Sold Out Futures by State:  Debt and Infrastructure for FY 1972 to FY 2019

The federal government just passed a $ 1 trillion “infrastructure bill” that, for a while, will increase the amount of federal funding for infrastructure.  Most of the actual spending, however, will be continue to be done by state and local governments, just as has been the case in the past.  The modest increase in spending, adjusted for inflation, is intended to address a backlog of needed projects.  But federal funding is only one source of money for state and local infrastructure.  State and local taxes are another, and bonds, usually paid off over 30 years, are a third. 

The extent of infrastructure varies from place to place.  In rural areas the only public infrastructure might be a county or town road, supplemented by power supplied by a rural electrification co-op, and telephone and postal service cross-subsidized by those in cities.  Instead of paying for public water, sewer, and solid waste collection, people provide these for themselves.  In cities, on the other hand, there may be mass transit, public sidewalks, airports, seaports, public water, sewer, solid waste collection, and in some places public electric utilities.  So do low-density rural states spend less on, and receive less in federal funds for, infrastructure?  Do states with low past infrastructure spending also have low debts?  How are the estimated $1.4 trillion infrastructure spending shortage and the $3.2 trillion in state and local government debt distributed around the country?  Read on and find out.

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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, now updated with a few more charts.

For those who prefer pictures of spreadsheet tables to spreadsheet tables, the amount of state and local government of debt as a percent of personal income, by state, may be found in the table below.

In an upset, in FY 2019 New York State was no longer worst in the country in total state and local government debt as a percent of state residents’ personal income.  The huge economic boom in New York City that ended two years ago had reduced statewide public debts to 26.3% of state residents’ personal income, less than Kentucky at 27.1% percent of personal income. 

If New York City were a separate state, however, it would still be the worst off, by far, with state and local government debt at 36.0% of city residents’2019 personal income, more than double the U.S average of 17.2%, and ranking 51st (last) of 50 states plus the District of Columbia.  The debts of the Rest of New York State would come in at 19.4% of personal income, and rank 40th.  

Other states where richer, earlier-born generations have most harmed those coming after through bonded debt include Hawaii, with bonded debts equal to 22.6% of that state’s residents’ personal income, Illinois at 22.0%, North Dakota at 21.8%, Alaska at 21.0%, Rhode Island at 20.0%, California at 19.9%, Connecticut at 19.8%, and Washington State at 19.7%.  

Including an allocated share of the debts of the Port Authority of New York and New Jersey, the debts of the State of New Jersey and its local governments equaled 15.9% of that state’s residents’ personal income.  The fiscal irresponsibility of the State of New Jersey, with pension bonds issued to avoid making taxpayer pension contributions, and virtually all of the money in the state’s transportation trust fund going to debts run up to keep gas taxes low, is well known. But New Jersey’s local governments, in total, have relatively little debt compared with the relatively high average incomes of New Jerseyans.  In addition, most of the state’s water is supplied by private utilities (the Water Works in the Monopoly game), and the debt of those utilities is, therefore, not counted here.

I have not added an adjustment for the rate of population growth, even though rapidly developing areas need to build new infrastructure, whereas slow growing or stable areas can rely on the infrastructure they already have.   This is 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 same number of people that are already there, and perhaps a few more (or fewer).  The high debt states, however, include many with slow growing or even declining populations.  Meanwhile fast-growing Nevada and Texas, among the ten most indebted the last time I did this compilation, are off that list now.  They apparently attracted enough new taxpayers to share in the burden of those debts, reducing their size relative to personal income.   

Among the states with the least state and local government debts as a percent of their residents’ personal income, one finds slow-growing, low-density, rural states such as Wyoming (state and local debts equal to just 5.6% of state residents’ personal income), Idaho (7.5%), Montana (10.4%), New Hampshire (11.9%), Iowa (12.3%), Maine (12.4%), Mississippi (12.4%), and South Dakota (12.8%).  But also some fast growing, suburbanizing states such as North Carolina (9.5%), Florida (11.4%), Georgia (11.7%), Virginia (13.3%), and Arizona (13.3%).  

How are these states paying for the roads, sidewalks, water lines, sewer lines, sewage treatment plants, parks and schools in their new suburban subdivisions?  In part by having developers install them, and homeowners’ associations maintain them, so those debts and costs don’t show up on the governments’ books.  Instead of state and local taxes, residents of the new developments pay for their infrastructure in homeowner association dues.  

