructure. So how much interest is Governor Cuomo going to pay on those loans from the pension funds? They assume an 8.0% rate of return – starting from the peak of the stock market bubble in 2000. If they didn't, New York’s state and local governments would have to admit that, for example, NYC pension contributions would have to rise far higher than the 40.0% of payroll they are now. Taxes would have to rise, and or public services would have to be further gutted, to make up the difference. Above and beyond the devastation already being visited on less politically influential New Yorkers.
Either Cuomo is looking to raid the pension funds, perhaps offering even earlier retirement in exchange, with the cost deferred. Or the pension funds are looking to raid whoever will be paying back the debt, by having the state pay a higher interest rate than it could get by just issuing bonds. Or perhaps Cuomo hopes that by locking public employee pension funds into a lower rate of return, and then jacking up local government contributions to the funds to make up for it, he can force local governments to fund the state budget. Regardless, when politicians and pension funds get together, there is no doubt who is being made worse off. Future generations of less well off people who don’t even get pensions themselves. Because both pension funds and municipal bonds are tax free, it makes no sense of pension funds to invest in municipal bonds. This is just another way for Generation Greed to defer the disaster it has created for the future, now the present, into the later future. Hey Governor, if you want to borrow, put a referendum to the voters, as the state constitution requires. If the pension funds want to invest in the bond issue at the market clearing interest rates, they would be free to do so.
Even as Generation Greed politicians in Washington fail to agree whether to charge younger generations higher taxes than they themselves were willing to pay to make up for the debts and benefits they promised themselves, or to force younger generations of Americans to suffer drastic cuts in public services and benefits to make up for their history of voting for politicians promising tax cuts, the damage has started to accumulate. They have decided it is better if younger generations don’t know how much worse off they are, and have started suppressing the evidence, reversing the internet-driven trend of more information becoming easier to get. In the future, you’ll only know what the Executive Class and the Political Class want you to know.
The federal government has published a Statistical Abstract of the United States every year since 1878. The current, 2012 edition will evidently be the last. The Census Bureau is also scaling back information on state and local government finances and employment, in part due to budget cuts, in part because state and local governments are no longer willing to cooperate by sending in the data. Perhaps the political class doesn’t want people to be able to find out how much of their tax payments are going to the retroactive pension enhancements for public employees enacted over the past 20 years. The executive class certainly doesn’t want people to know how much everyone else’s wages are going down, which is why the Republican Party has called for the elimination of the Census Bureau’s American Community Survey. So why can’t the federal government afford to provide information to Americans anymore? What has changed? As I did the last time there was a Presidential election, I expect to answer that question early next year using data on federal revenues and expenditures over time provided in an easily accessible format by the Statistical Abstract of the United States. Perhaps for the last time.
Well, that was fun. How realistic do I believe the railroad pipedream outlined in the previous posts is? I had outlined and researched this series of posts in early July, but I didn’t find the motivation to write it until November. Now those who read all the posts might be in agreement, or disagreement, with the particulars of what I have suggested, and the economic, demographic and commercial real estate trends I have described. (Bear in mind that I write reports on those subjects every day, reports people pay to read). You may have other thoughts on the issue. You may be thinking about the possible effect of different decisions on the well being of large number of New Yorkers in the future, and how priorities might be set. You might even be thinking about construction methods, rail operations, and government contract law, commercial real estate trends, global economic trends, and demographic trends.
But I assure you, based on 20 years of observation, that none of those things mean much at all in the state legislature in Albany, New York. There the credo isn’t what is best for us, but what is in it for me and mine. And none of the parties involved could be expected to approach the issue of rail freight from any other perspective. In Albany it is never about “what,” and always about “who.”
The primary purpose of the Upstate railroad investments imagined in this pipedream is to speed freight traffic between points west of the Mississippi River, and east of the Mississippi and north of the Ohio River, to New York State, New Jersey and New England. The Upstate investments would take the place of additional highway lanes, such as those being built in on the Turnpike in New Jersey, and make transportation through New York more competitive with transportation through other states. The Upstate investments would also make the New York/New Jersey seaport, located in New Jersey, more competitive with other East Coast ports, and could feed a rail freight tunnel from New Jersey to the Bronx. Finally, the pipedream would remove freight traffic from the Empire Corridor, making high-speed passenger rail more possible.
