SECTION 6: DEBT, INTEREST, CAPITAL SPENDING, AND TRANSPORTATION

This section tabulates the level of state and local debt, interest, and capital spending, relative to personal income, and number of state and local public employees in transportation categories, relative to population. The 1997 census of governments is the primary source of information. While some of the data is presented for in different regions of New York State, the national average, New Jersey, and other states, other data is merely presented for New York State and the national average. This is because local data was not readily available for past years, and the level of capital spending is best evaluated over time rather than in one particular year. Capital expenditures can vary substantially from fiscal year to fiscal year, so 1997 data may not be representative in a given location.

In theory, capital spending and debt should go together, since most state and local governments are legally required to balance their operating budgets. In practice, some places have managed to run up a considerable debt without much capital expenditure, while other places have made substantial capital expenditures without much debt. Nationally, capital expenditures account for about 12 percent of state and local spending; interest payments for about five percent.

There is some duplication between the general discussion of capital spending here, and the function by function discussion of total direct spending elsewhere in the report. The data for education expenditure in Section 4, for example, includes capital expenditures. Transportation, on the other hand, is only discussed in this section. This is because capital expenditures account for a substantial share of transportation expenditures, compared with expenditures in other categories.

 

Chart 6.1: State and Local Debt

Sources: Census of Governments. Income: Bureau of Economic Analysis. See introduction for details.

New York’s state and local debts were very high as a share of income of state residents.

In Fiscal 1997, the debts of New York’s state and local governments equaled 28.5 percent of the income of New York State residents. That was 52 percent higher than the national average of 18.7 percent, and 62 percent higher than in New Jersey. Only Alaska and Utah had higher debt to income ratios. In Alaska, the debt is backed by oil revenues, while in Utah, it has been used to provide facilities for a rapidly growing population. New York State’s population, in contrast, has increased little since 1970s. Other states with slow growing populations, such as Illinois, tend to have lower debts, while fast growing states, such as Washington, tend to have higher debts, though not so high as New York’s. Both New York’s state government debt and its local government debt were above average relative to income.

New York’s state and local debts were even higher in Fiscal 1972, at 33.4 percent of its residents’ personal income. At that time, most of that debt was at the local government level. New York’s local debt equaled 22 percent of its residents’ personal income, 65 percent more than the national average. In the United States, as well, a higher share of debt was recorded at the local level in Fiscal 1972 than in FY 1997. Since the longest term for public debt is 30 years, most of New York’s current debt has been borrowed – or re-borrowed – since 1972.

For a spreadsheet of state and local debt and interest payments, with data for all 50 states, click here.

 

Chart 6.2: State And Local Debt

Sources: 1997 Census of Governments. Income: Bureau of Economic Analysis. See introduction for details.

The highest debt burden was in New York City, but high state debts placed other areas of New York State above the national average as well.

This chart assumes that the burden of repaying state debt is distributed around the state in proportion to personal income, and thus equaled 14 percent of personal income everywhere in New York State in Fiscal 1997.

In Fiscal 1997, New York City’s local government debt equaled 22 percent of its residents’ personal income, nearly double the national average of 11.7 percent. Some counties containing other older cities also had high local debts in Fiscal 1997, including Philadelphia (24.1 percent), Suffolk – Boston (21.8 percent), and San Francisco (19.0). Other such counties, however, had low debts, including Baltimore City (11.8 percent) and Cook – Chicago (12.2). Some fast growing counties had high debt-income ratios as well, including Fulton – Atlanta (29.5 percent), Maricopa – Phoenix (22.1), Harris – Houston (18.0), and Los Angeles. Areas like these, however, tend to have relatively new infrastructure to go with their high debts, while older cities like New York often have infrastructure and public buildings in need of repair.