How that will work out when that infrastructure ages to the point where it requires replacement, even as the housing ages and is passed down to less affluent people, remains to be seen.  The way it could go wrong hit the news when the Surfside Condominium collapsed in Florida, after years of residents arguing about the cost of needed repairs.

https://www.usatoday.com/story/news/2021/07/10/surfside-condo-building-collapse-associations-fights-plans/7840468002/

The disagreements represent an extreme but familiar version of the infighting and financial planning battles that play out across the nation in condos, homeowner associations and co-ops – roughly 380,000 community associations in all. Owners or shareholders of the associations square off with volunteer and sometimes inexperienced board members elected to oversee the complexes in a struggle to maintain aging buildings while keeping monthly fees low and enticing new buyers.

“There’s always pressure to put off costs for the future that might be better allocated today,” said Thomas Skiba, chief executive officer of Community Associations Institute, a Virginia-based membership organization focused on building better residential communities. “Some boards are better than others. Some communities are better than others.”

Only 11 states require condos and homeowner associations to fund reserves for major costs, said Dawn Bauman, senior vice president for government and public affairs of the Community Associations Institute. They are Connecticut, Delaware, Florida, Hawaii, Illinois, Massachusetts, Michigan, Minnesota, Nevada, Ohio and Oregon.

Not all bonds are issued for infrastructure.  States and local governments also borrow money to subsidize private investment in commercial development, plant and equipment, on the assumption that the private investment will pay back the bonds.  At one time these public bonds for private purposes allowed private corporations to borrow with the triple-tax free advantages of municipal bonds, but the federal tax reform act of 1986 ended that ruse.  Public bonds issued for private purposes peaked at 34.3% of total state and local government debt in 1990, but have been falling since as bonds are paid off, to just 17.6% of total debt in FY 2019.  But the practice of issuing public debt for private purposes didn’t end, even though the interest on the bonds is now taxable.  According to the Census Bureau, in FY 2019 $48.9 billion in long term state and local government debt was issued for private purposes nationwide.  In 2008, a peak of $91.5 billion had been issued.  

In which states are private purpose debt the highest share of the total? 

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 was not especially high in FY 2019, despite the large number of large-scale economic development projects each government has undertaken.  Including the life sciences complex on Roosevelt Island, the computer chip plants in metro Albany, and the Solar City plant in Buffalo.   Public debts for private purposes equaled 18.0% of total state and local government debts for New York City, 20.9% for the Rest of New York State, and 14.4% for New Jersey, after allocation and adjustment.  The U.S. average was 17.6% of total debts.  

The states where public debts for private purposes were the highest percent of total state and local government debt were West Virginia (47.7%), South Dakota (47.5%), Montana (42.0%), Wyoming (41.8%), Rhode Island (40.9%), Alaska (39.5%), New Hampshire (39.2%), Idaho (37.3%), and Louisiana (36.5%).

It seems, however, that the only reason that “private purpose debt” is such a moderate percent of the debt total in New York is that the debt total is so high.

Measured as a percent of personal income, rather than as a percent of total debt, total U.S. state and local government private purpose debt equaled 2.84% of U.S. residents’ personal income in FY 2019.   By this measure New York City’s private purpose debt equaled 7.30% of city residents’ personal income, which would have ranked 47rd.  The Rest of New York State was also worse than average at 4.57% of personal income, but would been outside the worst 10.  New Jersey was at 2.29% of personal income, below average, but Connecticut was at 5.1% of personal income, ranking 42nd.  

The other states with the most “private purpose” state and local government debt as a percent of state residents’ personal income were West Virginia (8.40%), Alaska (8.09%), Rhode Island (7.61%), Kentucky (7.34%), North Dakota (6.33%), South Dakota (5.56%), Louisiana (5.31%), and Missouri (5.17%).  These, I suppose, are the states where politicians most like to play financier with public money.  Or the states where private investors are least likely to be willing to invest their own funds.

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 private purpose municipal bonds, compared with the ordinary taxpayers and public service recipients who would be sacrificed to pay them.

