Debt and infrastructure investment are supposed to go together. State and local governments have operating budgets and capital budgets, and constitutions and charters that say that while money may be borrowed for capital improvements, the operating budget is supposed to be balanced.
During the Generation Greed era, however, that isn’t what has happened. For the U.S. as a whole, total state and local government debt increased from 14.1% of U.S. residents’ personal income in FY 1981 to 22.7% in FY 2010, even as infrastructure investment diminished. This was a matter of generational values, not just a matter of government. One finds the same trend in business – more debt, less investment – during the same years, with the short term high of having more taken out relative to the amount put in contributing to perpetual political incumbency and sky-high executive pay. A generation, it seems, has decided to cash in the United States of America and spend to proceeds before it passes away.
This is the second in a series of posts on the extent to which each state’s future has been sold out by the deals and non-decisions of the past. The first, which reviewed the national trends in state and local government as a whole and should be read first, was here.
The series is based on a compilation of state and local government finance data from the Governments Division of the U.S. Census Bureau over the decades, a compilation that is (once again) in this spreadsheet.
After peaking at 22.7% of personal income 2010, rising income and a very small increase in total state and local government debt combined to decrease that debt to 18.6% of personal income in FY 2016, the latest data available. That was the national average. At the end of this period, in FY 2016, which states or equivalent had the most total state and local government debt as a percent of their residents’ personal income?
New York, at 29.5% of personal income, was once again last (51stor worst), followed by the District of Columbia at 27.4%, Illinois at 22.5%, Alaska at 22.4%, Nevada at 22.3%, Kentucky at 22.2%, Rhode Island at 21.8%, South Carolina 21.8%, Texas at 21.7%, and Massachusetts at 21.4%. If New York City had been a separate state, it would have ranked last with total state and local government debts equal to 38.6% of city residents’ personal income, based on allocation of the debts of the State of New York and the Port Authority of New York and New Jersey. The Rest of New York State would have ranked 40that 20.2%, with New Jersey 39that 19.4% and Connecticut 38that 19.4% as well, all worse than average – though all far closer to the U.S. average than to high-debt New York City.
Given that debt and infrastructure investment are supposed to go together, and urban areas tend to have more extensive infrastructure – with public water, sewer, and sometimes transit systems – I had considered making an adjustment to both for population density. I elected not to, however, because it is actually lower density areas that require the most infrastructure per person.
In a place where people are spread out, even if the only public works the government provides are a road, a rural electrification wire, and a school miles away, that infrastructure costs more per household than the more extensive infrastructure on my 800-foot-long block, with its 120 or so housing units. Even though my block has a school at the end of it, a subway running under a street 320 feet away, a limited access highway 650 feet away, and water and sewer lines running under the street. In an exurban area, where zoning limits development to one-acre-lots to preserve “rural character,” an 8,000-foot-long stretch of road, ten times as long, would have just two houses on it, one on each side, 1/60thas many housing units.
I had also considered adding an adjustment for the rate of population growth, since rapidly developing areas need to build new infrastructure, whereas slow growing or stable areas can rely on the infrastructure they already have. I elected not to, however, based on the experience of New York City. By the time an area is fully developed, and has completed the last of its new infrastructure, the infrastructure in its older sections ages to the point where it has to be substantially rebuilt or replaced. That rehabilitation or replacement must take place in an already densely populated area with extensive buildings and other infrastructure to be worked around, generally without the benefit of economies of scale. This rebuilding or replacement often costs as much as building the new infrastructure had to start with.
Note that my measure of infrastructure investment is limited to construction, and excludes the purchase of land for public works, which only occurs when they are built the first time.
For any one new neighborhood and generation, infrastructure investment may be thought of as a one-time thing, perhaps appropriately financed by debt — since the population and income that will be using it is not yet there at the time when it is being built. For an entire large city, county or state, however, infrastructure investment must be thought or as an ongoing cycle of replacement. As former NY Senator Daniel Moynihan said when a city ceases to build, it commences to die. And with ongoing normal replacement, a city, village, town, county or state cannot expect a new, larger population with more income to carry any money that is borrowed to pay for it. Just the people already there, and perhaps a few more (or fewer).
The high debt states, one finds, are thus a combination of older, urban states and places with relatively stable populations (New York, DC, Rhode Island), fast-growth suburban-era states (Nevada, Texas), and slow growth rural states (Kentucky).
And one finds both rural, slow growth states (Mississippi, Iowa) and fast growing, suburbanizing states (Florida, Georgia) among the low debt states as well. In these states, the mortgage represented by state and local government debt is lower. Wyoming had the lowest state and local government debt at just 5.9% of state its residents’ personal income, followed by Idaho at 8.8%, North Carolina at 10.9%, Oklahoma at 11.3%, and Vermont at 11.5%.