These are the transportation goals. But the entire pipedream, with the freight tunnel and the investments Upstate, would also have economic development goals for Upstate New York.
The primary goal of the pipedream imagined in this series is to solve the problem identified in the first post: the difficulty of moving freight across the Hudson River by tractor-trailer truck due to congestion on the GW Bridge, Verrazano Bridge, and connecting highways. The imagined rail freight tunnel would provide an alternative, freight carried across the Hudson by rail and placed on trucks in the Bronx or, in the case of trailers on flat cars, in Brooklyn and Queens as well. A second goal, related to the investments Upstate that would improve the connection to New Jersey, is to increase the competiveness of the Port of New York and New Jersey for goods heading to and from the Midwest. A third goal, again for the investments Upstate, is to remove freight traffic from the existing New York Central mainline, allowing a gradual increase in operating speeds for passenger service on that route, eventually reaching the point where the line could be described as “high-speed rail.”
These, however, are not the only goals I have in mind. With railroad improvements driving economic development in other parts of the country, I imagine the pipedream would have the potential to create jobs and spur development. And with a little more investment, direct commuter rail service from Rockland and Orange to Grand Central Terminal in Manhattan would become theoretically possible – without inflating the cost of a new Tappan Zee Bridge by putting transit there. This post is about the goals Downstate, with the next post about the goals Upstate.
Across the country, investment in freight railroads has started to increase, reversing the reduction in trackage and disinvestment in equipment seen in the decades following the development of the Interstate Highway network. As noted by the Wall Street Journal, “once a dying industry, railroads have made a strong comeback and are poised to become busier places in the years ahead. Forecasts for freight growth are substantial, prompting railroads to plan capacity additions.” According to one analyst “rail activity could possibly even double by the midpoint of the century. North American rail-freight rates would continue to be the lowest or one of the lowest in the world, and the industry would finance most or all of its capital requirements without public support.” According to another, “the public-sector financial situation will actually be an advantage for freight rail: Highways are not being funded, and the prospects are dim in that arena unless taxes are increased [which in turn raises the cost of trucking, which also helps the rails].”
Somehow, however, all this activity has bypassed New York State. Take the National Gateway project, a public-private partnership. “The National Gateway project will improve the flow of rail traffic throughout the nation by increasing the use of double-stack trains, creating a more efficient rail route that links Mid-Atlantic ports with Midwestern markets.” The project is expected to create 50,000 jobs, is expected to cost $842 million in federal and state funds and $395 million in private funds, and “is supported by a broad and diverse group of 336 public and private sector organizations and individuals, including Big Lots!, UPS and The Limited.” And unlike subsidies for individual companies, the preferred form of “economic development” in New York, this infrastructure improvement will continue support job creation into the future. The project is described in this video. Projects are located in Ohio, West Virginia, and Virginia and North Carolina. Not in New York and New Jersey, whose port will thus NOT be linked by a more efficient rail network to Midwestern markets. Why not?
To the problems with freight movement in Downstate New York laid out in my prior post, New York’s politicians and planners have either had no solution or just one solution – a cross harbor rail freight tunnel from New Jersey to Brooklyn, linking into the Bay Ridge Branch of the Long Island Railroad between the Sunset Park and Bay Ridge neighborhoods. First proposed in the 1920s but repeatedly found to be impractical since, this proposal has been kept alive by a few die-hards and one politician – Congressman Jerry Nadler.
To Nadler and the die-hards, the reason manufacturing left New York City cannot be wages, benefits, work rules, taxes, and the desire for large horizontally arranged plants. And the reason the port moved over to New Jersey can’t be because it doesn’t make sense to unload freight from a ship onto an island (Long Island, on which Brooklyn sits), and then try to get it off the island to the rest of the country. Those ideas conflict with New York City as they would like it to be, which is what it was, unionized and blue collar, with thousands of dock workers and tens of thousands of workers in low-skill, low-wage manufacturing industries such as garments and electronics, all earning rising wages. If, however, the goal is to improve freight distribution, not to bring back the port to Brooklyn or manufacturing for national markets to New York City on a large scale, then alternatives other than the New Jersey to Brooklyn crossing could be thought of. This post contains two of them.