The precedent is clear – rich investors usually win, and taxpayers and service recipients usually lose, often to benefit hedge funds that purchased defaulted “private purpose” bonds for pennies on the dollar and then started lobbying.  Here in New York, the hedge funds that bought taxi medallion debt just got a partial bailout by the city.  One scheme after another has been hatched to have NYC taxpayers bail out the Yankee Stadium Parking Garage (affordable housing!  soccer stadium!), only to be withdrawn after becoming public.  Like this deal for $200 million in public funding, early in the DeBlasio Administration.

https://www.nydailynews.com/new-york/gonzalez-yankees-soccer-stadium-deal-200m-sheikdown-article-1.1567123

Here is an article from 2011.

If [the garage defaults], the Bloomberg administration faces the biggest default of a tax-exempt bond in this city since the 1970s. The mayor’s people downplay the problem, saying the city is not directly on the hook for these bonds, and bondholders will just have to eat some losses.

Such claims ignore that City Hall, as part of a deal with the Yankees for a new stadium, fostered the creation of Bronx Parking Development because team execs wanted a 9,000-space garage system.

They have been waiting for a chance to cut that deal for a decade.  To my surprise, with very little public disclosure or media coverage, it appears that the DeBlasio Administration in the end agreed to have the city put up $46.3 million (at least) to bail out that private parking garage failed investment, just before the city political primary in June 2021.   Fortunately, that deal may have collapsed because they are seeking even more taxpayer money.

An eleventh-hour dispute between bondholders, New York City and the New York Yankees appears to have doomed a long-anticipated, $1 billion project that would have resulted in the construction of a new professional soccer stadium, low-income housing and a broader redevelopment of one of the nation’s poorest neighborhoods, FOX Business has learned.

I guess we should be grateful New York City and State are not facing budget cuts to pay for bonds used to build Amazon’s HQ2 in Queens, just before everybody started working at home and the office vacancy rate soared.

Between the bailouts of various kinds, and the zero percent interest rate policies of the Federal Reserve, with the Greenspan, Bernanke, Yellen and Powell puts, it would seem that the number one purpose of government at every level for both political parties is to ensure that rich and older asset holders never lose money, no matter how stupid they are, and regardless of the cost to everyone else.  After that money for bailouts comes off the top, it is time to fight over how to allocate the pain to ordinary people in later-born generations to pay for it.

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.

https://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?referer=https://www.google.com/&httpsredir=1&article=2265&context=flr

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 19th century, 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, rolling deficits from one fiscal year to the next, 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 30 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.

New York had its Metropolitan Transportation Authority borrow for operating expenditures by classifying everything possible (or not really possible) as capital “reimbursable.” Every fiscal crisis has seen new and inventive ways to make later born and future New Yorkers pay for past costs.  During the 2010s Governor Cuomo and the state legislature simply rolled Medicaid expenditures in excess of the budgeted amount into the next year’s budget, as home health care costs soared, with “temporary” borrowing to pay the bills.  Repeating for the State of New York exactly what the City of New York had done in the run up to its 1975 near bankruptcy.

With the COVID-19 pandemic, however, the State of New York has joyously found an excuse to drop the pretenses and just have the state and its public authorities (such as the Metropolitan Transportation Authority) borrow $billions for the annual budget.  Covering up just how bad things are so the generations that made things that bad can sell their houses to Millennials at sky-high prices and head for Florida (and South Carolina), while leaving the later born to pay the bills.  (The soaring taxes required to pay back the debts will cause the value of those houses to plunge later).  

I fully expect that when I do this analysis again for FY 2022, New York will have reclaimed its crown as the most indebted state.

Including its public authorities, the City of New York’s debt soared to 28.5% of city residents’ personal income in FY 2011, more than during the 1970s fiscal crisis, though it fell back to 22.3% of personal income in FY 2019.  Note that the 2011 peak is now higher than I reported three years ago, presumably because the Bureau of Economic Analysis has adjusted the reported personal income of city residents downward, based on additional information.  That can happen for 2019, too.  The FY 2019 debt total was $143.5 billion for the City of New York, and $150.7 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 soared from around $9 billion in FY 2001 to around $24 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 directly responsible for the Port Authority’s debts, it seems, the Governors of New York and New Jersey have had it borrow with abandon.  We are fortunate that the agency has nonetheless been able to make some actual transportation investments such as raising the deck of the Bayonne Bridge, replacing the Goethals Bridge, and improving railroad infrastructure at Port Elizabeth-Newark, so containers can be loaded directly from ships to trains.  Moreover, the inflation-adjusted debt of the Port Authority fell to $18.3 billion in FY 2019.  That is still more than in any year prior to FY 2012 – even after adjustment for inflation.