While the State of New York’s debts have had their ups and downs, it is the City of New York where debts have really been high and rising. The City of New York nearly went bankrupt in the 1970s, when its debts hit 24.0% of its residents’ personal income in FY 1972 and – despite high 1970s inflation which reduced the real value of existing municipal bonds – 23.8% of personal income in FY 1977.
The crisis was largely due to the seemingly unsupportable debt burdens on the state, the city and their various authorities and agencies. For example, about $1.7 billion, or 58.6 percent of New York City’s real property taxes, was used to service the city’s debt in fiscal 1974-75. Total outstanding debts of the state, including commitments to its agencies, stood at $12.8 billion, or $707 per state resident, on March 31, 1975. More than two-thirds of this amount, or $8.7 billion, was “nonguaranteed” debt which had never been submitted to a voter referendum and for which the state disclaimed legal liability.
After a number of states went bankrupt, or nearly so, in the 19thcentury, most state constitutions were amended to limit state and local government debt, to limit debt financing to capital expenditures, and to require public approval. But almost immediately politicians started borrowing without such approval and in excess of such limits, claiming that debt allegedly supported by the revenue from an investment rather than general taxation was exempt from the rules. These debts came to be called “moral obligation bonds,” with bondholders assured that the state or its localities had a “moral obligation” to use general tax revenues to bail them out, if those revenues proved insufficient.
New York State’s Urban Development Corporation (UDC) was in default on short-term notes for several days in February-March 1975, until the state legislature appropriated $90 million for repayment of principal and interest and for current operating expenses.
In the 1960s and early 1970s the City of New York was borrowing more and more just to pay for annual operating expenses with no “revenues” at all, culminating in its near bankruptcy. While additional limits were put on the City of New York after that, the State of New York continues to create more and more “public authorities” exempt from debt limitations, and load more and more debt onto those that already existed.
In the “big ugly” budget of the early 1990s fiscal crisis, the state “sold” the New York State Thruway to the New York State Thruway Authority, and used to proceeds for one year of spending. Thruway tolls have been used to pay the bonds for 25 years. To get through the early 2000s fiscal crisis, in New York and elsewhere, “tobacco bonds” were issued, cashing in the future revenues from legal settlements with tobacco companies immediately and denying them to future residents. “Pension bonds” have also been issued in New York and elsewhere, using the “moral obligation” of future residents to pay pension obligations due in the past, but hoping that pension investment returns would exceed the interest on the bonds and save them from having to do so.
Including its public authorities, the City of New York’s debt soared to 27.8% of city residents’ personal income in FY 2011, more than during the 1970s fiscal crisis, though it fell back to 24.5% of personal income in FY 2016. The debt total was $140 billion for the City of New York, and $137.5 billion for the State of New York.
In addition, after adjustment for inflation the debts of the Port Authority of New York and New Jersey have soared from around $10 billion in FY 1998 to around $23 billion in FY 2016, with most of that increase taking place since the financial crisis in 2008. I assign this debt two-thirds to New York City and one-third to New Jersey, as a back of the envelope estimate. With neither state responsible for the Port Authority’s debts, it seems, the Governors of New York and New Jersey have had it borrow with abandon.
Unlike in the 1970s, the influx of young working taxpayers to New York City has prevented the city from experiencing another financial crisis thus far. The boom in Boston has similarly helped Massachusetts pay down some of its excess debt from the “Big Dig” highway project in that city. But the situation of Connecticut shows what can happen if the growth of taxpayer income, and their willingness to pay taxes without public services, fails to outrun the debts shifted forward by past taxpayers. There, state and local government debts increased from 15.9% of state residents’ personal income in FY 2007 to 19.4% of personal income in 2016.
As noted in my prior post, state and local governments also issue bonds to provide cheap tax exempt financing for private companies and real estate development as part of “economic development” projects. And have continued to do so, albeit at a slower pace, even after the tax reform act of 1986 eliminated the federal tax exemptions for such bonds, unless specifically exempted by Congress.
According to data reported to the Census Bureau by the City of New York and the State of New York, the percentage of their debts incurred for private purposes are not especially high, despite the large number of large-scale economic development projects each government has undertaken.
Just in recent memory government bonds have been floated for the new Citifield, Yankee Stadium, and Barclay’s Center, and will be floated for the new area at Belmont Park. Money was borrowed to turn the former Brooklyn Navy Yard and Brooklyn Army terminal into business parks, and build a new science campus on Roosevelt Island. Upstate the State of New York paid to build Tesla’s “Solar City” solar panel plant in Buffalo, part of the “Buffalo $Billion,” AMD’s computer chip plant in Malta, and the nanotechnology complex in Marcy.
