Category Archives: bureau of economic analysis

Taxes & Generational Equity: New York State and New York City in 2020

With a deteriorating mass transit system, despite high and rising taxes and fares, and soaring rents (and property tax revenues from renters), young workers have been leaving New York City since 2015, a trend that has accelerated since the COVID-19 pandemic.  And there is talk that the wealthy will move away since they will now have to pay taxes, after not having to pay taxes in the past, according to various headlines over the past two years.  From “not taxing the rich,” according to those headlines, New York is suddenly taxing the rich more than any other state.  Even California.

In reality, of course, New York already taxed the rich, and everyone else, far more than any other state.  And it isn’t close.  As I showed here…

In FY 2017 New York State’s average state and local government tax burden was 13.8% of state residents’ personal income, compared with the U.S. average of 9.8% and 10.3% for California.  If New York City were a separate state, its burden would have been 15.1% of income, and rising, compared with 12.9% on average for the rest of the state.  And at that level, according to any elected officials who didn’t want to face a primary, and most of the local media, city residents deserved deteriorating public services, because they weren’t paying enough.

There is one group of people, however, who face a very different tax burden in New York, compared with other places.

Retiree David Fisher, 69, has lived in New York state since age 27.  He has found that while living there was expensive while he was working, New York is much more affordable in retirement.  This is primarily for three reasons: New York State doesn’t tax Social Security or retirement account distributions, the state has a program to reduce property taxes after age 65, and there’s a low cost of living in the Rochester, New York, area where he lives. 

Retired public employees, like the Senior Voters in our tax analysis of three prototypical Brooklyn couples, have it even better – none of their retirement income, paid for by poorer working serfs, is taxable.

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The One-Way Check Valve of New York City’s Fiscal Relationships

The tax revenues from the wealth of New York City are not only for the benefit of people who live in New York City.

That’s what Governor Andrew Cuomo said in 2014 when New York City was booming, Upstate the Downstate suburbs were declining, and newly-elected Mayor Bill DeBlasio wanted to raise the New York City income tax to increase revenues specifically for the city budget.  Cuomo has made the “temporary” higher “millionaires” state income tax rates permanent instead, and sent the money to the rest of the state.  

Money is fungible.

That’s what the Governor said when the “dedicated” MTA tax revenues, collected only in Downstate New York, were transferred to the state budget and spent, in part, in Upstate New York.  Even as the subway system went into deferred maintenance, and most of the MTA capital plan was unfunded and never took place.  The MTA still refuses to publish a 20-year needs statement, showing this planned decline, today.

There is plenty of money, it’s just in the wrong hands.

That’s what Mayor Bill DeBlasio said, before signing labor contracts that ensured that those who benefitted from one retroactive pension increase after another wouldn’t be asked to make any offsetting sacrifices to help to pay for it.  Those members of the political/union class in on the deals could take more without anyone else other than a small number of $billionaries being left with less, he wanted to pretend. 

No blue state bailouts.

That is the attitude of Kentucky Senator Mitch McConnell’s view of the federal money being sent to “fiscally irresponsible” declining Blue States, perhaps at the expense of “self reliant” Red States.   

All but the last of these statements were made at a time when educated and talented Millennials, and the businesses that sought to hire them at low wages, were pouring into a small number of large central cities, including New York, even as the cost of real estate soared and the standard of living fell, creating a gusher of federal, state and local tax revenues pushing outward.  The reversal of this started slowly in the mid-2010s, after subway service decline to a “state of emergency” level as inflation-adjusted rents and sales prices peaked in NYC – and then surged during 2020 in association with the pandemic.  

So now, will money flow in the opposite direction, from other parts of the U.S., New York State, and from the political/union class to ordinary New Yorkers?   Or are New York City’s fiscal relationships a check valve that only allows money to flow in one direction?

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Local Area Personal Income Data for 2019: The Biggest Boom for NYC (Relative to the Rest of the Country) Since the 1920s

The release of Bureau of Economic Analysis Local Area Personal Income Data for 2019, following the earlier release Current Employment Survey data from the Bureau of Labor Statistics, and American Community Survey data from the U.S. Census Bureau, completes the chronicle of the period from 2007 to 2019, from the peak of one economic boom to another.  

And what a boom it was for New York City.  Not since the 1920s has NYC prospered as much compared with the nation as a whole, and back then large areas of the city were still undeveloped, allowing it to expand geographically.  Kings County (Brooklyn) added the most new housing of any U.S. county that decade.  By 2007, in contrast, the NYC metro area was either densely developed, or developed and restrictively zoned, 75 miles out from the center in all directions.  So for the first time since the start of the suburbanization era growth was concentrated in the center, in NYC and urban areas such as Hudson County, New Jersey.  As we eventually face the recession and fiscal crisis that was due before the pandemic even hit, it is worth remembering that Governor Cuomo, Mayor DeBlasio, the NY state legislature and NYC council benefitted from a gusher of tax revenue that should have provided a foundation for a better future.  If it didn’t, we were robbed.