Including its share of state debt, state and local debt in New York City equaled 36.1 percent of its residents’ personal income, nearly double the national average of 18.7 percent. Local debts were low in other parts of New York State, but high state debt pushed combined state and local debt above the national average. Local government debt equaled 8.0 percent of personal income in the Downstate Suburbs, 8.8 percent in the Upstate Metros, and 9.1 percent in the Rest of New York State, all below the national average of 11.7 percent. Including their proportional share of state debt, however, state and local debt was 22.0 percent of personal income in the Downstate Suburbs, 22.8 percent in the Upstate Metros, and 23.1 percent in the Rest of New York State, all above the national average of 18.7 percent. Surprisingly, Nassau County’s local government debts equaled only 9.7 percent of county residents’ incomes in Fiscal 1997, about half the level of New York City and less than in several Upstate Counties. Nassau’s county government, however, also ran a large off the books debt by failing to pay some of its suppliers and service providers.

For a spreadsheet of this data, with data for all New York State counties, click here.

Chart 6.3: State and Local Interest Payments

Sources: 1997 Census of Governments. Income: Bureau of Economic Analysis.

Interest payments on state and local debts absorbed an above average share of personal income throughout New York State in Fiscal 1997.

This chart also assumes that the burden of repaying state debt is distributed around the state in proportion to personal income, and thus equaled 0.8 percent of personal income everywhere in New York State in Fiscal 1997.

High debts result in high interest payments, and thus higher taxes, lower spending on other things, or both. New York City’s state and local government interest payments absorbed 2.0 percent of all the income of City residents, 83 percent more than the national average of 1.1 percent, and more than double the level in New Jersey. In effect, a City resident or business could increase their after tax personal income by one percent without any loss of public services, due to lower interest on pubic debt, just by moving across the Hudson River. Many of those who benefited from the policies that led to today’s high debt burden in New York, before they moved away, already live in New Jersey or in other states. State and local interest payments were also above the national average in the Downstate Suburbs (1.35 percent of income), the Upstate Metros (1.53 percent) and the Rest of New York State (1.50 percent). Excluding New York State, there were only seven states where the combined burden of state and local interest payments as a percent of income exceeded 1.35 percent (Alaska, Hawaii, Delaware, New Hampshire, Kentucky, Rhode Island and Utah). Alaska was the only state where the burden exceeded New York City’s 2.0 percent.

The one saving grace for the highly indebted City and State of New York has been the confidence of the financial markets, and adroit debt management. Dividing New York City’s Fiscal 1997 local government interest payments in by its debts that year, one finds an average interest rate of just 5.50 percent, lower than the national average of 5.84 percent. Using the same method, one finds the State of New York paid an average interest rate of 5.63 percent, below the average of 5.92 percent for the 50 states. The market is not charging New York City and State a low rate because their debt levels are low. It is merely convinced, for now, that even as hundreds of thousands of people move away from New York each decade, others will continue to move in and help to pay the debts back.

The market appears to be less sure about other parts of the state. The average interest rate was 6.99 percent for local governments in the Downstate Suburbs, 8.44 percent for local governments in the Upstate Metros, and 7.85 percent for local governments in the Rest of New York State. In comparison, the average interest rate was 6.31 percent in Orange County, California, and 6.05 percent for the City of Baltimore. The Census of Governments recorded very high average local government interest rates in New York’s Oneida County (15.6 percent), Monroe County (10.4 percent), Onondaga County (9.15 percent), and Franklin County (9.65 percent). To return to the debt and interest spreadsheet, click here.

 

Chart 6.4: State and Local Capital Spending

Sources: 1997 Census of Governments and related annual series. Income: Bureau of Economic Analysis.

New York’s state and local debt was far above average, but its capital spending over the past 30 years was only slightly above average, if at all.

