DeBlasio’s New York City Budget: Defunding The MTA Capital Plan, Planning for A Federal (and State) Teacher Pension Bailout

I looked through the Message of the Mayor publication for the City’s of New York’s April budget proposal and financial plan, and came upon a couple disappointing and unfair parts of the proposal.

Click to access mm4-19.pdf

First, on page 87, I found that the financial plan now includes line items for federal and state funding specifically for New York City teacher pensions. Not for education.  Not for the pensions of other public employees. Not for retirement of the vast majority of city residents who don’t have pensions and have little or nothing in retirement benefits at all, and would end up paying for this in higher federal and state taxes and cuts in services and benefits.  Teacher pensions.  Currently the amount of money in those lines is zero, but the budget lines were added for a reason.  Whatever Bill DeBlasio may say about what he will do for the rest of us if elected President or (if he drops that idea) Governor, just understand how he plans to get the Democratic nomination.  By promising to take even more from everyone else and give it to the teacher’s union, over and above what they have already taken, in exchange for money and support.

Second, on page 59, I find that city capital funding for mass transit, at $485 million in FY 2019, is proposed to be cut to $136 million in 2020, $54 million in 2021, and $40 million per year thereafter.  Presumably the $485 million was the money for the MTA Cuomo badgered DeBlasio to put up and match with state funds, after 25 years of little if any city or state contribution the MTA capital plan — and soaring MTA debts.  And now?  Looks like frenemies DeBlasio and Cuomo have a new plan.  Cut $1 billion in actual budgeted money for the MTA Capital plan between them, add $1 billion in congestion pricing revenue, but then bond against all those future congestion pricing revenues and spend them in just five years, before leaving the MTA with no money to maintain the system thereafter.

I’ll add more commentary on those two items at the end of this post, but first a review of the overall budget.

In recent years I’ve taken created tables and some charts to quickly summarize how the city’s budget priorities have changed.  The most recent example was here, from last year.

https://larrylittlefield.wordpress.com/2018/06/24/new-york-citys-fy-2019-budget-guess-who-will-be-backing-would-be-president-or-senator-deblasio/

This became worth doing once Mayor Bloomberg started presenting data on how much different city agencies actually cost, in total and city funds (separate from federal and state aid), including the cost of pensions and other benefits.  Under the Bloomberg Administration a table was included for the prior fiscal year, one with a forecast of the current fiscal year (based on spending as of April, with the fiscal year ending June 30), one with the proposal for the next fiscal year, and one showing a change from the current fiscal year to the Mayor’s proposal. One could quickly and easily see the changes.

Then under Mayor DeBlasio the Office of Management and Budget (OMB) started cutting out some of those tables, and has since included one only — for his budget proposal, not the current fiscal year and not for the change between the two.  The table is titled “Full Agency Costs” and located on page 85 of the Message of the Mayor.  So for the last few years I’ve been comparing the most recent year a table was included for actual spending, way back in FY 2014 in Bloomberg’s last budget, and in FY 2007, before the Great Recession, with Mayor DeBlasio’s proposal for the next fiscal year.

But this year I noticed that the OMB did present a forecast of “full agency costs” for this fiscal year in the tables for each agency separately.  Since I would rather analyze actual spending than a mere proposal, I chose to use this information – the forecast for FY 2019 – to compare with FY 2007 and FY 2014.  The tables, with charts attached, is here.

Analysis of NYC Budget FY2020

The story the Mayor might prefer to tell is that in the years since he has been elected, the boom in the city’s economy and population have allowed its people to get out of the hole they had been put in relative to its local government, those who work for it, and its contractors.

Chart2

According to OMB estimates of personal income for 2019, the total income of city residents combined, adjusted for inflation, will have increased 24.7% from 2014 to then, lightening the burden of city spending and taxes. Total city expenditures, according to the April forecast of FY 2019 spending, will have increased by just 17.5% from FY 2014 to FY 2019, with city funded expenditure having risen 18.6%.

The inflation-adjusted total cost of City of New York public workers would have increased by just 15.3%, less than in the increase in the personal income of all city residents, with more of that increase in actual wages and salaries of those on actually on the job, and less in pension and other fringe benefit costs.  Debt service would have increased just 10.5%, and “other than personal services” (OTPS) agency costs – contracts and purchases – by 31.3%.