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Bureau of Economic Analysis Local Area Personal Income Data for 2019: So This is What Was Meant by the “Fairest City in America!”

Two kinds of people have been getting richer.  The top executives who sit on each other’s boards of directors and vote each other a higher and higher share of private sector pay, to the detriment of investors, consumers, and other workers.  And retired and soon-to-retire public employees in places like New York City, who cut deals with the politicians they control to retroactively increase their already comparatively rich pensions, to the detriment of public service recipients and taxpayers.  There is the executive/financial class, the political/union class, and the serfs.  

The serfs continue to become worse off, adjusted for whatever point we are in the economic cycle.  In fact the economic cycle is part of what the executive/financial class and the political/union class use to put the serfs further down.  At the peak of a boom, they sign irrevocable deals to give themselves more because there is “plenty of money” and no one needs to be made worse off to pay for it.  But then a recession hits, and the serfs end up with higher taxes, diminished services and public benefits, and diminished pay and benefits funded by their employer, due to “circumstances beyond our control.”  Those cutting the deals never give anything back, since they have “a contract” that others, who received nothing in exchange, have to make good on.  Among the worst off victims – those in later-born generations, since those in older, earlier-born generations generally “grandfather” themselves from all related sacrifices as well.

Bureau of Economic Analysis Local Area Personal Income data was recently released for 2019, almost certainly the peak of the economic cycle that started from the bottom in 2010.  And it shows that here in Downstate New York, we have reached a milestone.  The average (mean) earnings (cash plus employer benefits) those working in the Finance, Insurance and Real Estate sectors (including both employees and the self-employed) was $122,813 that year. The rest of the private sector averaged $81,575.  The mean earnings for state and local government workers Downstate, meanwhile, was $124,095.  That is not only 52.1% higher than the mean for the rest of the private sector, including all the one-percenters outside finance, a record high difference.  But also – for the first time – more than the Finance, Insurance and Real Estate sectors. So that is what was meant by “fairness” around here!

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How Did New York City Government Recover from the 1970s Fiscal Crisis?

The legend has it that New York City avoided bankruptcy, and recovered to become the thriving city it was until recently, because all of its interest groups got together and agreed to “shared sacrifice.”  The public employee unions agreed to contract givebacks, and having their pension funds invested in the city’s bonds.  The banks agreed to roll over the city’s debts.  The rest of New York State, under the leadership of Governor Hugh Carey, agreed to shift resources to NYC.  And the federal government, after initially telling New York City to “Go to Hell,” finally decided it had sacrificed enough and agreed to a bailout.  These powerful players made the sacrifices, and ordinary New Yorkers reaped the benefits.

I’m here to tell you that the legend is a lie, a politically convenient lie.  The people negotiating in the room deferred and lent a little, but gave back nothing.  The ordinary New Yorkers outside the room then made all the sacrifices required to pay back every dime, and then some, in higher taxes and collapsing public services.  The poor were left to suffer and die unaided, with the Bag Ladies dying in the street, the schools collapsed, the infrastructure deteriorated, the police allowed city residents to be victimized by crime on a large scale, and the streets and parks filled with garbage. Property in large areas of the city was abandoned, and life expectancy fell.

Decades later, some city services hadn’t fully recovered. The beneficiaries, relocating to the suburbs, a few enclaves within the city, or retired to Florida, and the better off, were mostly unaffected.

In reality New York City recovered because things happened that those negotiating over its corpse could not have expected.  This post will explain, and use data to show, that high inflation was real reason New York City recovered from the 1970s fiscal crisis.

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The Bureau of Economic Analysis on State and Local Government Pension Funding

A couple of years ago, I did an analysis of government finances data from the U.S. Census Bureau over the decades, to measure the extent to which each state’s future had been sold out with regard to (among other things) underfunded public employee pensions.