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So not all debt has been used for infrastructure.  In which states has investment in infrastructure been the lowest?  We’ll start the discussion with a picture of the spreadsheet table.

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, perhaps the infrastructure crisis the new federal infrastructure bill purports to address would not have happened.  Instead, infrastructure construction expenditures averaged just 1.07% of U.S. residents’ personal income from 1982 to 2019, creating a cumulative shortage of past spending equal to 7.2% of 2019 personal income, or $1.4 trillion.  

It isn’t the amount spent in any one year that matters.  It is the amount spent over 40 or 50 years, on average. That’s why I had to use decades of data for this analysis.  Given how long-lived most public infrastructure is, if data were easily available for an additional 15 years in the past, back to the origin of the Census of Governments in 1957, the analysis would be even better.

How does long-term spending on transportation, environmental, and other infrastructure as a percent of personal income vary from state to state?

The state with the lowest average infrastructure expenditure during the FY 1982 to 2019 period (ranked 51st, or last) was New Hampshire at an average of 0.54% of personal income per year, far below the benchmark 1.36%.  Its accumulated infrastructure shortage equaled 20.0% of state residents’ personal income in 2019.  Next up was Michigan with an average of just 0.60% of personal income per year for a cumulative deficit of 20.9% of 2019 personal income.  That is greater percent of income than Michigan’s actual state and local government debt.  These were also the two worst states in FY 2016.

In fact, the list is little changed from the previous Sold Out Future analysis, aside from an increase in the cumulative deficit as a result of past infrastructure underfunding.  Connecticut followed, at an average of 0.65% of personal income spent per year and a cumulative deficit of 19.9% in 2019, or $55.5 billion.  Maine was next at a past spending average of 0.76% of personal income and a cumulative deficit of 15.2% of 2019 personal income.  Then Indiana at 0.79% and 13.7%, Maryland at 0.84% and 13.7%, and Rhode Island at 0.86% and 13.5%.  

California averaged just 0.87% of its residents’ personal income in infrastructure construction expenditures per year, but the high level of personal income associated with latest Bay Area boom kept the cumulative deficit at just 10.0% of its residents’ 2019 personal income.  Or $277 billion in costs from the past, plus an additional 1.36% of personal income ($37.5 billion in 2020) each year going forward. 

While the Golden State may have ranked a mere 37th in infrastructure investment from 1982 to 2019, however, that period followed 25 years of extremely high public investment in California.    Thanks to the foresight of Governor Edmund Brown, California was in great shape in the early 1980s when his son, Governor Jerry Brown, was dating Linda Ronstadt.  By the time Jerry was back as Governor in the 2010s the state had gone downhill, with only the strong legacy of the 1950s, 1960s and 1970s keeping things from being worse.

Rounding out the worst 10 for infrastructure investment was Vermont, with past spending averaging 0.89% of personal income, for a cumulative deficit of 12.0% of personal income.  The region with the least infrastructure construction investment in the past four decades is New England. Massachusetts is the only New England state outside the bottom 10, and it ranked a mere 33rd in past infrastructure construction, despite the boondoggle that was the Big Dig.   

Many of the states in the bottom 10 are also states where the federal government covers a lower share of total Medicaid expenditures.  As the population ages, and more workers lose employer-funded health insurance, Medicaid accounts for a higher and higher share of state budgets.  Those with the greatest federal funding disadvantage face a choice of lower reimbursements for their health care industry, cuts in other services, or higher taxes.  Or shifting the rising costs to the future through debts, inadequate infrastructure investment, and public pension underfunding.  Trouble is, eventually the future arrives.

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.  Instead of ranking 48th in a straight accounting, with data that assigns all of the Port Authority’s expenditures to New York City (where it is headquartered), New Jersey in fact ranked 39th – 12th from worst – at an average of 0.90% invested per year, for a cumulative deficit of 10.7% of 2019 personal income, or $66 billion in $2019.   In theory that’s how much state and local governments would have to invest in New Jersey to catch up, over and above 1.36% of state residents’ personal income going forward (or $8.4 billion per year in 2020 and more after) to avoid falling further behind.  