Looking at the table in the spreadsheet, one finds the big inflation adjusted increases in OTPS were in the Department of Education, presumably as a result of the Mayor’s universal pre-K initiative, at 45.8% or $3.3 billion. The Department of Homeless Services at 100.6%, or $92 million, presumably due to the city’s increasing homelessness crisis.  And the Department of Social Services at 59.9% or $667 million.  In the “all other agencies” category, including contacts to maintain the infrastructure, OTPS spending fell.  This is contracts for the operating budget. Aside from mass transit, capital spending is forecast to increase (as asserted in tables on pages 59 and 61 of the Message of the Mayor).

Chart1

This turnaround, the Mayor’s budget implies, has allowed city residents to, in effect, get back to even relative to the city government itself, after becoming much poorer during the recession.  From FY 2007 to FY 2019, which might be from the peak of one business cycle to the peak of the next, the total personal income of all city residents will have increased by 32.4% if the OMB forecast for 2019 is correct, while total City of New York spending will have increased by 32.5% — about the same.  City funded expenditures increased more, by 37.0%, and the cost of local government to city residents thus increased, because a rising share of those expenses were paid for with local taxes and fees, not federal and state aid.  Because more federal and state aid is being shifted to other parts of the state and country that have not had as much economic growth.

Moreover, according to the proposal, the total cost of City of New York public workers is asserted to have increased by just 30.0% more than inflation from FY 2007 to FY 2019, slightly less than the 32.4% increase in personal income of all city residents.  The massive increase in pension costs, due to the retroactive pension increase deals that started in the mid-1990s and have continued ever since, has since FY 2007, according to these estimates, been offset by slower growth in wages and salaries and other fringe benefits, relative to inflation.   New York City public employee pension costs increased by 68.6% more than inflation over those years, but wages and salaries increased just 23.6% and other fringe benefit costs by 25.3%.

It’s a good story if it turns out to be true.  But not that good, for three reasons.

First, city residents have more personal income in total not because the average private sector worker has become better off adjusted for inflation – median work income is down as I showed here.

Chart2

But because the city has so many more working age adults packed into it. They are packed in, paying soaring rents, sharing apartments or even rooms, and therefore less well off personally than equivalent workers had been 20 or 30 years ago.

Second, for private sector workers much of that increase in total personal income is concentrated at the top, and a result of yet another artificial asset price bubble inflated by federal policy to the primary benefit of the financial sector and the rich.  Announcing his campaign for President, Mayor DeBlasio has supposed said “There’s plenty of money in this country, it’s just in the wrong hands!”

http://gothamist.com/2019/05/16/video_de_blasio_2020_video.php

But the truth is the money in this country has been “created” mostly by rising debts that are impoverishing almost everyone in the long term.

https://www.cnbc.com/2019/05/16/credit-card-rates-are-now-at-their-highest-level-in-25-years-and-may-weigh-on-the-economy.html

And DeBlasio’s budgets have relied on rising tax revenues paid by many of those “wrong hands” who live and work in New York City.

Third, and in contrast, the total cost of city workers has soared more than inflation not because there are more of them, but because their compensation per worker has soared relative to other city residents.

Chart5d

There are thus fewer city workers relative to the rising population, and their productivity has not risen enough to offset this, so public services have degraded.

Local Emp Chart

In fact, in some cases public worker productivity is going down. The schools still average about 27 kids per class, even though the number of instructional employees is rising and student enrollment is falling.

Therefore city residents are getting less in many public services relative to a dozen years ago.  As the state of the subways and the condition of public housing shows. So New York City’s serfs are squeezed a second time by the other set of special interests that controls state and local government in New York, along with the real estate industry.

Chart4a

One can get some idea of DeBlasio’s priorities by examining the change in city spending by department and agency.  Despite falling school enrollment and crime, spending on the politically powerful and richly pensioned teachers and police have soared relative to inflation, by $8.3 billion (32.7%) for the Department of Education and $1.1 billion (11.4%) for the NYPD, from FY 2014 to FY 2019 as forecast.  NYC school spending per student had already soared to the moon, and NYC already had 2.8 times more police officers relative to population than the U.S. average, when DeBlasio took office.  Spending by the Department of Education alone accounts for about three-fifths of the entire inflation-adjusted increase in city spending during the DeBlasio Administration, and they are demanding even more.

