The Sold Out Future By State Analysis Reprised

About a year ago I published an analysis based on U.S. Census Bureau government finances data, for all states and all available years from 1972 to 2016, that showed the extent to which each state’s future (with New York City and the rest of NY State analyzed separately, and the District of Columbia also included) has been sold out. Sold out by past decisions, non-decisions, deals and favors with regard to state and local government debt, past infrastructure investment, and under funded and/or retroactively increased public employee pensions.  The analysis was well received, and best of all many people downloaded the spreadsheet with all the data for all 50 states, all the tables, and almost all of the charts.  I always put up a post encouraging people to download the spreadsheets, look at the data themselves, and make up their own minds before reading my subsequent posts and getting my take on it. Generally people had downloaded charts, but not spreadsheets.  Last year that changed.

What I had forgotten last year, however, but have since remembered, is the multi-step process needed to put readable tables, in JPEG format, into the posts on WordPress.   So this year I added the tables to the posts I just completed on state and local government employment and payroll data from the 2017 Census of Governments, and I found that many people had downloaded them.  I don’t know why some people might prefer pictures of numbers to actual numbers, but apparently some people do.  So I plan to rectify last year’s omission of tables – except for people who downloaded the spreadsheet — from the Sold Out Futures posts with a brief reprise.   The data shows that while the blame for our sold out future is widely shared, New York City’s past taxpayers are the most the most blameless in the entire United States.  And New York City’s public employee unions and contractors have been the most unfair to other city residents.  And nowhere else is even close.

That spreadsheet, for those who don’t already have it, was here.

SoldOutFuture-72-16

The analysis began with a post that explained where the data came from and how it was compiled, and provided a long-term view of state and local government finance at the U.S. total level.

https://larrylittlefield.wordpress.com/2018/12/06/sold-out-futures-a-state-by-state-comparison-of-state-and-local-government-debts-past-infrastructure-investment-and-unfunded-pension-liabilities/

The spreadsheet included three tables with U.S. data for all years. The first is on state and local government debt and past infrastructure and education building construction.

It showed that U.S. state and local government debt peaked at 22.7% of the total personal income of all U.S. residents in 2010, when income was low due to the recession, and then fell back to 18.6% in 2016.  The state of state and local government debt that was “private purpose” – issued on behalf of some business interest not a government purpose – peaked at 34.3% in 1990, but has fallen.  The interest on “private purpose” debt was no longer exempt from federal income taxes after the 1986 tax reform.

State and local infrastructure construction investment was at a high 1.63% of personal income in 1972, a level that many believed excessive.  From 1977 to 1981, before the anti-tax, anti-government era began and government spending on health care for seniors exploded, it averaged 1.36% of personal income.   I decided to use this as my baseline amount.

But since then it has averaged just 1.08% of personal income. This despite the fact that federal aid to state and local government for infrastructure was barely lower as a percent of personal income from 1982 to 2016 on average than it had been from 1977 to 1981.  Spending on Transportation fell from 0.81% of personal income from 1977 to 1981 to 0.75% of personal income from 1982 to 2016.  The decrease in total infrastructure construction as a percent of personal income may not seem like much of a drop, but it adds up slowly over time – it added up to more than $1.1 trillion by 2016 (in $2016).  Lobbyists for the construction industry typically report an infrastructure spending deficit that is three times as large, and rising.

There was as shift from highways to mass transit over the decades, which might be why some cities – which had been taxed to build the suburbs as their own infrastructure deteriorated – started to recover after 1980.  (Most never recovered).  But total transportation investment nonetheless fell.  So did total investment in water and sewer systems.

By my reckoning, for the rich early retirement pensions most public employees have been promised to be fully funded, without shifting their cost to less well off later-born generations of taxpayers, annual benefit payments should be no more than 4.0% of total pension plan assets in stable “mature” plans. And an even lower percent of assets in growing areas with relatively few current retirees collecting benefits, relative the number of current workers earning future benefits.  But the U.S. average only approached 4.0% during the dot.com bubble of the late 1990s, when asset values were temporarily over-inflated.  In 2016 total state and local government pension benefit payments equaled 7.9% of pension plan assets, or half the amount I would say was required.  Those who oversee those pension plans claim their underfunding is not that dire on average, but it is they who said for years there was no problem at all, and they who have left us in this situation.