New York City averaged spending 1.02% of its residents’ personal income on infrastructure construction during the FY 1982 to 2019 period, for a cumulative deficit of 7.8% of city residents’ 2019 personal income, or $44.6 billion.  That would have ranked 31st if the city were a separate state.  But if you think that isn’t so bad, recall what the city’s infrastructure was like in 1982, after two decades of disinvestment. 

https://www.nycsubway.org/wiki/The_New_York_Transit_Authority_in_the_1970s

NYC is the opposite of California.  Instead of four decades of low investment made less bad by the high investments that went before, NYC has had four decades of low investment following 15 years of near zero investment.  The city has yet to fully climb out of that hole, one that continues to get deeper, because at 1.36% of personal income, the U.S. average rate from 1977 to 1981, $9.2 billion would have to have been spent on infrastructure construction in NYC in 2020, with a similar amount more each year to follow, over and above the $44.6 billion deficit from the past.  

And that is the deficit just based on money spent.  New York City may also get less actual infrastructure for its infrastructure spending than any place else in the country.  In California, a state infamous for sclerotic government and litigation, the COVID-19 pandemic was seen as an opportunity to accelerate the construction of a new subway line, considered one of the most difficult to build in the country, for the huge cost of $9.5 billion for nine miles. 

https://www.latimes.com/california/story/2021-05-25/metro-purple-line-extension-project

New York’s MTA wants $6.3 billion to expand the Second Avenue Subway by less than two miles, and calls it “a bargain.”

https://gothamist.com/news/hochul-urges-swift-start-6-billion-second-phase-second-avenue-subway

The infrastructure of the Rest of New York State, based on money spent, should be nearly as good as 40 years ago, based on an average of 1.30% of personal income spent per year on infrastructure construction, for a cumulative deficit of just 2.5% of 2019 personal income, or $12 billion.   The shift of New York State and New York Metro Area infrastructure funding from New York City to the suburbs continues to this day, with a new rail tunnel from New Jersey now budgeted, a new rail tunnel from Long Island to Grand Central soon to open, and the New York City Subway so far behind in replacing its aging signal system that another catastrophic decline in service seems inevitable.  This despite the $billions the MTA has borrowed over the past 30 years.

And in any event, there would have continue to be $10.4 billion spent on infrastructure construction in the rest of the state each year to avoid falling behind.

Aside from Washington DC, a special case whose past infrastructure construction expenditures are inflated by having the entire WMATA 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, home of the “bridge to nowhere,” averaged 3.46% of its residents’ personal income spent on infrastructure construction per year from FY 1982 to 2019, for a cumulative excess when compared with the benchmark 1.36% of $23.7 billion, or 51.0% of state residents’ 2019 personal income.  Infrastructure construction spending averaged 2.1% of the personal income of Wyoming residents, 1.94% for Nebraska, 1.88% for North Dakota, 1.87% for Utah, 1.70% for South Dakota, 1.62 for Washington, 1.61% for Montana, 1,58% for Arizona, 1.53% for Nevada, 1.42% for Hawaii, 1.37% for New Mexico and 1.34% for Iowa.  

Many of these states anti-big government politically.  Perhaps small government means government for them only, but big government means government for other people too. Some of these states are Republican fantasylands, with a very high share of state and local government spending as a share of personal income, but low state and local taxes for most as a share of income, as taxes on mineral extraction and favorable federal aid formulae pay the bills.

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 2019, down from a benchmark 0.81% from FY 1977 to 1981, New York City averaged just 0.62% (down from an average of 0.65% for 1982 to 2016).   It would have ranked 43rd among states if it were a separate state.   If New York City had invested at the FY 1977 to 1981 U.S. rate, it would have spent another $24.5 billion (in inflation-adjusted $2020) on transportation capital construction expenditures from FY 1982 to 2019.   In addition to this past shortage, spending at 0.81% of city residents’ personal income going forward would have required $5.5 billion in 2020, and more in future years.  