The following series of posts is an indulgence. For the past 18 years, and in some ways for the past 30, I’ve become increasingly upset about the way this country and state have sold out the future, and the way the accretion of privileges by entitled special interests has prevented much from being done to turn things around. As a result a resurgence by the City of New York over the past 30 years, previously laid low by similar future self-dealing and future-selling a generation or two ago, is now threatened from without. This frustration is reflected in my writing here on Room Eight.
But it isn’t the case that I am no longer capable of thinking big thoughts about what could be done to improve the common future. These thoughts could be useful in a different place, as in parts of Europe or Asia, or in another time, like the United States at any point in its history until the recent past – back when building a better future for those coming after is something most Americans aspired to. Today all the money is going to debts and pensions and health insurance paid to those 55 or over, at the expense of those 54 and younger, not to investment in a future very few care about. Because those 55 and over wanted benefits for themselves, but didn’t want to pay for them – and now that the country is broke and would prefer to deny to those coming after so they can keep borrowing. But I might as well indulge myself. The following posts describe a pipedream, not a proposal, not because what is laid out is impractical, not useful, or is inherently (as opposed to politically) expensive. It is a pipedream because we are in the Vampire State not Empire State, and this is the era of Generation Greed.
According to a study reported by the Boston Globe, the wealth gap between older and younger Americans is the largest ever. “The typical U.S. household headed by a person age 65 or older has a net worth 47 times greater than a household headed by someone under 35, according to an analysis of census data released Monday. While people typically accumulate assets as they age, this wealth gap is now more than double what it was in 2005 and nearly five times the 10-to-1 disparity a quarter-century ago, after adjusting for inflation.”
This study only measures financial wealth, and a full picture would be much worse for younger generations. For most of U.S. history younger generations were better educated than older generations as education expanded and improved, but this is no longer the case. You can blame the schools, or blame the fact that those now over 55 did a less good job of parenting, but education in this country has plateaued at best. Then there are the public debts, which older households ran up but won’t be around to pay back, since even now there is talk of tax cuts despite huge deficits. And the state of the infrastructure, previously improving but in recent decades deteriorating as the U.S. invests two percent of GDP, or about half the level of Europe. In Boston, the transit system is not only bankrupt (as in the New York area) but it is also falling apart. Finally there are public employee pensions in state and local government and old age benefits provided by the federal government. These were allowed to soar in cost without limit and were retroactively enhanced for older generations, but are being slashed for younger generations who will face poverty when they reach old age.
According to the New York Times, police corruption is rising. "One former Internal Affairs Bureau investigator who was involved in scores of cases in recent years said the number of corruption complaints — ‘logs in police parlance — had been on the rise, climbing to about 65,000 a year from about 45,000 a year in a little under a decade." Why is that?
A little rumor I heard third hand. The soaring number of criminal cops dates from the era when police starting pay was slashed to $25,000 per year. To pay for all the retroactive pension enrichments around the year 2000, which have caused pension spending to soar toward equality with payroll for cops actually on the job. Now we are paying hugely for each police officer, but most of the money is going to the retired. And the police on the job increasingly resent their pay -- no matter how much they cost. Take the two together and it isn’t the police who are getting ripped off, at least collectively. Those who pay for them are.
According to the New York Times, “New York City will pay the federal government $70 million to settle a lawsuit that accused the city of overbilling Medicaid by improperly approving home care for frail and elderly clients.” The care in question was personal care, “which could include housecleaning, dressing, bathing and shopping and could cost $75,000 to $150,000 a year.” Actually, it only costs that much when provided in New York City. Which is why the last time I checked, New York State accounted for a huge share of U.S. Medicaid spending on “personal care.” Many states do not even offer personal care as part of their Medicaid program.
