Local Government Expenditures in FY 2011

One of the big issues in the current Mayoral race is how high the raises will be for New York City’s unionized public employees.  They have not agreed with the Bloomberg Administration on a contract for years, and despite the fact that most city residents have also faced falling wages relative to inflation, the income gains of those at the top had been strong enough that the wages and salaries of New York City’s local government employees fell from 7.1% of the total personal income of all city residents in FY 2004 to 6.6% of that income in FY 2011.  In addition to the wage freeze, there are also fewer city workers producing fewer services, and more work contracted out to businesses rather than being done by public employees.

There is, of course, another side to this.  Local government taxpayer pension contributions increased from about 0.8% of the personal income of city residents in FY 2004 to 2.0% of city residents’ income in FY 2011.  Many city residents are probably now putting aside more for the retirement of public employees, in taxes, than they are putting aside for their own retirements.  Taking salaries and wages and pension contributions combined, city residents were already paying more of their incomes for public employees in FY 2011 than they had been in FY 2004, and other benefits such as employer-funded health insurance – generally tabulated separately under “other” in this dataset – presumably shifted from those providing services to those no longer expected to do so as well.  As a result, the city’s “direct” spending on most public services, not including pensions and debt service, fell somewhat as a share of NYC residents’ personal incomes from FY 2004 to F2011, despite a higher state and local tax burden.  So did aid to the poor.  These trends and others are examined in more detail after the break.

The Census Bureau classifies government expenditures data two ways.  By “character” into current operations including wages and salaries, capital expenditures (including construction and other), vendor (private sector or non-profit) payments, assistance and subsidies, and interest on debt.  And by “function” into categories such as public schools, police, and libraries.  Pension data is tabulated separately, and presented from the point of view of the pension plan.  Thus “spending” from the point of view of taxpayers – contributions to the pension plans – is counted as “revenues” in the data – for the pension plans.  Pension “spending” consists mostly of benefit payments.  The “Local Government Expenditures Fiscal 2004 and 2011” table in the spreadsheet linked below includes spending by character at the top, spending by function in the center, and pension data at the bottom, along with a few rows on debts.

Local Government Finance 2011

The data shows that total local government “direct” expenditures – not including pensions and not including money passed on to another government like New York City’s Medicaid aid payments to New York State – was about the same as a share of area resident’s personal income in FY 2011 as in FY 2004, in both New York City, the Rest of New York State, New Jersey and in the U.S. as a whole.  “Current Operations” spending, which includes wages and salaries, increased modestly in the U.S. and the part of New York State outside New York City, and increased more substantially in New Jersey.  It fell slightly in New York City, where capital expenditures increased significantly – particularly outside the infrastructure construction category.

“Assistance and subsidies” is a substantial share of federal and state expenditures, through such programs as unemployment insurance and Social Security.  Cash welfare expenditures have also been counted as state government spending in many states, but local government spending in New York.  To improve comparability, I’ve combined state and local spending in this category.  The data shows that the long trend down in New York City expenditures on cash welfare, as a percent of the total income of all New York City residents, continues.

The city’s spending on housing and community development and social services was lower as a share of the total income of city residents in FY 2011 than it had been in FY 2004.  But New York City’s housing and social services spending remains unusually high compared with other places, even taking the city’s high poverty rate into account.  In 2011, according the American Community Survey, the city’s poverty rate was 31.4% higher than the national average, and its cash welfare spending was 47.3% above average as a percent of city residents’ personal income.  But its spending on social services (excluding cash welfare) was 321.5% above average, and its spending on housing and community development was 179.0% above average.

New York City’s spending on public hospitals and medical vendors increased relative to the total income of city residents from FY 2004 to FY 2011.  Most of New York’s spending on health are for the poor counts as “state” spending and not “local” spending, and is paid for by Medicaid.  Only the city’s aid payments to the state show up as local government spending.  But health care provided by the city’s public hospitals, whether funded by Medicaid or not, shows up in the local government data.

Social services spending was also lower as a percentage of personal income in FY 2011 than in FY 2004 in the U.S. as a whole and the Rest of New York State.  Spending in this category increased in New Jersey, but it was very low to start with, and remains well below the U.S. average.

With pension costs rising, in fact, “direct” spending on many government functions was lower in relation to total personal income in FY 2011 than it had been in FY 2004.  The differences, however, are generally small.  For example, New York City local government spending on mass transit fell from $25.00 for every $1,000 of income of NYC residents in FY 2004 to $24.58 per $1,000 of personal income in FY 2011.  Spending on the police, again not including the retired police, fell from $11.01 per $1,000 in FY 2004 to $10.89 per $1,000 in FY 2011.

With regard to mass transit, New York City residents were paying (or at least borrowing) the equivalent of about 2.5% of their personal income on New York City Transit and part of the PATH system, in fares, taxes, and bonds.  That’s how much these transit agencies spent on operations and capital expenditures.  Spending in the rest of New York State was slightly less than half that level as share of income, with spending in the U.S. as a whole far lower.  A large transit system is a burden that city residents have to carry.