While New York City has far less highway and road space per person than entire states, as a city of islands it also has many bridges and tunnels that had to be rehabilitated or replaced during the 1982 to 2019 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 than 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’s transit investment has been disproportionately in stations that are associated with real estate projects, rather than basic infrastructure.  Examples include the “transit mall” associated with the PATH system at the World Trade Center and the new Moynihan Station.  These choices were made before the need for retail real estate shrunk due to the rise of online shopping.  But similar choices are being made at Penn Station, after a shift to more working at home reduced the demand for office space.  So some of this infrastructure spending was actually “private purpose.”

Fourth, New York City was already far 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.  

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 has been 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.  The last MTA capital plan that was fully funded was in FY 2014.  Additional capital plans have passed, but the planned work doesn’t happen.  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.   

Adjusted for expenditures by the Port Authority there, New Jersey was actually at the 1982 to 2019 U.S. average, with transportation capital construction expenditure averaging 0.75% of its residents’ personal income per year from FY 1982 to 2019.  That is still less than the 1977 to 1981 U.S. average, leading to a cumulative deficiency of $9.8 billion, with another $5 billion per year required going forward. 

Maintaining those expenditures in the future will be an issue, as in 2013 all transportation trust fund revenues were going to pay past debts.

https://www.njspotlight.com/stories/13/09/02/explainer-coming-up-to-speed-on-the-transportation-trust-fund/

And while New Jersey finally increased its gasoline taxes, additional bonding is likely to cause the state tor run out of money for transportation again.

The Rest of New York State was significantly better than the U.S. mean, with transportation capital construction expenditures averaging 1.02% of its residents’ personal income per year.  That was even higher than the 1977 to 1981 U.S. average benchmark, and would have ranked 12th among states for the 1982 to 2019 period.  But the rest of the state also faces future funding issues, because the State of New York has borrowed against the “dedicated” revenues in the Transportation Trust Fund for road and bridge repairs. 

https://www.democratandchronicle.com/story/news/local/2014/02/05/ny-raids-highway-tax-and-fee-fund/5227871/

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 back in 2014.  So while not behind, at least as measured by dollars, the ability of the Rest of New York State to spend the required $6.2 billion per year going forward – without further disadvantaging and draining New York City – is in question.

Other states where average past transportation infrastructure capital construction investment has been a low percent of personal income are Michigan at an average of 0.40% from 1982 to 2019, New Hampshire at 0.43%, California at 0.48%, Connecticut at 0.51%, South Carolina at 0.56%, Maine at 0.56%, Indiana at 0.59%, Ohio at 0.60%, and North Carolina at 0.65%.    

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, even as the commuter rail system was expanded.  As in New York.

The booming Sunbelt states such as Florida, Texas, Arizona, Nevada and Georgia have averaged more in transportation capital construction investment, as a percent of state residents’ personal income, than the FY 1982 to 2019 U.S. average, but not to the extent one might expect given their rapid population growth.  Many of the states with the most such expenditures are slow-growth, low-density rural states such as Alaska (2.48% of personal income on average), Wyoming (1.88%), North Dakota (1.63%), Montana (1.48%), South Dakota (1.34%), West Virginia (1.10%), New Mexico (1.04%), Iowa (1.03%), Louisiana (1.02%), and Nebraska (1.00%).

While New York City’s transportation capital construction expenditures were very low as a percent of its residents’ personal income during the FY 1982 to 2019 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 1982 to 2019 U.S. average of just 0.25% of income and a 1977 to 1981 U.S. average of 0.38%.  If New York City were a separate state, it would have ranked fourth in environmental capital construction expenditures, behind the District of Columbia (0.69%), Alaska (0.53%), and Hawaii (0.44%).  

Other high spending states include Nevada (0.36%), Arizona (0.35%), Colorado (0.34%), Oregon (0.34%), South Dakota (0.32%), Texas (0.32%), Washington (0.31%), California (0.31%), and Utah (0.31%).  In many of these states, obtaining water requires far more infrastructure than in the relatively wet Northeast.  In California, as in New York City, required water and sewer expenditures may have crowded out transportation investment.

New York City’s high level of environmental capital spending 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.

As for sewerage, the FY 1982 to 2019 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. 

New York City has borrowed $billions to make these investments.  Now the federal government is going to be providing $billions in federal money for other places to make similar investments.  Will New York City not get these funds because it “doesn’t need” them, or will it get money to pay off its federally-mandated debts?