There is talk of a new Hunts Point food market going forward. Financing programs by New York City’s Economic Development Corporation…
include the Manufacturing Facilities Bond Program, the Non-Profit Bond Program, the Exempt Facilities Bond Program, and the Liberty Bond Program, under which tax exempt debt was issued to lend to developers to rebuild the World Trade Center and construct related development projects downtown.
It seems the only reason that “private purpose debt” is such a low percent of the total in New York is that total city and state debt is so high.
Measured as a percent of personal income, rather than as a percent of total debt, state and local government private purpose debt equaled 3.3% of U.S. residents’ personal income in FY 2016. By this measure New York City’s private purpose debt equaled 5.5% of city residents’ personal income which would have ranked 43rd. The Rest of New York State was slightly better than average at 3.2% of personal income, and would have ranked 22nd. New Jersey was at 2.7% of personal income, ranking 19thbut Connecticut was at 5.1% of personal income, ranking 38th.
The states with the most “private purpose” debt as a percent of state residents’ personal income were Rhode Island (9.2%), Kentucky (8.2%), Alaska (8.1%), West Virginia (7.0%), Louisiana (6.3%), Missouri (6.3%), South Dakota (6.1%), Montana (6.0%), Kansas (5.7%), and Pennsylvania (5.2%).
Politicians probably hope the private investment financed by those public debts will pay off, at least enough to pay back the bonds. Just as banks and other investors in private corporate bonds and loans hope that their investments will pay off. If they don’t, however, the decision as to whether or not to use general tax revenues to pay those “moral obligation” bonds is ultimately a political one. Based on the power and influence of the generally older and richer people and financial institutions that hold the bonds, compared with the ordinary taxpayers and public service recipients who would be sacrificed to pay them.
The precedent is clear. In the 1970s in New York City, the fiscal crisis led to the cutoff of maintenance for the infrastructure, police layoffs and soaring crime, 50 kids in a class in the schools, soaring taxes, falling life expectancy, nearly and 1 million people leaving, widespread property abandonment, and poor and troubled old women (the “Bag Ladies”) left to die in the street. The bonds – and retroactively increased pension benefits — all got paid – albeit in dollars that were only worth half what they had been when the bonds were issued, due to the high inflation of the 1970s. Which was the only reason New York City survived.
More recently Fannie Mae and Freddie Mac bondholders, who had received higher interest rates than those on U.S. Treasury bonds over the years on the assumption that their repayment was not necessarily guaranteed by the full faith and credit of the federal government, were bailed out. They ended up getting paid more in interest without taking more risk, as if they had bought actual U.S. Treasury bonds, at taxpayer expense.
As noted in my prior post, U.S. state and local government infrastructure capital construction expenditures averaged 1.36% of U.S. residents’ personal income from FY 1977 to 1981, down from 1.63% in FY 1972. If those governments had continued to invest in infrastructure at that 1.36% of personal income from FY 1982 to 2016, they would have spent an additional $1.1 trillion in total in $2016, or 7.0% of U.S. residents’ personal income in 2016. That, I assert, is the national infrastructure investment shortage. But in which states has the shortage been greatest?
The state with the lowest average infrastructure expenditure during the FY 1982 to 2016 period (ranked 51st, or last) was New Hampshire at 0.54% of personal income per year, far below the benchmark 1.36%. Its accumulated infrastructure shortage equaled 19.5% of state residents’ personal income in 2016. Next up was Michigan with an average of just 0.61% of personal income per year for a cumulative 20.2% of 2016 personal income. That is greater than Michigan’s actual state and local government debts.
Connecticut followed, at an average of 0.65% of personal income spent per year and a cumulative deficit of 18.5% in 2016. Maine was next at 0.78% and 14.7%. Then Indiana at 0.81% and 13.4%. Maryland at 0.84% and 13.0%. Rhode Island at 0.86% and 13.2%. Pennsylvania at 0.87% and 11.6%. California averaged just 0.88% of its residents’ personal income in infrastructure construction expenditures per year, but the high level of personal income associated with latest Bay Area boom reduced the cumulative deficit to just 9.8% of its residents’ 2016 personal income, compared with 11.3% in Virginia and 11.4% in Vermont and 11.9% in Ohio.
The region with the least infrastructure construction investment in the recent past is New England.