Since most public debt is issued for capital improvements, and New York’s debts are high, one might have assumed that New York’s state and local capital spending would have been particularly high over the past 30 years. As the chart shows, this is not the case. New York’s capital spending on construction, as a share of its residents’ personal income, was somewhat higher than average during the late 1980s and early 1990s, but not at other times. Its spending on other capital items, such as equipment, land and building purchases, tended to be average, or somewhat below. Moreover, data is not available for the 1973 to 1976 period, a depression in New York City during which city and state capital spending virtually ceased. The years after 1980 are generally thought to have been years of reconstruction, but in many of those years New York’s capital construction spending was little higher than the national average. For a spreadsheet of this data, click here.

Moreover, the character of capital spending in New York State has differed from that in other areas. In newly developing areas, money is borrowed to pay for new buildings, roads, bridges, and transit systems. Most of the public infrastructure and buildings in New York’s older cities, in contrast, were built before 1950, while most in New York’s suburban areas were built from 1950 to 1970. These older facilities need to be maintained and rebuilt on an ongoing basis, year in and year out. New York State and its local governments have tended to borrow for 30 years just to do one or a few years of normal replacement. In fact, for much of the suburban infrastructure built in the 1960s and 1970s, normal replacement and reconstruction has not yet occurred.

 

Chart 6.5: 1972 & 1977-97 State And Local Capital Expenditures By Type

Sources: 1997 Census of Governments. Income: Bureau of Economic Analysis.

New York’s state and local governments spent more than average on capital expenditures primarily because of high spending on housing and other buildings (hospitals, economic development), not spending on infrastructure.

The chart above compares New York State’s capital spending with the national average, by category, over the entire 1977 to 1997 (plus 1972) period. To return to the spreadsheet of this data, click here. New York State was slightly above average in transportation and water and sewer construction as a share of its residents’ income, but would almost certainly have been below average if data were available for the 1973 to 1976 period. New York State spent double the national average on housing construction, and 22 percent above average on other construction (schools, parks, hospitals, economic development projects, etc).

New York State spent 50 percent more than the national average, as a share of its residents’ income, on equipment purchases. Some of that is accounted for by the substantial number of transit vehicles purchased in Downstate New York, where people own far fewer private motor vehicles per household than the national average. New York’ state and local spending on the purchase of land and existing buildings was half the national average as a share of income. Since few new public facilities have been built in New York State in the past 30 years, less property has been acquired.

The quality of New York’s public buildings and infrastructure depends not only on how much is spent, but also on the value that the state’s construction industry delivers for the money. Anecdotal evidence indicates that the cost of public construction is high, especially in New York City. For example, as noted in Section 2, the average private-sector worker in Downstate New York (excluding the very high paid finance industries in Manhattan) earned 29 percent more than the national average. According to R.S. Means, a construction cost publishing and consulting company, the cost of construction in New York City overall was 33 percent above the national average – slightly above average for materials, and about 50 percent above average for labor. In some cases, public buildings in New York City have cost far more per square foot, and public infrastructure far more per linear foot, than 29, 33, or 50 percent above average.

 

Chart 6.6: Direct Expenditures: Transportation By Category
Local Government: 1997

Sources: 1997 Census of Governments. Income: Bureau of Economic Analysis. See introduction for details.

New York City’s transportation expenditures were high, due to the operating costs of its transit system.

New York City local governments spent 2 ½ times the national average on transportation in FY 1997. This was mostly because of the large size of New York City’s transit system (which in this data includes the PATH train), and partly because the Census Bureau tabulates all three New York area airports, run by the Port Authority of NY and NJ, as NYC local government. New York City’s transit spending, at 1.66 percent of its residents’ personal income, was similar to that in other counties with significant transit systems, such as Los Angeles (1.11 percent), Cook – Chicago (1.10), Fulton – Atlanta (1.31), San Francisco (1.88), Philadelphia (3.03), and Suffolk – Boston (5.66). In some of these central counties, the percentages are inflated because (for historical reasons) a regional transit agency is still counted as belonging to one county, and has spending counted against that county’s income.