The Rest of New York State was only slightly lower than the U.S. average in FY 1982 to 2019 environmental capital construction, at an average of 0.21% 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 49th at 0.14%.  New Jersey, Pennsylvania and Vermont were 48th, 47th and 46th 0.15%.  Ranking 41st, at 0.17%, was Michigan, where a lead in the water crisis has hit several communities.

It is not possible, using Census Bureau government finances data, to estimate how much federal infrastructure money has gone to New York City and the Rest of the State separately, since most of it is paid to the State of New York and then passed on to localities as state aid.  What can be said is that from FY 1982 to FY 2019 federal infrastructure aid to states averaged 0.399% of personal income nationwide, but just 0.343% of personal income for New York State.  

The states that were even worse off included Florida (0.291%), Virginia (0.320%), California (0.322%), New Hampshire (0.333%), New Jersey (0.335%), and Michigan (0.340%).  Other states ranking near the bottom in federal infrastructure expenditures are Ohio (3.51%), Connecticut (0.352%), Massachusetts (0.357%), Wisconsin (0.358%), Minnesota (0.364%), Maryland (0.365%), Texas (3.72%), Colorado (0.381%), Indiana (0.391%) and Arizona (0.395%).  The Northeast and Midwest have received less in federal infrastructure funding by this measure, for decades.

After the District of Columbia, which may be an exaggeration due to in the inclusion air to WMATA for projects that actually took place in Maryland and Virginia, the states getting the most federal infrastructure money during the 1982 to 2019 period, per year as a percent of their residents’ personal income, were Alaska (1.764%), Wyoming (1.24%), Montana (1.198%), North Dakota (1.102%), South Dakota (0.996%), West Virginia (0.846%), Vermont (0.810%), Idaho (0.656%), New Mexico (0.633%), Utah (0.628%), Rhode Island (0.624%), Mississippi (0.601%), Arkansas (0.542%), Hawaii (0.51%), Kentucky (0.499%), and Alabama (0.499%).  Despite these high levels of past federal infrastructure funding relative to state residents’ personal income, politicians form many of these states claim they are forced “donors” to places like New York.  That is because the federal gasoline tax has been one of the major sources of federal infrastructure funding, and these are states where people drive a great deal and buy a lot of gasoline.

On the other hand, no other type of federal spending is allocated based on taxes paid.  If it were, the Northeast and West Coast, the areas that pay the most in federal taxes overall, would get more of it.  They don’t.  And the new federal infrastructure bill is not being paid for with additional gas taxes.  It is mostly being paid for by borrowing, debts that everyone will have to pay back.  So, will New York and California get a higher share of the $1 trillion in additional federal infrastructure spending?

https://www.usnews.com/news/best-states/articles/2021-11-19/the-states-getting-the-most-money-from-the-infrastructure-bill

Some states might be drawing the short straw. Florida and North Carolina are each getting less than $1,000 in per capita funding from the law – the smallest allocations among states. And while California is set to receive the largest total funding at $45 billion, it is only set to receive $1,127 per capita. 

 Which is about the same as New York, at $1,333 per capita.  And if the past is any indication, a disproportionately low share of the money going to New York State will be going to New York City.  I’ll say it again – federal infrastructure spending is an engine of urban decline, and the only level of federal spending in the category at which New York and other older central cities will be treated fairly with regard to the benefits and burdens is zero.  No matter how much propaganda Senator Schumer puts out.

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 38 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 0.41% of its residents’ personal income spent on education facilities capital construction expenditures per year during the FY 1982 to 2019 period, excluding higher education spending on “auxiliary” enterprises such as sports stadia, dormitories, and cafeteria.  New York City averaged 0.36% of income over these years, moderately below average, and would have ranked 27th as a separate state.  But that followed a long period in which the city’s schools were left to fall apart.  In addition, NYC receives for bad value for its school construction spending too.

https://nypost.com/2021/11/27/nyc-school-construction-costs-highest-in-tri-state-area/

In the Bronx, a 46,000-square-foot expansion of PS 33, which will add 388 seats, costs a reported $70 million. In Jersey City, a new 53,000-square-foot school that will serve 480 students, BelovED Charter High School, reportedly costs just $12.5 million.