The worst off state when I did this analysis for FY 2012 was Rhode Island, where FY benefit payments equaled 13.3% of pension assets that year. In FY 2016 that had increased to an even worse 13.6% in Rhode Island, but that state was nonetheless only the second worst off state.  The worst off state in FY 2016 was New Jersey, where pension benefit payments equaled 13.8% of pension fund assets in FY 2016, up from just 11.8% in FY 2012. New Jersey only had enough pension fund assets to pay for 7.2 years of benefits.  The third worst off was Kentucky, with benefit payments equal to 13.5% of pension fund assets, followed by Alaska at 13.4%, Pennsylvania at 12.2%, Illinois at 11.8%, Connecticut at 11.7%, South Carolina at 10.8%, Massachusetts at 10.5%, and Michigan at 10.4%…For the City of New York pension funds, soaring taxpayer contributions and another stock market bubble increased pension fund assets to the point where benefit payments were 9.1% of assets in FY 2016, up from 8.8% in 2015 but down from 11.8% in 2009.  That is still less than half the assets those pension funds required.

At the time I speculated that a more sophisticated analysis, one that took into account that fact that states with rapid population growth might have relatively few retired public employees from a less populated past, but could still be underfunding the pensions that the large number of public employees on the job today were currently earning, might be heading down the same road that has caused pension crises in the states listed above.

The more sophisticated analysis has arrived, from the U.S. Bureau of Economic Analysis.  And it in fact shows massive public employee pension underfunding not only in the states generally associated with bad fiscal practices, but across the board.

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Big Government? Where it is By State

As the future of later born Americans continues to get cashed in to benefit Generation Greed, the executive/financial class, and the political/union class, with no commentary or acknowledgment in this phony, tribalist political campaign, there isn’t much left to say that I didn’t say four years ago.  The “revolutionary” Donald Trump kept things going in the same direction, but an accelerated pace, with more tax cuts for the rich, more debt, more benefits for his generation, and an ever-diminished future for those coming later.  This followed the Obama Administration, perhaps the most conservative (with regard to the original meaning – trying to keep things the same) since Hoover in the face of an economic and social collapse. The system was preserved, so the winners on the inside were protected.  The average life expectancy of those born after 1957 fell.

At this point, it’s all about keeping the privileges for your interests while using tribalism to shift the blame.  Since federal elections are decided by state, however, it might be illuminating to show which states had the “biggest government” in 2018, according to data provided by the Bureau of Economic Analysis.  It was the very states where a majority of the people will say they are against big government.  They are actually in favor of big government for themselves, against having to pay for it, and against any services and benefits for anyone else, particularly the later-born generations who will be left with their debts.

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The Coronavirus and Commercial Real Estate: In the Long Run Neither is the Real Threat to New York

The debt-driven U.S. economy was heading for a crash before the coronavirus even hit.   And in some metro areas, including New York, the excess concentration of economic activity during the past decade had sent the cost of commercial and residential real estate to unaffordable and unsustainable highs.  Moreover, the wealthiest generations in U.S. history are now over age 62, with later-born generations much poorer – and facing large costs from the past as well.  And now a once in a century pandemic has accelerated an economic and social crisis that was always in the cards.  None of this, obviously, is good.

With regard to commercial real estate, however, a market adjustment that some might see as a calamity is actually part of the solution. Lower housing prices would allow later-born generations to pay less for housing, offsetting some of their other disadvantages.  Lower residential rents might cause apartments to go through bankruptcy, foreclosure and workout, eventually causing existing asset holders to take losses on mortgage-backed securities.  But the lower building prices would allow future landlords to charge less and still make money, in turn allowing tenants to live better on their lower incomes.  Lower commercial rents could also cause the value of commercial mortgage-backed securities to fall.  But they would also make it easier to open a business, even if it doesn’t produce a high level of revenue per square foot right off the bat.  A market adjustment on the price and property value side, and private sector creativity, could forestall damage on the occupancy side, allowing buildings – and the communities they are located in — to be re-occupied and maintained, and the economy to re-boot.

And yet there is the possibility that things will turn out much worse for many parts of the country, including New York City.  I would divide the real threats into three categories: federal, state and local.

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Graphic Summary: 2017 Census of Governments Data

Over the past six weeks, I’ve posted a series of analyses of state and local government finances using data from the Governments Division of the U.S. Census Bureau, starting with the 2017 Census of Governments and including similar data for prior years.  The posts include well over 200 pages of text, 296-plus charts, 25 tables, 34 spreadsheets with that data, those tables and those charts, plus additional spreadsheets. It is the fifth time I have done this, based on the Census of Governments, which comes out every five years.

Did you read them all?

If not, I will now attempt to summarize what the data said about state and local government in New York City compared with the rest of the country, prior to the cornonavirus crisis, with a series of selected charts and a sentence or two each.  Most of the data is for all the governments in a state or county added together, with revenues and expenditures divided by the personal income of everyone in that state or county, to adjust for the relative cost of living and ability to pay. The first post in the series, which includes spreadsheets with revenue and expenditure data on the full scope of state and local government activities, and explains where the data comes from and how it is tabulated, is here.

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