If there is one thing that virtually every public policy commentator and politician seems to believe, it is that more should be spent on infrastructure. And yet the direction of public policy has been in the exact opposite direction, with maintenance often unfunded or funded by debts that now soak up a large share of revenues dedicated to roads, bridges, airports, and transit, water and sewer systems. The trend has been at its worst in the Northeast. And as costs from the past, including pension funding and debt service, increased between FY 2004 and FY 2014, expenditures on the future – on the infrastructure – decreased when measured per $1,000 of personal income. It’s a trend that, according to anecdotal evidence, continues to this day, with consequences that continue to appear over time as the sold out future becomes the present.
State and local government public services and benefits are getting squeezed. There is less money available for them because of rising costs from the past, notably under-funded and retroactively enhanced pensions for public employees who are already retired or soon to retire. In some places, as noted in the prior post on taxes, this squeeze has been exacerbated by falling taxes as a percent of personal income. The total wages and salaries of those public employees who are still working are falling as a percent of taxpayer personal income just about everywhere, as is spending on services for the needy (other than those associated with health care). And the anecdotal evidence suggests that since FY 2014, the latest year for which data is available, the squeeze has gotten worse. Despite the third biggest stock bubble in history by one measure,
which makes public employee pensions seem better funded than the really are, years of zero percent interest rates, which reduce state and local government interest costs, and a long-running economic upcycle, which has boosted tax revenues.
Whatever this data shows, things have gotten worse since in most of the U.S.
When measured as a percent of state residents’ personal income, the combined state and local government tax burden of New York State and, in particular, New York City is uniquely high compared with other states. Reputedly high-tax states such as Massachusetts, New Jersey, Connecticut and California aren’t even close. The only states where the tax burden is higher than, or even close to, New York are large, low-population states with extensive tax revenues from oil, gas, or other mineral production: Alaska, Wyoming, and more recently North Dakota, where a “fracking” boom has given way to bust. In these states residents and other businesses pay little in taxes – in Alaska they actually get checks. The Census Bureau data for FY 2004 to FY 2014 shows New York’s tax burden rising further, even as the average U.S. state and local tax burden remained close to 10 percent of personal income, about where it has been for decades. And yet all one hears in New York’s media is demands for still higher funding, and higher taxes, and higher staffing, and higher pay, and richer pensions made by New York’s public employee unions and the politicians they control, particularly in those in the New York State Legislature.
While the U.S. average is stable, the data shows a divergence among states. In many other states with above average state and local tax burdens in FY 2004, those burdens also increased further by FY 2014. And in many states where the tax burden was already below average in FY 2004 it fell even further, even in the face of soaring pension costs that have pressured state and local government budgets throughout the country. In several Midwestern states – Wisconsin, Ohio, and Michigan – the tax burden fell from somewhat above average as a percent of income to average or somewhat below, despite weak per capita income growth. In these aging states, public spending on seniors is rising, not only through federal programs that our current President has promised to protect (and his party has promised to protect for current beneficiaries but not younger generations), but also for the pensions and benefits of retired public employees. So the shrinking tax burden just adds to the downward pressure on other state and local government services, which benefit other age groups. What do those three states, plus Pennsylvania which has a below average tax burden despite soaring pension costs, have in common? A spreadsheets, further commentary and charts follow.
The Governments Division of the U.S Census Bureau released its detailed state and local finance data for FY 2014 on January 31, and I have compiled it and produced a couple of large tables – one for all state governments and one for all local governments by state – comparing that year with FY 2004. The data shows, by category, the amount of revenues (property taxes, federal aid), expenditures (public school spending, police department spending) and debt for every state in the country and, at the local government level, for New York City and the Rest of New York State separately.
To be comparable across states and across the years, the data is presented per $1,000 of the personal income of all the residents of each state. Think of it this way. Your household else spends X percent of its household budget on food, X percent on housing, etc. And, via the taxes and government fees you pay, X percent of its income on public schools, X percent on police, etc. The data is presented per $1,000 rather than as a percent to make the data for small categories easier to see. I plan to write a series of posts, with additional tables and charts, for different aspects of state and local government finance separately. But in the triumph of hope over experience, in this post I will explain where the data comes from and how it was compiled, provide the whole database for download up front, and invite people to look at the numbers themselves at the same time I do, and decide for themselves what the data means. Before getting my take on it.
Not long ago, the U.S. Bureau of Economic Analysis released its Local Area Personal Income data for 2015.
And I downloaded some data, using the “interactive data” tool to the right on the website, to see if various trends I have observed in the past have continued. The data show that the Tri-state area continues to be a much richer than average part of the U.S., due mostly to those living and working in Manhattan (many of the richest of whom live in the suburbs), but Brooklyn, the Bronx and Queens remain relatively poor. Manhattan is rich enough that New York City’s share of the nation’s personal income is stable even as its share of the nation’s population continues to fall. In New York State the total earnings per worker of state and local government workers (including employee benefits) continues to soar relative to the earnings of most private sector workers, who are left worse off as a result. The idea that lower wages for private sector workers are offset by, and in some sense caused by, higher employer costs for employee benefits hasn’t been true for more than two decades, and Obamacare did nothing to alter this. And more and more people have become self-employed, freelance, and contract laborers, rather than being employees at all, and the average earnings of such workers continues to fall. A series of charts and some discussion follows.
This year’s election is finally coming to an end, and as expected I didn’t watch any of the debates. Did I miss anything?
As I noted in my prior post,
the business cycle, with expansions and recessions, means that comparisons over time for data items such as work earnings and income are only meaningful if one compares economically similar years. The press reports an increase in inflation-adjusted work earnings from 2014 to 2015, but that is merely what should be expected in an economic upturn. A comparison between 2005 and 2015, on the other hand, shows falling median earnings over the business cycle. As a follow up, with economic trends for U.S. men compared with women, and less educated workers compared with more highly educated workers, an issue in the Presidential election, I downloaded some additional American Community Survey work earnings data to see that the actual situation is – in the U.S., NYC, and nearby areas.