Pension benefit payments to retired public employees have increased from 5.2% of the wages and salaries of public employee still on the job in 1972 to 30.7% of those still working in 2016.  Pension benefit payment to retired public employees equaled 1.77% of everyone’spersonal income in 2016, up from just 0.41% in 1972.  This would not have been a problem if the pensions public employees were originally promised were all they got, and those originally promised benefits were fully funded. Neither is true almost everywhere.

During the years from 1982 to 2016, the total U.S. state and local government tax burden has averaged 10.2% of everyone’s personal income.  It was at 9.9% of personal income in 2016, an above average economic year when income was relatively high.  It had been 10.7% of personal income in 2008.

The wages and salaries of state and local government employees on the job and providing services, however, fell from 7.9% of total personal income in 1972 to just 5.8% of personal income in 2016.

Taxpayer contributions to public employee pension funds increased from 0.57% of personal income in 1972 to 0.87% of personal income in 2016 – still not nearly enough.

Taxpayer pension contributions had increased from 7.2% of state and local government payroll in 1972 to 11.5% in 1984, before being cut to just 6.5% of payroll in 2002.  It then soared to 15.0% of payroll in 2016.  Today’s public employees themselves are also contributing more to their own pensions, as a percent of their wages and salaries, than past public employees – those now retired – had contributed in the past.

 

The next post analyzed state and local government debt and past infrastructure and education building construction expenditures in more detail, by state.

https://larrylittlefield.wordpress.com/2018/12/12/sold-out-futures-by-state-in-2016-debt-and-infrastructure/

It had one big table for all 50 states, which I have broken in two to make it visible.  The first of these is on FY 2016 state and local government debt.

And shows that while the U.S. average for total state and local government debts was 18.6% of total U.S. residents’ personal income in 2016, New York’s state and local government debts totaled 29.5% of state residents’ personal income that year.  That would have ranked 51st (worst) among the 50 states plus the District of Columbia.

New York City is even worse off.  Including a share of the debts of the State of New York and the Port Authority of New York and New Jersey, its state and local government debts equaled 38.6% of city residents’ personal income, which would have ranked 51st and worst by far, if New York City were a separate state.   Private purpose debt equaled 5.5% of personal income for NYC, which would have ranked 43rd.  Annual interest payments on state and local government debts sucked up 1.54% of the total personal income of all city residents, the worst.

Thanks to high State of New York debts, if the rest of New York State were a separate state it would have ranked 40th in total state and local government debt as a percent of personal income, 11th from the worst, at 20.2% of personal income.  That is about the same as the state and local government debt levels in New Jersey and Connecticut, at 19.4% of those state’s residents’ personal incomes.

The next table is on past infrastructure and education building construction over the decades.

The only good news in the whole analysis for New York is that based on past infrastructure construction spending, New York City and the Rest of New York State were not much worse than the U.S. average.  New York City’s 1982 to 2016 state and local government infrastructure construction expenditures averaged 1.09% of city residents’ personal income, slightly higher than the U.S. average of 1.08% of personal income.  That still came to a deficiency of $30 billion dollars over the years, however.  The Rest of New York averaged 1.27% of personal income, for a total deficiency of $16 billion.

But there is a dark side for New York to even this story.  For the city, the merely typically insufficient infrastructure investment starting in 1982 came after two decades of massive disinvestment.  Disinvestment that had left the city’s infrastructure a wreck, and subsequent reinvestment as the city recovered has not been nearly enough to catch up.  Moreover, much of that investment was in water and sewer infrastructure as a result of projects mandated by the federal Environmental Protection Agency.  So for transportation, the city’s gap compared with the already inadequate national average was far worse.

Then there is the question of how much in actual infrastructure was received in exchange for the infrastructure spending that New York has done in recent decades.  Politically influential construction contractors, consultants and unions have worked the system to vastly inflate the cost of every thing that has been built and rebuilt, compared with anywhere else.  Which means that far less investment has taken place than even the dollar figures would imply.  A ride on the subway is enough to know what that has meant in reality.