The inclusion of a share of the past infrastructure construction investments by the Port Authority of New York and New Jersey improves New Jersey’s standing somewhat. It ranked 39th– 14 from worse – at an average of 0.92% invested per year for a cumulative deficit of 11.0% of 2016 personal income, or $61 billion in $2016. In theory that’s how much New Jersey would have to spend to catch up, over and above 1.36% of state residents’ personal income going forward.
New York City averaged spending 1.09% of its residents’ personal income on infrastructure construction during the FY 1982 to 2016 period, for a cumulative deficit of 5.3% of city residents’ 2016 personal income, or $30 billion. The city’s infrastructure may not be good, but at least it is bad to about the national average extent. The Rest of New York State’s infrastructure, based on money spent, should be somewhat less bad than average after it spent an average of at 1.27% of personal income per year on infrastructure construction, for a cumulative deficit of 2.5% of 2016 personal income, or $16 billion.
Aside from Washington DC, a special case whose past infrastructure construction expenditures may be inflated by having the entire Washington Metro assigned to it in Census Bureau data, most of the states that approximately equaled or exceeded the benchmark 1.36% spent on infrastructure investment per year are large, low-population rural states. Alaska averaged 3.57% of its residents’ personal income spent on infrastructure construction per year from FY 1982 to 2016, for a cumulative excess when compared with the benchmark 1.36% of $20.4 billion, or 49.1% of state residents’ 2016 personal income. The purported cumulative excess is 20.5% of the personal income of Wyoming residents, 14.5% for Nebraska, 7.1% for Utah, 13.0% for North Dakota, 8.3% for South Dakota, and 6.8% for Montana.
Perhaps these states can coast on their past spending for a while, but perhaps not. As noted previously, providing even limited infrastructure to spread out people is very expensive, and in most of these states the population is small and the distances between them is vast.
While only being about as bad as the U.S. as a whole with regard to overall past infrastructure construction, New York City was much worse off with regard to just transportation infrastructure construction – highways, streets and bridges, mass transit, airports, and seaports.
While the United States averaged transportation construction expenditures of 0.75% of personal income per year from FY 1982 to 2016, down from a benchmark 0.81% from FY 1977 to 1981, New York City averaged just 0.65%. It would have ranked 42ndamong states if it were a separate state, despite an above average level of expenditures starting in FY 2009. If New York City had invested at the FY 1977 to 1981 U.S. rate, it would have spent another $15.7 on transportation capital construction expenditures from FY 1982 to 2016. The shortage is that amount plus 0.81% of city residents’ personal income going forward, which at city residents’ 2016 personal income level would be $4.6 billion per year spent on transportation construction.
New Jersey was actually slightly better than the U.S. average in this regard, averaging transportation construction expenditures of 0.77% of its residents’ personal income per year from FY 1982 to 2016, and the Rest of New York State was significantly better than the U.S. mean at 0.99% of its residents’ personal income per year.
Northeastern states with low average capital construction expenditures as a percent of personal income during the FY 1982 to 2016 period include New Hampshire, at 0.44% of personal income on average, ranked 50th; Connecticut at 0.51% of personal income, ranked 48th; Maine at 0.57% of personal income, ranked 46th;and Rhode Island at 0.66% of personal income, ranked 41st.
Massachusetts averaged 0.74% of personal income spent on transportation capital construction expenditures over these years, about the national average, but only because of the huge money spent on the “Big Dig” highway project in the late 1990s and early 2000s. That was partially funded by borrowing against the city of Boston’s transit system, which virtually collapsed in the winter of 2015 due to decades of low investment.
Yes New York City has far less highway and road space per person than these broader areas, but as a city of islands it also has many bridges and tunnels that had to be rehabilitated or replaced during the 1982 to 2016 period, the nation’s largest rail transit system, two major airports, and seaport and ferry dock facilities. For several reasons, in fact, I believe that New York City’s past transportation capital construction investment is even worse than it appears.
First, the expenditure data only shows how much was spent on infrastructure construction in dollars, not how much was received in return. As noted recently in the local media, New York City’s rail transit construction costs are vastly higher that those of other major cities, such as London or Paris. Whereas construction cost estimating company RS Means typically shows that NYC’s private construction costs are above the U.S. average to about the same extent as the average private sector wage, New York City and its Metropolitan Transportation Authority are charged multiples of other major cities. And the cost of public construction in New York City has soared compared with what it had been in the past, for reasons no one (else) wishes to explain.
It is as if the City of New York and its MTA got a better deal back when the mafia controlled construction in New York City. Or perhaps the mafia still controls construction in New York City.