Spending by the smaller Department of Correction increased by $448 million more than inflation from FY 2014 to FY 2019, despite a shrinking number of inmates in city jails, and spending by the Fire Department increased by $539 million (13.6%).  Other big gainers are the Department of Homeless Services, up by $1.05 billion (90.2%), driven by a soaring number of homeless people, as in other booming coastal cities during the opiod crisis.  Spending on subsidies for the Health and Hospitals Corporation and on the Administration for Childrens’ Services have also increased sharply under DeBlasio, but as we will see that is misleading.

Meanwhile, adjusted for inflation city spending on cash welfare, and on city payments to the State of New York for Medicaid, have fallen by $600 million.  Medicaid is absorbing an increasing share of state budgets nationwide, but it appears that the State of New York is absorbing more of that cost compared with its local governments. That’s a savings that could have been applied to, for example, City of New York contributions to the transit system.  If this has really happened, perhaps DeBlasio’s comments about Governor Cuomo’s impact on the New York City budget are off base.

Chart3a

The increases in inflation adjusted spending on the Administration for Children Services and the Health and Hospitals Corporation from FY 2014 to FY 2019 merely offset cuts in funding from FY 2007 to FY 2014.  In fact, for the entire FY 2007 to FY 2019 period HHC subsidies are expected to have fallen by $240 million (18.3%) and ACS spending is forecast to fall by $83 million (2.3%).   The Administration for Children’s Services always seen to be the first agency cut in a recession, since poor children are New York’s lowest priority, and this has repeated been followed by a scandal involving child deaths, a “reform” and the restoration of funding.  I’ve seen this play out time after time, decade after decade.

Meanwhile, adjusted for inflation the increase in total spending from FY 2007 to FY 2019 is $11.15 billion (49.7%) for the Department of Education, $2.2 billion (26.0%) for the NYPD, $1.1 billion (32.4%) for the Fire Department, mostly because of pensions and retiree health insurance and, for the Department of Education, universal pre-K.  And $1.3 million (147.1%) for the Department of Homeless Services.

Chart3

On a percentage basis, for the entire peak-to-peak period, spending on the Department of Education, The Department of Homeless Services, and the City University of New York (community colleges) increased faster than the total personal income of all New York City residents, all after adjustment for inflation.  Assuming the forecast of NYC residents’ personal income in 2019 turns out to be correct.  With spending by other agencies increasing more slowly.

Chart5

The DeBlasio Administration has apparently taken advantage of yet another stock market bubble to reduce pension funding as a percent of the wages and salaries of NYC public employees, notably for the Department of Education and the NYPD.  Like the Trump tax cuts, this diminished pension funding is going to cost somebody something someday, probably someone with much less political power than the United Federation of Teachers (UFT) and the Patrolmen’s Benevolent Association (PBA).

As I showed here…

https://larrylittlefield.wordpress.com/2018/12/16/sold-out-futures-by-state-public-employee-pensions-in-fy-2016/

Over the decades city taxpayers have paid far more for state and local government public employee pensions as a percent of public employee wages and salaries, and as a percent of their own incomes in taxes, than taxpayers anywhere else in the country.  The only place at the same level as New York City is Nevada, where public employees don’t get Social Security, saving taxpayers 6.2% of payroll.

But despite this New York City’s public employee pensions are nonetheless among the most underfunded in the country, right down there with states such as New Jersey and Connecticut where state and local taxes have been lower and services better in part because of lower past pension funding.

The reason is all the retroactive pension increase for public employees here in NYC, to far more than they had been promised.  Having cut deals to increase pensions for those who already had among the richest retirement benefits, politicians have been reluctant to force people to  pay for this social injustice.  But that just further inflates the cost of those deals in the long run. While NYC teachers, notably, got a huge pension increase in 2008, and there have been various scams and schemes in the past 20 years, the big increase in pensions for most city workers took place back in 2000.  That’s almost 20 years ago.  Its cost has been lied about, hidden and deferred for two decades so those who benefitted could cash in and move out without having to pay for any of it.