Still just based on dollars spent, past infrastructure construction expenditures were far more inadequate in New Jersey, Connecticut and elsewhere in New England than they were in New York.  They were also more inadequate in California than in New York from 1982 to 2016, although that followed a couple of decades of high investment in California and low investment in New York.  Worst off of all, with a rank of 51 in past infrastructure investment, is Michigan, where the roads and bridges are falling apart and the water in many places is poisoned with lead, despite the state being surrounded by Great Lakes on three sides.

 

The following post was on the public employee pension crisis in almost all 50 states, and its causes.  If is meant to counteract a wave of propaganda and deception on this issue just about everywhere, by using actual facts collected by the Census Bureau over the decades before the crisis became public, and the lying got started.

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

More and more organizations are trying to compile estimates of how deep in the hole each state is, with regard to debts and public employee pensions. But no such estimate is as comprehensive as this one, because it includes all those little local government pension plans in states such as Pennsylvania and Illinois, and data going back decades into the past, to show how we got here and who benefitted.

The first table showed just how deep in the hole the state and local government public employee pension plans are in each state.

It shows that New York City’s pension benefit payments equaled 9.1% of it pension plan assets in FY 2016.   Which means New York City had less than half the pension plan assets needed to pay those benefits in the future.   As a result, today’s New York City residents, including those who just got here, “owe” retired and soon to retire state and local government employees nearly $220 billion for work done in the past, in some cases decades in the past, for which they have received no benefit.

That equaled 38.5% of the 2016 personal income of everyone living in New York City in 2016, which would have ranked 46th (6th worst) among the states if New York City were a separate state.  Alaska, Illinois, Ohio, Rhode Island and Kentucky were worse off than NYC.  New Jersey, whose pension woes are constantly in the news, was not as bad off as NYC.  Neither were Connecticut, nor Pennsylvania, nor California.

Somehow this is all hushed up in NYC, where the public employee unions control the pension fund boards and determine who serves as City Actuary, and leading media sources don’t want to report facts that call progressive, pro-government politics into question.  It is under Omerta.

The Rest of New York State is not as bad off as NYC either.  The New York State pensions plans, which also cover local government employees in the portion of New York State outside New York City, are reputedly among the best-funded among state pension plans.  Whereas New York City’s pension plans, which also cover employees of New York City transit, are among the worst funded.  And yet the same New York State legislature has set the rules for both the NYC pension funds and the NY State pension funds for more than four decades. So why the difference? That, too, is under Omerta.

As relatively well off as the NY State plans are, however, New York has so many public employees, and their benefits are so rich, that deficiency still equaled 22.9% of the personal income of everyone in the rest of the state, merely the 31st best off among states by that measure.

How did NYC get in this situation?  The other tables allocate the blame.

The first shows that from 1987 to 2016, a period of 30 years, New York City’s taxpayers had contributed an average of 17.0% of payroll to its public employee pensions (the city’s taxpayer pension contributions had been even higher earlier).  Compare that with your employer’s contribution to your 401K.  The U.S. average for taxpayer public employee pension fund contributions was 9.8% of state and local government wages and salaries over those 30 years.  Only Nevada was higher at 17.8%, but Nevada state and local government employees don’t get Social Security, and Nevada taxpayers are not paying the additional 6.2% of payroll in FICA taxes to fund the program.

So in reality past NYC taxpayers paid more than those anywhere else for public employee pensions.  Far more, when Social Security is taken into account.

New York City’s public employee pension funds are as deep in the hole as New Jersey’s, even though New Jersey’s taxpayer pension contributions averaged just 6.7% of payroll from 1987 to 2016, far less than the U.S. average. NYC is far worse off than the Rest of New York State, even though taxpayer contributions to the NY State pension system averaged just 8.4% of payroll over 30 years.

Despite having paid enough for public employee pensions in the past, NYC taxpayers were being hit with an even bigger bill of 33.2% of payroll in 2016, which would have been the worst among the 50 states plus DC.   (And that is not enough – it is sure to go higher, and for police officers, firefighters and teachers, it is much higher than that already).