Second, some of this construction was just doing the same thing multiple times due to the disasters of 9/11 and Superstorm Sandy. The PATH system was extensively rebuilt before 9/11, and after 9/11, with more work required after the Superstorm flooded the tunnels. The shutdown of the L train’s Canarsie Tubes for reconstruction, also required by Superstorm flooding, will take place after those tunnels had new signals, lighting and fan plants installed before the storm. The South Ferry subway station was rebuilt after 9/11, and then rebuilt again after being destroyed by the storm.
Third, New York City was already behind with regard to transportation capital construction expenditures at the start of FY 1982, with its mass transit system and roads in disrepair, and many of its bridges severely deteriorated. The Williamsburg Bridge faced an emergency closure in the early 1980s, and subway trains were excluded from two of the four tracks of the Manhattan Bridge for two decades. Floyd Lapp, then head of the Transportation Division at City Planning, described the situation New York City was in as being similar to the “I Love Lucy” chocolate factory scene. While you are busy trying to do the things that should have been done in the past, you are falling farther behind on things that should be done today, and eventually everything falls apart.
The NYC subway signal system was built and then replaced at about a once-every-60-years rate – except in the 1970s and in the last decade, when reinvestment stopped. As a result, it is about where Lucy and Ethel are at about 1.26 in the video below. With Mayor DeBlasio and Governor Cuomo in a position similar to Lucy and Ethel at 2:10.
Finally, although nearly all transportation construction expenditures in New York City over the past 25 years has merely been the rehabilitation and replacement of existing infrastructure in already developed areas, much of that ongoing normal replacement was funded by borrowing, with each five years of — in effect — maintenance under the MTA Capital Plan financed by 30-year bonds.
Since these reinvestments, for the most part, serve existing taxpayers, there is no additional tax revenue coming to pay the bonds. And yet because this in effect maintenance (including painting) was called “capital expenditures,” the general public didn’t understand the long-term implications of borrowing for it. The MTA capital plans continued until the interest on the debt was so high it created a fiscal crisis. Now ongoing normal replacement has stopped, because all the existing dedicated revenues are being used to pay the bonds, taking a physical crisis that was turned into a financial crisis back into a physical crisis.
“You mean you borrowed $42 billion and the subway isn’t finished?”
To balance the MTA’s budget during the deep early 1990s recession, moreover, it was decided that operating transit service in the vicinity of a capital project was an operating expense that was “reimbursable” by the capital project, with borrowed money. That emergency expedient was carried forward from that point forward in good times in bad. The MTA’s FY 2016 budget included $12.44 billion in “non-reimbursable” operating expenditures, including $420 million in “reimbursable” overhead. But cash expenditures totaled $13.99 billion, for an additional $1.55 billion in “reimbursable” expenditures. The “reimbursable” expenditures of New York City Transit alone equaled $1.16 billion in operating expenses borrowed for.
New York State also raided the “dedicated” transportation “trust fund” for roads and bridges starting in the early 1990s, soon after that fund was created in 1991. To keep the investments going in the Rest of New York State, it borrowed against future revenues instead. By 2014
Only 22 percent of the $3.8 billion collected from highway taxes and fees each year goes to capital road projects, and the rest is diverted to cover state budget costs.
Such as the interest on those bonds, which accounted for 40.7% of trust fund revenues at the time. In New Jersey the situation is worse – by to 2013 all transportation trust fund revenues were going to pay past debts.
The state that actually spent the least as a percent of its residents’ personal income during the FY 1982 to 2016 period on transportation capital construction was Michigan, averaging just 0.40% of its residents’ personal income per year, compared with the 1982 to 2016 U.S. average of 0.75% and the 1977 to 1981 U.S. average of 0.81%. This is a state that had no rail transit system at the time, but a huge highway system, after decades of substantial influence by the automobile industry. As that industry declined due to competition from foreign cars, outsourcing, and the relocation production to other places, Michigan has been unable to maintain and rebuild that extensive road system.
Other Midwestern states with low transportation investment over the decades include Ohio and Indiana at an average of 0.60% those states’ residents’ personal income per year.
The highest ranked Northeastern and Midwestern states for average transportation infrastructure capital construction from FY 1982 to FY 2016? New York State, at an average of 0.94% of state residents’ personal income, ranked 21st, and Illinois at 0.82%, ranked 27th.
Unfortunately, people in Illinois don’t own all their own transportation infrastructure anymore. The City of Chicago sold all future parking revenues for parking on its streets, and all future tolls on the Chicago Skyway, to Wall Street for cheap for a few fat budget years for former Mayor Daley. Those deals were greenwashed to the environmental left as forcing fossil fuel burning vehicles to pay market rates for parking, and “green” washed to the anti-government right as shrinking government through privatization. But like the culture wars the 1960s generation loves to keep fighting, that was just a distraction. The real essence of the deal was generational pillage by Generation Greed. Fortunately, former NYC Mayor Giuliani was prevented from selling the NYC water system for cheap for money to spend during his administration. He cut a pension deal for some extra short term cash instead. Daley was a Democrat, Giuliani a Republican, but when it comes to selling off the common future, does that really matter?