If, at any point in the next decade NYC’s pension and retiree health insurance increase by more than inflation again, it will because DeBlasio (and Comptroller Stringer and the City Actuary) committed yet another fraud at our expense, to cash in our future to have money to hand out in the short run.  That will be true even if the stock market bubble deflates again.  Over the long run, including both booms and busts, NYC’s pension investment returns have been more than ample.

Getting back specifically to teacher pensions, there is a funding crisis all over the country, but whereas in some places it is the result of inadequate taxpayer funding of the pensions teachers had been promised to start with, in New York City is the result of one unfunded retroactive pension increase after another, in selfish and unjust political deals.  The cost of this keeps getting swept under the rug, hidden and lied about.  In fact under the Mayor’s budget proposal, page 89, city funding for teacher pensions is actually proposed to be cut slightly from FY 2019 to FY 2020. Given how deep in the hole those pensions already are, there is no excuse for this.  The plan is simply to force even more money to be diverted to teacher pensions in the future.

Teachers unions around the country are now focused on just one thing – pensions.  Taxes are being increased to pay for pensions.  The pay and benefits of new teachers are being cut to pay for pensions.  And unlike in New York City, where funding for things like infrastructure and the Administration for Children’s services have been cut to pay for teacher pensions while the Department of Education sucks up ever more money, actual education spending has been cut in some other states.

With dozens of candidates for President, DeBlasio is clearly planning to ride the most powerful self-interest group in the Democratic Party, the teachers’ unions, to the nomination, by selling out the needs of everyone else. Great for them – with federal funding the United Federation of Teachers could order their state legislature to increase pension benefits even more and once again claim it “costs nothing,” conveniently ignoring where that federal funding would come from.   It would be entirely consistent for Mayor DeBlasio to make all kinds of meaningless promises to unorganized losers, while secretly promising more to those who already have more.

And what if, like the additional congestion pricing revenues, the federal and state teacher pension funding wouldn’t really be “more,” just a shift around of money that’s already there?  Education funding redefined as pension funding.

That could be part of an effort to de-fund Charter Schools.  Charter Schools were originally promised the same per-student funding as district schools run by the United Federation of Teachers, but ever since the 2008 pension deal cause pension costs to soar, charter school funding has been cut relative to UFT school funding. New legislation passed last year now locks Charter Schools in with funding that is substantially less. But less than what?  Perhaps part of the plan is not to count the federal and state pension funding as “education spending,” and then cut Charter School funding even more.

As for the transit system, one can see on page 77 that not even including the MTA, the City of New York’s debts are proposed to rise from 11.9% of the income of city residents in 2010 to 13.5% in 2023. And one can see on page 227 that New York City Transit depreciation is estimated at about $1.8 billion per year.  That’s the amount of capital expenditures required to prevent the system from going into a downward spiral.  Add another $1.3 billion in “capital reimbursments” and $325 million in “capital overhead” in the operating budget.  These are operating costs reclassified as capital costs so the politicians can feel less guilty about borrowing for them.

Including “reimbursable” operating expense and depreciation, New York City Transit is going $3.1 billion further in the hole this year, rising to $4.5 billion in 2023, as much as all fare revenues.  The transit system is heading for disaster.  And though it has become fashionable for some politicians to pretend otherwise in the wake of New York Timesreporting, they don’t care.   They don’t use it, they drive and park for free. And they expect they and the people they care about will be off to Florida with their pensions before transit deterioration leads to the collapse of the city’s economy.

That’s the reality.  More and more taken from an increasingly diminished future, just to keep the wolf from the door a few more years given past deals to do the same, and make a getaway before the leaving others to suffer the consequences. Incredibly, not one of all the politicians, transportation wonks and transportation reporters has publicly asked this question.  What happens in 2024 when all the future congestion pricing revenues, like all other future “dedicated” MTA revenues, are going to pay interest on bonds and DeBlasio and Cuomo have moved on?

The budget implies that there have been two secret deals.  One between Mayor DeBlasio and the teacher’s union to divert even more money, this time federal, to teacher pensions in exchange for political support for President.  And one between Mayor DeBlasio and Governor Cuomo to eliminate MTA capital funding from both the city and state budgets, now that congestion pricing has passed.