The Big Apple construction bill is more than $1,500 per square foot — a price that would be too high for a “crazy-fancy private hospital,” let alone a school, one industry source told The Post.  The tab in the Garden State comes to less than $250 per square foot…

When presented with the Bronx school’s cost, one real-estate official, who declined to be named, said $1,500 per square foot was outrageous — and that the “only way” costs could run that high for a school is if a public authority was behind it.

The Rest of New York State matched the U.S. construction spending level as a percent of personal income.  Often using state funding, paid for in part by New York City taxpayers.  It would have ranked 26th as a separate state.  New Jersey averaged 0.33% of personal income, ranking 36th.  The states with the least average education capital constructure expenditures over the decades were Rhode Island (just 0.09% of state residents’ personal income), New Hampshire (0.22%), Maine (0.23%), Massachusetts (0.24%), Connecticut (0.24%), Vermont (0.25%), Louisiana (0.28%), West Virginia (0.28%), Tennessee (0.31%), Wisconsin (0.32%), Illinois (0.32%), and Missouri (0.32%).   The New England states, not big on spending a big share of their incomes on public infrastructure, aren’t big on spending on public school buildings either.

The highest spending states on average, as a percent of state residents’ personal incomes, are the low-density, frontier-like states of Alaska (0.91% of state residents’ personal income per year) and Wyoming (0.80%). This was followed by low income New Mexico (0.75%), and fast growing Texas (0.61%), Washington (0.60%), Arizona (0.55%), Utah (0.56%), Georgia (0.49%) and Nevada (0.47%).  South Carolina (0.56%) and Alabama (0.48%) are also near the top.   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.

We’ll conclude this post with a series of charts showing total infrastructure construction expenditures as a percent of personal income for individual years for selected states.

New York City has been consistently below the U.S. average aside from 2009 to 2015 period.  That was also a period of relatively high federal infrastructure aid revenues, nationwide and in New York State.  Despite the highest state and local government tax burden in the country as a percent of personal income, New York has very little of its own money for infrastructure, spending only when it can jack up debts or Washington pays the bill.

Massachusetts has also been consistently below average, aside from the Big Dig – which also benefitted from lots of federal monehy.  New Jersey, Pennsylvania, and Connecticut have also been consistently below average.  But the Rest of New York State has been consistently above average, due to state policies to direct investment away from New York City.

Michigan’s infrastructure construction expenditures were above the U.S. average as a percent of personal income in FY 1972, but have been below average since.  Ohio has been below the U.S. average in every year for which data is readily available.  Minnesota and Illinois have invested more in the past, and done better economically than Michigan and Ohio.  Both fell below the U.S. average in FY 2018 and 2019, however.

California has a high government spending reputation, and Texas the reverse.  With regard to public infrastructure construction investment, however, Texas has been consistently above the U.S. average as a percent of state residents’ personal income, and California consistently below average.  Even though California has more public infrastructure that has to replaced and maintained, including extensive rail mass transit, long distance water supply, and quite a few publicly owned electric utilities.

Florida and Georgia have had an above average level of public infrastructure investment in most years, over and above the infrastructure they require developers of private communities to build and maintain themselves.  They don’t like to spend government money on much down there, but they do spend on this. As much road construction has gone on in Georgia, however, you still don’t want to drive around metro Atlanta at rush hour.

So is the $1 trillion federal infrastructure bill a lot?  Is it enough?  Those who are paid to build infrastructure would say no, but the extent to which they continue to charge more and more, rather than find ways to do the work more efficiently, especially in New York is one reason why.  Even so, the bill contains host of provisions designed to ensure they can take even more, leaving everyone else with less.  Expect increases in pension benefits in the industry. And you won’t get the same value for the dollar trying to catch up in 10 years that you would have spending the same money carefully over the past 40.

Moreover, some of the money will likely be spent on boondoggles, and more money will be going to those states and places that already got more in the past.  In addition, to cover the fiscal gap as I measure it state and local governments would have to add an extra $400 billion of their own.  Had they been willing to do so in the past, we wouldn’t be in this situation.  Finally, even if all goes well an $1.4 trillion were effectively spent, that would still only get the U.S. to the average infrastructure extent and quality it had when Jimmy Carter was President.  Those expecting the infrastructure of Europe and parts of East Asia are going to be very disappointed in the best case, and I wouldn’t bet on the best case with Generation Greed still in charge.

The next post in this series will be about that other off the books debt shifted to poorer later-born generations, public employee pension funding shortages.