New York City also spent more than average on highways (including streets, bridges, and ferries) as a share of income. The Upstate Metros and Downstate Suburbs spent less than average on airports and transit, primarily because most New York transit agencies outside NYC are classified as state government. Highway spending was about average in these areas, and was far above average in the Rest of New York State. Local transportation spending was low as a share of income in New Jersey. For a spreadsheet of this data, click here.

 

State Government: 1997

Sources: 1997 Census of Governments. Income: Bureau of Economic Analysis. See introduction for details.

Transit spending pushed New York’s state transportation spending above average as well.

State governments spent more than average on transit both in New York and New Jersey, because (excluding New York City) most transit agencies in these states are counted as state agencies. Both states were below average in highways spending, despite high toll revenues. State and local governments spend little on, but get substantial revenues from, parking.

Chart 6.7: Direct Transportation Expenditures
Net Of Dedicated Taxes, Aid Revenues And Charges

Local Government: 1997

Source: 1997 Census of Governments. Income: Bureau of Economic Analysis. See introduction for details.

Virtually none of New York City’s transportation expenditures were funded by general local taxes.

State and local governments collect substantial revenues from, and aid revenues and taxes dedicated to, transportation. These include transit fares, tolls, motor vehicle fuel taxes, motor vehicles licenses taxes, parking charges, and federal and state transportation aid. Net of these dedicated sources, and not including interest payments, New York City spent almost nothing on transportation in Fiscal 1997. In fact, if other transportation-related revenues that the Census Bureau does not tabulate separately were also deducted (including general sales taxes on motor vehicles, services and fuel, parking ticket revenues, the auto use tax, etc.), then New York City’s local governments would be shown to make a profit on transportation. And while this tabulation does not include interest expenditures, most “capital expenditures” in New York have consisted of normal ongoing replacement rather than new facilities, and thus perhaps ought not to have been financed by long-term debt in the first place. With fewer tolls, parking meters, and transit fares, local governments in other parts of New York State spent more general tax dollars on transportation than New York City in fiscal 1997, though less than the national average. Local governments in New Jersey collected, and spent, less than average. To return to the spreadsheet of transportation data, click here.

 

State Government: 1997

Source: 1997 Census of Governments. Income: Bureau of Economic Analysis. See introduction for details.

Nationally, dedicated revenues accounted for nearly all state transportation spending.

According to the Census Bureau, New York State spent just 0.47 percent of its residents’ personal income on transportation, net dedicated revenues, in Fiscal 1997. These revenues do not include the $1 billion the state collected in dedicated MTA taxes, or the $1 billion in general sales taxes on motor vehicles, services and fuel. With these included, the state’s net spending would have been close to zero. In New Jersey, state transportation spending net of dedicated revenues was also close to zero. Nationally, as well, dedicated revenues accounted for all state transportation spending, even without general sales taxes on transportation-related items deducted.

 

Chart 6.8: Transit Revenues: Percent of Operating Costs

Sources: 1997 Census of Governments.

New York City’s subways covered their operating costs in FY 1997; NYC buses, like most mass transit, did not.

New York City’s transit agencies collected 68 percent of their operating costs in fares and other revenues in Fiscal 1997, far above the national average of 41 percent, or other parts of New York State at 49 percent. A ridership boom, cost cutting, and a fare increase combined to lift that percentage from 52 percent to 68 percent in just two years. Not since the early 1980s had transit covered as large as share of its operating costs, and at that time costs were kept low by not buying spare parts and repairing trains.

In FY 1972, transit fares covered more than three-quarters of operating costs, both in New York City and the United States. By 1991, that share had fallen to 52 percent in New York City, 46 percent in other parts of New York State, and 41 percent in the United States. Outside New York City, the share of operating costs covered by fares did not increase significantly from 1991 to 1997. For a spreadsheet of this data, click here. In New York City, as in other parts of the country, the bus system is primarily used by those too old, young, poor, or disabled to drive a car. Many of these are entitled to free or reduced price transportation. Thus, New York City’s bus system covered less than half of its operating costs. It’s subway system, on the other hand, covered more than 100 percent of its operating costs in Fiscal 1997. For additional federal data on transit, go to http://www.fta.dot.gov.