NYC taxpayers were forced to pay 2.13% of their own personal income in taxes, not for services or benefits, but for pension contributions in 2016. That’s probably more than most working city residents are saving for their own retirement.  It is a higher percent of personal income in taxes for public pensions than in any state.  Illinois is next, with taxpayer pension contributions at 1.65% of that state’s residents personal income, on average.

Perhaps for this reason, if New York City were a separate state its 2016 state and local tax burden, at 16.2% of city residents’ personal income, would have been the highest among the states, by far.  There was no state other than New York over 13.0%.  The District of Columbia was at 14.0%. The Rest of New York State would have ranked 49th at 13.4%.

New York’s state and local government taxes have been higher than anywhere else as a percent of its residents’ personal income for decades, not just in 2016, aside from the odd year when high state taxes revenues from the oil and gas industry make the states of Alaska, Wyoming and/or North Dakota flush, compared with the people who actually live there.

Other states with pension crises today had state and local tax burdens that were close to, or even below, the U.S. average over the decades, as a percent of their residents’ personal income.  Including (despite their reputations) New Jersey, Connecticut, Massachusetts, and California.

The propaganda you hear, from the public employee unions, from the documentary on state and local government pensions from PBS Frontline, from the Center for Retirement Research, is that ordinary people who don’t get pensions themselves deserve to pay more and more in taxes for less and less in public services because they failed to fund the pensions public employees had been promised.  And if they want to blame someone else, blame Wall Street for having provided the pension funds with inadequate long term investment returns – starting with the peak of the dot.com bubble from 2000 to mid-2001.  Even though the stock market has soared to even greater heights in the additional bubbles since.

Over the long term, including both bubbles and busts, the investment returns of all state and local government public employee pension funds in the U.S. averaged 8.7% per year from 1987 to 2016.  Far more than anyone had a right to expect.

New York City’s pension funds assumed a future investment return of 7.0% for most of that period, and 8.0% for a few years from 2000 to 2008.  The actual average return of NYC pension funds was 7.9% — and that is with extra payments to retired NYC police officers, firefighters, and teachers deducted from investment returns in the data.  The original justification for those extra payments was that NYC’s pension plans had “extra” returns that could be shared.

The average return over the long term for New Jersey’s public employee pension funds was even higher at 8.7% on average from 1987 to 2016, and that of the New York State pension system was higher still at 9.6%.   The only state where the average return over those years was significantly lower than 7.0% was South Carolina, at 6.6%.

Wall Street is to blame for many things in our economy and society. The public employee pension crisis is not one of them.  And Wall Street won’t be to blame when the latest bubble bursts either.  It’s like Donald Trump blaming immigrants, Mexicans and the Chinese for everything the executive/financial class has done to the rest of us over the past four decades.  Misdirection to hide the real blame.

Why, despite having contributed so much to public employee pensions over the decades, do New York City’s tax payers “owe” its past and soon to retire public employees so much money?

Almost nowhere in the country are retired state and local government employees merely getting the pensions they were promised when they were hired. They are almost all getting more in pension benefits than they promised, as a result of pension spiking schemes and retroactive increase in benefits.

As a result of unfunded retroactive benefit increases, pension benefits paid to retired NYC public employees had soared to 41.1% of the wages and salaries of those still on the job in 2016, which would have ranked second worst (most) if NYC were a separate state.  To put that figure in perspective, if every public employee were promised an inflation-adjusted pension at half their career average pay for one year of paid retirement for every two years worked, benefit payments would equal just 25.0% of payroll.  But on average NYC public employees get far more.  And, in fact, certain types of NYC public employees who were hired in the past get far, far more than even the 41.1% of payroll. In part because they work far fewer than two years for every year they are retired.  More like one or fewer years for every year retired.