The state that ranked third lowest in average transportation capital construction expenditures from FY 1982 to 2016 was, surprisingly, California at an average of 0.47% of state residents’ personal income. That state probably led the nation in investments of all kinds in the 1950s and 1960s, with a huge highway system, the Bay Area Rapid Transit System, and the Ports of Los Angeles and Long Beach, the nation’s busiest. But some time in the 1970s transportation investment stalled there, and the construction of a subway system for Los Angeles was halted. Although California’s transportation capital construction expenditures have been somewhat higher since the early 2000s than during the two decades before that.
In Colorado, note the construction of Denver’s new airport.
The booming Sunbelt states such as Florida, Texas, Arizona and Georgia have averaged more in transportation investment than the FY 1982 to 2016 U.S. average, but not to the extent one might expect given their rapid population growth. Florida averaged 0.79% of its residents’ personal income spent during those years, with Texas at 0.82%, Georgia at 0.85%, and Arizona at 0.88%. Despite the construction of streets and roads in many newly developed-areas. More on that later.
While New York City’s transportation capital construction expenditures were relatively low as a percent of its residents’ personal income during the FY 1982 to 2016 period, its environmental (water supply, sewerage, solid waste management) capital construction expenditures were high. They averaged 0.41% of personal income per year, compared with a U.S. average of 0.25%. That high level of investment has been driven by public preference, federal regulations, and environmental litigation.
Even when the city was on the brink of bankruptcy and other infrastructure investment stopped, the city nonetheless continued to build its third water tunnel. Later, federal regulations forced it to build a huge filtration plant for part of its water supply, and a leak is forcing the construction of a new aqueduct under the Hudson River. In the years since 1982 New York City has closed first the Fountain Avenue landfill in Brooklyn and then the Fresh Kills Landfill in Staten Island. This required $billions in new investment in waste transfer stations to ship garbage elsewhere, as part of the city’s solid waste management plan.
The Rest of New York State was only slightly lower than the U.S. average in FY 1982 to 2016 environmental capital construction, at an average of 0.22% of area residents’ personal income per year. But many other parts of the Northeast are much lower than that. New Hampshire ranked last at an average of just 0.10% of state residents’ personal income per year, Connecticut was next to last at 0.14%, Pennsylvania and New Jersey were 48thand 47that 0.15%, and Vermont ranked 45that 0.16%.
One might argue this is not unexpected. The City of New York provides water, to itself and large parts of Westchester County, and solid waste management services, so capital investment in related facilities shows up on its books. Most of New Jersey, on the other hand, is served by private water companies and private carters. Thus additional environmental capital investment may be there, but not show up as government spending in Census Bureau data. Just as some areas have government operated electrical system and related infrastructure capital construction expenditures, but the City of New York, served by a private electrical utility, does not, with the exception of some plants built by the New York State Power Authority.
Even for sewerage alone, however, New York City is relatively high in past environmental capital construction. The FY 1982 to 2016 period saw the extension of sewer main service to all of Staten Island, the completion of the North River Wastewater Treatment Plan in Manhattan, the development of facilities to handle the sewage sludge output of sewage treatment plants, after the federal government forced the city stop dumping it in the ocean offshore, and the construction of gigantic holding tanks to hold stormwater runoff until it could be treated.
NYC has been forced to build those tanks because the same sewer lines handle both wastewater and stormwater, and large rainstorms overwhelm the treatment plans and cause raw sewage to enter the waterways. But NYC’s combined sewers also mean that when possible its stormwater runoff is treated as well, rather than just dumped in the waterways by the separate stormwater drains, as in suburban and Sunbelt areas built later. NYC sewerage investment slowed sharply after 2012, when the Bloomberg Administration complained that the federal Environmental Protection Agency was forcing the city to incur costs that have been imposed on no other locality.
BTW, if you really want proof that working in public policy is a waste of life, because politicians only respond to campaign contributors and the media and not factual information, check out what happened to spending on sewerage in Massachusetts after 1988. That year Republican candidate for President George HW Bush blamed Democratic candidate and Massachusetts Governor Michael Dukakis for the high level of pollution of Boston Harbor, and then developers got interested in redeveloping the Boston waterfront.
As one might expect, booming Sunbelt states spend more on environmental infrastructure as a percent of their resident’s personal income, particularly in the drier West where obtaining water is more of a challenge. But not as much as one might expect.