Of course “New York City will pay” is not an accurate description of what will happen. The people who live in New York City, and will live in New York City in the future, will pay. They will have their services cut further. They will have their taxes increased further. All to pay for the federal share of underserved services for seniors, with the city’s share having been paid already. Who should the sacrifices be targeted to? Social services for children? Public schools? Should we accept fewer police officers? Stop repainting the Brooklyn Bridge? Raise the property tax? I’d like to see the New York City Council have a debate and identify specifically who will be made worse off to pay this $70 million. As a clue to who is being and will be made worse off the pay for $billions Generation Greed has made off with, leaving debts and unfunded pension obligations behind.
I’m amazed at the over-reaction, in some quarters, to Occupy Wall Street. A bunch of young adults who have nothing better to do, thanks to the lousy economy engineered by those older, sit around in a park and beat on some bongo drums, and suddenly the world is coming to an end. I get the feeling certain people and media outlets are outraged they aren’t doing anything that would allow them to be arrested and thrown in jail. The reason, I believe, is that Occupy Wall Street is undoing the carefully engineered amnesia about the events of and leading up to the financial crisis of 2008, followed by a mass attempt to deflect blame elsewhere and gut any new financial regulation. But there is a way for Occupy Wall Street to really, really terrify the top one percent.
Chanting “End Capitalism” isn’t going to get it done, because once alternatives are considered not only would most Americans prefer the free market alternative, but probably most of those in Occupy Wall Street would as well. Given who controls our federal and state governments, would they really want to give those governments even more power and control over their lives? To decide where they could shop, what they could buy, what would be charged, where they would work and what those working in different fields would be paid – presumably based on campaign contributions and connections with powerful lobbyists? Would they really want to have no alternative to “Too Big to Fail” state-connected organizations, and no possibility of them being challenged by new, competing organizations? No. But there is a very capitalist chant that would have the top one percent recoiling in terror and sputtering with rage. That chant is…“Cut Executive Pay In Half and Increase Dividends.”
Mayor Bloomberg helped to destroy the future of the New York City schools by agreeing to allow teachers to retire seven years earlier, a decision that will suck money out of the classroom year after year for decades. But now he wants to make it up to us, by having New York City taxpayers foot the bill for a project to make it easier for middle and upper middle class New Yorkers to leave the city and its local income tax behind and move to New Jersey, where the kids could get an education. According to the New York Post “Mayor Bloomberg is pushing forward with a proposal to extend the No. 7 train to New Jersey and get the project locked in before he leaves City Hall in two years.” Even as the rest of the NYC subway collapses due to soaring debts, and other retroaction pension enhancements passes some years earlier.
Apparently some of the same issues are present in Europe as in the United States, but across the Atlantic someone has been willing to call them out. According to the Financial Times, commenting on the young taking to the streets from Spain to New York, “politicians have…largely failed to address the issue of intergenerational equity.” While the young protesters are criticized for demanding the redistribution of income “in reality, many policy choices over past decades have themselves been redistributive – in favour of the baby-boomer generation at the expense of their children and especially towards the privileged top end of that generation.”
A year or two ago, the State of Illinois increased its state income tax rate by 60%. It was the right thing to do. Today, Governor Cuomo is refusing to keep a New York State income tax surcharge. That is also the right thing to do. Why the difference? The overall state and local tax burden in Illinois had long been below the national average, unsustainably low given that state’s services and other obligations. New York’s state and local tax burden is the highest in the country, except (in some years) for Alaska and Wyoming where most of the taxes are on mineral extraction and not residents or other businesses. Illinois’ top state income tax rate was increased from 3 percent to 5 percent. The New York State rate is nearly 7 percent without the surcharge – 10 percent in New York City where a local income tax is added, and is 9 percent with the surcharge – or more than 12 percent in New York City.
Throughout the country, public services are being devastated by soaring pension costs caused by two factors – inadequate past funding by taxpayers, and retroactive pension enhancements for public employees. In Illinois, taxpayers deserve the majority of the blame: in many years taxpayers put in zero, and there isn’t nearly enough money even to pay the pensions public employees were promised when hired, even without pension spiking and any of the retroactive deals. In contrast, the public employee unions and their retroactive pension deals may be more to blame in New York City than anyplace else in the country, with the United Federation of Teachers the most guilty of all (based on the difference between what was promised when workers where hired and what they took later).