Retroactive increases  happened just about everywhere around the year 2000, in political deals in exchange for political support.  But they have continued to happen right down to the present day in New York State, with one of the biggest – for New York City teachers — pushed through right as Bear Stearns was going down, early in the year 2008.  By the city’s United Federation of Teachers, in exchange for supporting a Republican candidate in a special election for state legislature.

https://larrylittlefield.wordpress.com/2014/07/15/the-2008-nyc-2555-united-federation-of-teachers-pension-deal-an-investigation/

As a result of that deal, which allowed teachers retire at age 55 after 25 years of work instead of the previously promised (and funded) age 62 after 30 years of work, other massive increases in 2000 and 1995, and additional pension increases and early retirement “incentives” in all the years in between, the NYC teacher fund had only about one-third the money required to pay benefits in the year 2016.

https://larrylittlefield.wordpress.com/2017/07/29/long-term-pension-data-for-new-york-and-new-jersey-to-2016-teacher-pensions/

Other NY public unions scored similar benefit increases over the years. In fact, the public employee unions might be ordering their representatives in the New York State legislature to increase their benefits again right now, in secret. Or else face an actual election with a union-funded opponent in the year 2020.

There is a massive propaganda campaign underway to make it seem as though those pension increases didn’t happen.  When Frontline decided to explain the public employee pension crisis nationwide, it went to Kentucky, where inadequate taxpayer funding is far bigger factor in the crisis.  And reported exclusively on that underfunding, and about the fees the Kentucky pension funds paid to Wall Street.  But Kentucky had a retroactive pension benefit increase too. It was never mentioned, in an hour show.  As far as people who get their information from PBS are concerned, therefore, retroactive benefit increases didn’t happen anywhere else either.

The propaganda managed to get into The Economist magazine.

https://www.economist.com/finance-and-economics/2019/11/14/americas-public-sector-pension-schemes-are-trillions-of-dollars-short

Based on information obtained from the Center for Retirement Research, it mentions low investment returns and inadequate taxpayer contributions as causes of the crisis, and focuses on Illinois and Kentucky.  Retroactive pension increases and New York City are not mentioned.

That is not an accident.  The CRR “proved” that pension benefit increases had nothing to do the public employee pension crisis, in a particularly cynical and misleading analysis, some years ago.  It only focused on carefully selected states, such as New Jersey.  New York was not one of them.  It began with the fiscal year 2001 – after most of the retroactive pension increases had occurred, and only included those afterward in its analysis.  And fiscal 2001 is before many of those increases, and the deflation of the dot.com bubble, hit pension fund books.  So the CRR could say (wrongly) that public employee pension funds were fully funded at the time.  And blame taxpayers for their failure to pay afterward, for the retroactive pension increases and underfunding that had taken place before.

(The CRR is playing the opposite game with Social Security.  In order to deflect attention from the role of the Baby Boomers, it claims that the reason later born generations are facing vastly higher taxes, deep cuts in their benefits, or both, is because of the good deal provided to those who retired – before 1950).

And as for what public employees contributed to their own pensions, it was 31.5% of total employee plus taxpayer contributions on average across the entire United States, compared with just 18.3% in New York City and 12.5% in the rest of New York State.  Or at least the data says they were employee contributions.  Many “employee” contributions in the data were in fact made by taxpayers, as part of political deals to have taxpayers also pay the employee share.  And a large share of the pension contributions actually paid by the employees are being paid by later-hired public employees, who also had their future benefits cut, to pay for the pension enrichments of those who same before.  While those who got the enrichments paid little or nothing.

And if anyone wants to make the claim that pension benefits that were retroactively enriched in secret deals with politicians were also “promised” and are also “owed” by current and future taxpayers who got nothing in return, I have a question.  How much in additional pension contributions should those taxpayers be making right now, in addition to the soaring amount already owed, to pre-fund the future retroactive pension increases that at least in New York are absolutely certain to occur?  Because this is the second time a wave of retroactive pension increases has caused taxes to soar and threatened public services to collapse in NYC.  The retroactive pension increases of the Lindsay Administration in the 1960s and early 1970s was a major cause of the devastation the city suffered through the late 1970s and early 1980s.

Note the mention of high “salary and benefits.”  The real (inflation-adjusted) wages and salaries of public employees still on the job were plunging at the time, due to the high inflation of the 1970s.