Compared with the national average of 0.25% of state residents’ personal income spent per year by state and local governments on water supply, sewerage and solid waste management infrastructure from FY 1982 to 2016, Arizona spent 0.36%, Texas spent 0.33%, Georgia spent 0.32%, Florida spent just 0.29%, and North Carolina spent just 0.24%. But is that all of it?
In recent decades, to save on tax dollars for existing residents, local governments in fast-developing areas have typically required developers to install all the required infrastructure for their developments – streets and streetscape, water, sewer, sewage treatment plants, and green space – in exchange for subdivision approval. This infrastructure construction doesn’t show up on the local government’s books, and the revenues needed to fund it show up as housing mortgage payments or rent, not local taxes and government fees to pay for municipal bond payments. In theory that new infrastructure could be transferred to the local government for ongoing maintenance and operation. Increasingly, however, large scale developments have elected to stay private, or been forced to do so also as a condition of subdivision approval.
With private roads, other private infrastructure, and private rules and regulations enacted and enforced by homeowners’ associations, and funded by dues that are just as mandatory as property taxes. This is particularly the case in planned communities. Florida even has rules that allow planned communities to function as condominiums to maintain common infrastructure, with property owners allowed to vote for the elected officials, even if they are not residents, and residents not allowed to vote if they are not also owners. Kind of like the United States in the 1790s. Even though some of these communities call their extractions “property taxes.” Are they, and the related infrastructure construction expenditures, reported to the Census Bureau as such?
This means the real level of “taxation” and infrastructure expenditure in states such as Florida may not be as low as the data implies. Residents of new developments in such states may end up paying in fees and dues what they would have paid for in taxes in New York. This is something people need to consider before buying in. The problems with private communities are generally discussed with regard to the tyranny of non-governmental rules and regulations.
In the 1980s “there were about 50,000 homeowner’s associations – including those in multifamily buildings like ours – in the US at the time. Today there are 323,600, presiding over the homes and neighborhoods of an astounding 63.4 million Americans, according to data published by the Community Associations Institute. Basically, that means in something approaching 20 percent of American homes, you literally cannot live there unless you agree by the terms of your ownership documents to submit to the rules of the governing associations.”
A libertarian is a liberal who has been mugged by a co-op board or homeowners’ association.
But hidden taxes and hidden investment may lead to a hidden infrastructure crisis down the line. Most of New York City’s infrastructure was built from 1900 to 1920, and was a wreck by 1970. Will the same be true of the suburban infrastructure a decade or two from now? What will happen when those private roads, bridges, water and sewer mains and sewage treatment plants need reconstruction?
Under the program, once a street or series of streets is approved, the county’s Highway Division will assume responsibility for maintaining and repairing those roads. That’s opposed to the current patchwork system, in which most subdivision streets are maintained – or not maintained – by homeowners associations made up of residents who live in those developments.
Jonas said the program is meant to prevent what’s happened in unincorporated areas with wastewater. “We have hundreds of failing private sewer and septic systems throughout the county,” he said. “That’s an infrastructure problem that only now is being addressed. If you go to subdivisions that are 30 or 40 years old, you’ll see crumbling streets that the residents don’t have the expertise to repair. We don’t want another part of our infrastructure – our streets and roads – to have the same problem.
Whether decisions are made by politicians presiding over local governments, or board members presiding over homeowners associations, whether infrastructure is responsibly maintained and replaced or allowed to decay is a matter of values. And perhaps not good values, especially in private communities with aging residents who live in such communities precisely because they don’t like to pay for shared things. Many of whom have the same attitude toward government and taxes that the Jewish rebels did in Monty Python’s life of Bryan.
In my prior post, I had noted that total federal aid to state and local infrastructure hadn’t really gone down much as a share of U.S. residents’ personal income over the decades, but some states do better out of that aid than others.
States with relatively high average incomes have received less in federal infrastructure intergovernmental revenues as a share of their residents’ total incomes. In part because their incomes are high, in part because the distribution of federal gasoline taxes (but not any other taxes) is influenced by the amount each state pays in. And residents of poorer but more rural and spread out states burn more gasoline and pay more in gasoline taxes.
Compared with the nationwide average of FY 1982 to 2016 federal infrastructure investment assistance at 0.40% of personal income, the worst off states are Florida at 0.29%, California at 0.31%, Virginia at 0.32%, and New Hampshire at 0.34%. The Northeast in general fares poorly by this measure, with Connecticut at 0.35%, New York at 0.35%, New Jersey at 0.36%, and Massachusetts at 0.36%, all less than the U.S. average.