On the other hand, according to the Consumer Expenditure Survey the average U.S. household had one motor vehicle per adult in the most recent year’s data, and spending on those motor vehicles accounted for 16.8% of total household spending.  The average U.S. household spent $11,100 on motor vehicles according to the survey, in purchases, insurance, fuel, maintenance, and finance charges.  By allowing most New Yorkers to avoid owning a private motor vehicle, or to own one instead of two or three, mass transit provides savings.  And the fare and tax revenues New Yorkers pay for mass transit is mostly received by workers who live in the New York metro area.  That is not the case for spending on private automobiles and gasoline.

The city’s relatively high spending on the fire department may be similarly explained, at least in part, by the city’s characteristics.  Many Americans are protected by volunteer fire departments, rather than by professional firefighters such as those in the NYFD.  In many communities, similarly, people are responsible for arranging and paying for their own solid waste collection.  These differences make comparisons between New York City’s spending on fire projection and solid waste and the national averages difficult.  On the other hand every locality has police protection, and New York City’s police spending is relatively high, even with is expensive police pensions excluded, despite the fact that the city’s crime rate is below the U.S. average. Spending on police is about average in the Rest of New York State and New Jersey.

In New York City, local government spending increased as a share of the income of city residents from FY 2004 to FY 2011 in a few categories.  These include water and sewer, parks and recreation, and transportation other than mass transit, categories where the added spending was generally in the capital expenditures category, and funded by debt.  Parks and recreation has been a higher priority in the Bloomberg Administration than in any administration since that of Ed Koch, although local government spending in the category remained slightly below the national average as a share of income in FY 2011.  NYC spending on libraries, as a share of its residents’ personal income, is also below the U.S. average and has been going down.

New York City’s spending, not including debt service and pensions, also increased relative to city residents’ income in public education, including both elementary schools and community colleges.  Public school spending fell relative to personal income in the U.S. as a whole, in the Rest of New York State, where it remained vastly above average, and in New Jersey, where it remained significantly above average.

Not including pensions and interest on debts, New York City’s public school spending has in the past been quite low relative to its residents’ personal income, a factor only partially explained by the relatively low share of city residents who are children, and the relatively high share of city children who attend private schools.  In FY 1997, for example, U.S. public school spending equaled 4.29% of the personal income of U.S. residents, but New York City public school spending equaled just 3.56% of the personal income of New York City residents.  In FY 2011, those figures were 4.36% of personal income for the U.S., and 4.59% of personal income for NYC.  According to this dataset, NYC public school spending has only been above the U.S. average for the past few years.

When spending on the retired is included, however, New York City’s per student public school spending has soared in the past decade-plus and is now far above the U.S. average, even with the city’s higher cost of living accounted for. On that basis it is now nearly as high as in the Downstate Suburbs and far above New Jersey, particularly when spending on teacher wages and benefits is considered in isolation.

A separate dataset, published earlier, provides data on per student school spending in detail, including retirement and other benefits.


Now let’s consider those pension contributions.  Measured as a percent of the wage and salaries of public employees, New York City has always contributed far more to its pension funds than local governments elsewhere.  The contribution level was relatively low by NYC standards at 10.8% of employee wages in FY 2004, but soared to 30.3% of employee wages in FY 2011.  In the Rest of New York State, from just 3.5% of employee wages in FY 2004, an absurdly low number given the pensions public employees were promised (let alone the retroactive pension enhancements), the pension contributions by local governments increased to 8.9% of public employee wages in FY 2011.  Note that both New York City and the rest of the state were intentionally underfunding their pensions in FY 2011, by “smoothing” and other means.

In many states, state governments provide the pension contributions on behalf of local government workers.  Or at least they are supposed to.  Thus New Jersey’s near zero local government pension contributions.  But that state wasn’t making the required pension contributions either in FY 2011.  For more on pensions, see the more detailed data in this post.


So the general trend in local government expenditures from FY 2004 to FY 2011 was more money for pensions, less money for workers on the job today, and less help for the poor.  That trend is likely to continue.

And it could get worse.  New York City’s interest payments on its soaring debts were only slightly higher, as a percent of city residents’ personal income, in FY 2011 than they had been in FY 2004.  For highly indebted places such as New York City, the possibility of interest rates returning to normal is another reason why taxes may rise as a share of the income of city residents, and public services may be cut.

Don’t count on cutting bureaucracy to make up the difference.  These five categories – financial administration, judicial and legal, central staff and general public buildings, public health, and inspection and regulation — may be described as the “general” functions of local government.  On these categories combined New York City spent $8.52 per $1,000 of its residents’ personal income in FY 2011, down from $9.28 in FY 2004.  Surprisingly, given the emphasis of the Bloomberg Administration, the big decrease was in public health.  New York City was below the U.S. average ($9.19) and the Rest of New York State ($9.71 and rising) but below New Jersey, where more of these activities may be undertaken by the state rather than local governments.