The Downstate transit network delivers good value in another way, as well. According to the Consumer Expenditure Survey, conducted by the U.S. Department of Labor, Bureau of Labor Statistics (http://stats.bls.gov) , those living in the New York Metropolitan Area spent 25 percent less than the national average one the purchase of motor vehicles and gasoline in 1997 and 1998, a savings of $1,000 per household per year. The savings was well over $2,000 per household per year when compared with high-spending areas such as the Atlanta, Houston, and Dallas metropolitan areas. These savings result from lower auto ownership, and are despite the high cost of automobile ownership in the New York area. Any financial evaluation of New York City’s transit system needs to consider the fact that New Yorkers substitute public transit expenditures for private automobile expenditures.

 

Chart 6.9: Public Employment in Transportation
Local Government: 1997

Sources: 1997 Census of Governments. Population: 2000 Census of Population, unadjusted data.

New York City’s public transit employment was high, but its private motor vehicle employment was low.

New York City’s local government transportation employment, at 563 workers per 100,000 residents, was more than triple the national average of 170. This was due to the City’s large transit system, which employed 37,500 workers according to the Census of Governments, and 37,150 “non-reimbursable” workers and 43,000 overall according to NYCT records. Relative to its population and income, on the other hand, the City had 37,000 fewer workers in private motor vehicle sales and service industries than expected at the national average. Other parts of the state, and New Jersey, had little local transit employment.

Highway employment was slightly below average, relative to population, in New York City, despite the inclusion of the Staten Island ferry in the category. It was slightly above average in the Downstate Suburbs, Upstate Metros, and New Jersey; and triple the national average in the Rest of New York State. New York City’s airport employment per 100,000 residents, which included all three New York Area airports, was just average. It was low in other areas of the state, and in New Jersey. For a spreadsheet of this data, click here.

 

State Government

Sources: 1997 Census of Governments. Population: 2000 Census of Population, unadjusted data.

State transit employment was high elsewhere in New York State, and in New Jersey.

As in Section 2, highways and transit employment is compared with the population of New York State outside New York City, because that is where the state provides most of its services. On that basis, New York State’s highways employment, at 130 per 100,000 residents, was 47 percent higher than the national average of 88, and higher than New Jersey (92). Both New York State outside New York City (134 per 100,000 residents) and New Jersey (112 per 100,000 residents) had substantial transit employment. Transit, and airports, are generally local government services. New Jersey Transit did not report correct employment data for 1997; 1998 data is used in the chart.

 

Chart 6.10: March 1997 Payroll Per Employee

Private Sector and Local Government, vs. National Average

 

State Government

Sources: Local government: 1997 Census of Governments, March 1997 payroll divided by full time equivalent employment. Private Sector: Bureau of Economic Analysis, 1997 annual private earnings by place of work divided by annual average private employment.

New York City transit workers were paid less than average, relative to the private sector, but more than state transit workers in New Jersey.

New York City’s local government transit workers earned 4.7 more than the national average, low compared with the city’s private sector workers who earned 29 percent more than average. Local government transit workers earned little elsewhere in New York and New Jersey, but these are confined to a few small agencies. New York State’s transit workers, which include most of those in the state outside New York City, earned an average of $4,522 in March 1997, 24 percent more than New Jersey Transit workers ($3,640), and 16 percent more than New York City’s local government transit workers ($3,887). New York State’s high average transit wages are primarily the result of very high wages paid to Long Island Railroad and Metro North employees

Local government highway workers were well paid, relative to their private sector counterparts, in all parts of New York State. Their pay was similar to the private sector in New Jersey. New York’s state highway workers were paid more than the national average, but less than in New Jersey. New York City’s local government airport workers, which account for the majority of airport workers in New York and New Jersey, were well paid relative to the private sector in Downstate New York. To return to the local employment and payroll spreadsheet click here. To return to the state employment and payroll spreadsheet, click here.