Those that averaged the most federal infrastructure aid as a percent of their residents’ personal income are less well off states where state residents are more spread out, such as Alaska (1.75%), Wyoming, (1.29%), Montana (1.20%), North Dakota (1.11%), and South Dakota (0.99%). With many of these also among the states with the most per year infrastructure construction expenditures as a share of their residents’ personal income from FY 1982 to 2016.
While the Northeast does poorly, I would say the Midwest is worse off with regard to past federal infrastructure assistance. It was low as a percentage of state residents’ personal income from FY 1982 to 2016 because average income in the Midwest used to be relatively high. High incomes may explain the average per year federal infrastructure aid at just 0.35% of state residents’ personal income in Ohio and Michigan during the FY 1982 to 2016 period, and just 0.37% in Wisconsin, each less than the U.S. average of 0.40%. Based on their now lower average incomes, in theory these states will get more federal infrastructure aid as a percent of those incomes going forward. But thanks to the soaring cost of Generation Greed’s old age retirement benefits, such assistance is more likely to disappear than shift their way.
I have just a few notes on the construction of education buildings, because unlike state and local government infrastructure capital construction, it has not been significantly lower over the past 35 years than it had been previously. Rather, it has risen and fallen with baby booms and busts, and waves of children and young adults entering and leaving elementary and secondary school and public colleges and universities. The U.S. averaged 0.40% of its residents’ personal income spent on education facilities capital construction expenditures per year during the FY 1982 to 2016 period, excluding higher education spending on “auxiliary” enterprises such as sports stadia, dormitories, and cafeteria.
But some states have spent less on education facilities than others.
The highest spending states on average, as a percent of state residents’ personal incomes, are the low-density, frontier-like states of Alaska (0.99% of state residents’ personal income per year) and Wyoming (0.82%). This was followed by low income New Mexico (0.76%), and fast growing Texas (0.59%), Washington (0.59%), Arizona (0.57%), and Utah (0.55%). South Carolina (0.55%), Alabama (0.48%), and Georgia (0.48%) round out the top ten. Education spending in Texas, as a percentage of personal income, is higher than one might expect. Arizona is apparently willing to spend on buildings, if not teachers.
The bottom six states are in New England – Rhode Island (0.09%), New Hampshire (0.22%), Maine (0.23%), Connecticut (0.23%), Massachusetts (0.23%), and Vermont (0.25%). New Jersey is also below average at 0.32%.
These are aging states with little population growth, and thus less need for additional school buildings. The existing school buildings, however, are aging, and eventually major systems have to be replaced. Otherwise, they will decay. Although perhaps given the possibilities of information technology, and the extent to which most Americans are over-housed, not investing in brick and mortar might turn out to be wise. The future might see just 12 students taught by a teacher, assisted by information technology, in an extra room in that teacher’s own home – for less money than is typically spend per student in the Northeast today.
New York City and the Rest of New York State are also slow-growth areas with relatively few children, and fewer than in the past. Yet their per year spending on FY 1982 to 2016 education capital construction was above the U.S. average at 0.43% of personal income for NYC and 0.41% for the Rest of New York State. The Rest of New York State is a place where apparently communities are entitled to high quality school buildings, and teachers and other school workers are entitled to jobs, even in the absence of children. Thus the extensive school construction of recent decades even in places where the population is falling.
New York City’s schools were a wreck in 1988, after decades of disinvestment. Many school still burned coal, and the high school seat capacity was sized on the assumption that half the kids would drop out. A large number of schools had been abandoned in the 1970s, after the Baby Boomers exited school and enrollment fell, leading to further seat shortages when their children began entering school. At that point the New York City School Construction Authority was formed to cut red tape, be exempted from cost-increasing rules, and rebuild the city’s schools.
Spending on education capital construction has been relatively high in New York City ever since, but not high enough to recover from the past. While in other places there are debates about installing air conditioning and wifi capacity, and in Upstate New York the State of New York used tax dollars collected in New York City to provide their schools with swimming pools, the New York City schools are still dealing with lead in the water in the water fountains and schools without gymnasiums.
Just another example of the fact that it is investment over time, not just at one point in time, that makes the difference.
In the United States, we haven’t had enough of that investment in infrastructure, and further deterioration may be expected, in the cities and older suburbs and even along rural roads, even if that turns around right now. We have invested in communication and information technology, and the consequence is life transformed. Teenagers walk around with computers in the pockets that are vastly more powerful than anything used in the Apollo program that landed men on the moon. With communication capabilities that are far more powerful than the communicators used by Captain Kirk and Spock on Star Trek.
The next post will show why additional public infrastructure investment is unlikely to occur, and indeed maintenance is likely to be cut back – the soaring cost of state and local government public employee pensions.