One state that is similar to New York City, with regard to distribution of pension built between the public unions and past taxpayers, is California. And unlike in New York City, where the impact of past pension increases on current tax burdens and public services is under Omerta, in California the consequences of all the retroactive pension increases around the year 2000 have been widely reported, and are widely known.

In recent years Californians have agreed to a long series of state and local government tax increases “for schools,” “for roads,” “for housing.”   Only to see all the additional money diverted to soaring pension costs, as public services and the compensation of latter-hired public employees continue to be cut. After a decade of that treatment, even the “liberal,” “progressive” residents of a place like Marin County realize that they have been robbed, and have had enough.

Pension costs feed resistance to higher school taxes in California county, study finds

In reality, however, with regard to the share of guilt for the pension crisis accorded to the public employee unions and their politicians, California doesn’t even come close to New York City, which is in a class by itself.

California’s average state & local government tax burden was 10.6% of state residents’ personal income in 2016, after having been lower earlier, while New York City’s was 16.2% of personal income.  The U.S. average was, once again, 9.9%.

Taxpayer contributions to NYC pension funds averaged 17.0% of payroll from 1987 to 2016, compared with just 12.0% for California.  The U.S. average for taxpayer pension contributions was, once again, 9.8% of payroll.

Almost all state and local government workers in New York also get Social Security in addition to their pensions.  California teachers do not.

All public employee pension income is exempt from New York State and New York City income taxes, no matter how high that income is, no matter how high total income is, no matter how early a public employee gets to retire and never do anything for anyone else again.  Public employee pension income taxable for California’s state income tax.  The Social Security payments that private sector workers get, but California teachers do not, is tax-exempt.

 

Finally, all these negatives from the past were put together in a Sold Out Future Ranking, based on how many $billions each state and area was in the hole as a percent of the total personal income of its residents.

https://larrylittlefield.wordpress.com/2018/12/20/sold-out-futures-by-state-the-sold-out-future-ranking-for-2016/

The ranking for 2016, and for 2012, is shown in this table.

In 2016, if New York City had been a separate state its combined state and local government debt, inadequate past infrastructure construction, and public employee pension debt would have totaled 80.6% of city residents’ personal income.  That would have been 50th among the states and DC, second worst behind Rhode Island.   The Rest of New York State would have ranked 29th, New Jersey was 44th, and Connecticut was 49th.  Other states that were deep in the hole include Illinois (50th), Ohio (48th), Michigan (46th), Kentucky (45th), and Pennsylvania (44th).

New York City was worst off of all in 2012.  It ranked better in 2016 because another bubble on Wall Street has once again temporarily inflated its residents’ total personal income, even though most of the benefit has gone to relatively few people, and the assets of its public employee pension funds.  I suspect that when the latest bubble deflates, New York City’s serfs will get the full experience of what the political/union class has done to them, as in the 1970s.  Perhaps you recall that 1960s song “I’d Love to Change the Word,” with its verse “tax the rich, feed the poor, until there are no rich no more.”

No rich no more?  Who are you going to tax then?  New York and California will eventually find out, and no, the money did not go to feed the poor when they had it.

I’d love to change the world, but I don’t know what to do, we’re taking our pensions and retiring to Florida screw you.

The financial burden of servicing these deficiencies is in this table.

In New York City the interest on past debts and pension contributions combined equaled 3.67% of all city residents personal income in FY 2016. That is tax money sucked into the past, with no public services or benefits in return.  It would have ranked 51stif NYC were a separate state, dead last, double the 1.83% of income for the rest of the state, nearly triple the 1.23% of income in New Jersey, and far above the 2.73% for Illinois, which was the actual worst off state at the time.

It is bound to get worse still.  With the national debt, state and local government debts, business debts and personal debts as high as they are, and given how much of the former is held by people outside the United States, if the yield on 10-year U.S.  bond were to rise to 4.0%, debt service costs would soar and the economy would tank.

But if the “safe” yield on a 10-year U.S. treasury bond doesn’t rise to 4.0% or more, there is no way that the 7.0% future returns the New York City pension funds are assuming – from the peak of yet another bubble – could possibly be achieved.

New York City’s taxpayers, public service recipients, poor and needy, and even later-hired public employees, are screwed either way.