 

Chart 6.11: Debt as a Share of Income Over Time

Sources: 1997 Census of Governments. Income: Bureau of Economic Analysis.

After falling as a share of income during the 1980s, New York’s state and local debts have been rising since then.

New York’s state and local government debt, as a share of its residents’ personal income, was 71 percent above the national average in Fiscal 1972, and 95 percent above the national average in Fiscal 1977. This was mostly as a result of high state debt (nearly 2 ½ times the national average in Fiscal 1978) and high local debts in New York City. After a long period of fiscal restraint, New York’s state and local debt had fallen to just 24 percent more than the national average in fiscal 1988. State debt fell to 69 percent more than the national average, and local debt was actually below average statewide, though not in New York City. After Fiscal 1989, however, New York’s state and local debts soared. New York’s local debts were 32 percent above average in Fiscal 1996, and its state debt was nearly double the national average by Fiscal 1997. For a spreadsheet of this data, click here.

Debts began to increase during the deep early 1990s recession, when New York’s state and local governments resorted to fiscal tricks to keep the books “balanced.” The state sold roads to the NY State Thruway Authority, which issued debt to buy them. It also simply didn’t pay New York City $1 billion in school aid one year, after the City had issued revenue anticipation debt in anticipation of revenues that never came. The MTA borrowed enormously to finance its capital plan, yet the New York City subway was virtually the only major rail transit system in the country that did not put a major new extension in service in the 1990s. The 1990 to 2000 period was also the longest without a new subway car purchase since the opening of the subway. Surprisingly, debts have continued to rise even as the economy recovered. There was a short dip from 1996 to 1997, but then the state borrowed billions to finance the Long Island Lighting Company takeover. The latest MTA plan includes not only new debt, but also the re-borrowing of old debt. New York City debt is also rising.

 

Section 6 Summary

• New York’s state and local debts were far higher than the national average relative to income, as were the interest payments required to service them. While local debts and interest payments are highest in New York City, high state debts pushed every part of the state over the national average.

• State and local debts were even higher in the early 1970s, leading to fiscal crises and capital spending cutbacks for the City and State of New York. Debts fell through the 1980s, but have been rising again since then, not only during the 1989 to 1993 recession but also during the 1993 to 1997 boom.

• Despite high debts, capital spending has been only slightly above average in New York, with little of the additional spending going to infrastructure. In fact, if the data covered the 1973 to 1976 period, infrastructure spending would probably be shown to be below average in New York, City and State. Moreover, a substantial amount of capital spending is necessary just to repair and replace existing structures, buildings and facilities as they age. New York State and its local governments have tended to borrow for this ongoing normal repair and replacement, or to not do the work at all. Relatively few new roads, bridges, transit lines, parks, or schools have been built in New York since the mid-1970s.

• On the other hand, New York’s state and local governments, and New York City in particular, did spend more than average on publicly subsidized housing and public hospitals construction.

• New York City’s local government transportation spending and employment were well above the national average, due primarily to the large size of its transit system. Net of fares, tolls, parking fees, aid revenues, and dedicated taxes, however, New York City spent next to nothing (or, based on additional data, less than nothing) on transportation (excluding interest payments). This, however, was not unusual. Virtually all state transportation spending in the United States (also not including interest payments) is accounted for by transit fares, tolls, motor vehicle taxes, federal aid, and similar dedicated revenue sources.

• Transportation spending and employment were below the national average in the Downstate Suburbs, Upstate Metros, and New Jersey, but far above average in the Rest of New York State – due to high highways employment and spending.

• New York City’s transit system came closer to covering its operating costs than those elsewhere in the United States. Transit use saved residents of Downstate New York money on automobile purchases and operation.

To go to Section 7, click here.