Thursday, May 6, 2010

Public money and local economies

Waiting... For a Budget


State cuts, and the tough political talk that they engender, will affect the workers and economies that can least afford them

As our state elected officials trudge toward resolving the month-long impasse over what to include in and what to cut from our state budget—the one with the $9 billion hole in it—the great divide between the well-off and the struggling may become obscured. What will be visible will be the big fights, especially the fight over aid to suburban schools, and the fight over subsidies for hospitals, and municipalities’ fights for revenue-sharing.

We already know well the big fight over contractual pay increases for teachers and other public servants who complain that Wall Street won’t help close the multi-year budget hole that Wall Street’s 2008 crash made worse.

Count on a bitter campaign season ahead. Suburban politics will be especially nasty because, in recent years, there have been massive increases in aid to suburban school districts, increases which today are unsustainable. STAR tax breaks are already a thing of the past, and starting soon, suburban homeowners—who are already convinced that their property taxes are criminally confiscatory—will have to foot their school bills with locally generated dollars rather than with manna from Albany.

There is a legal theory that the governor has the power to declare a fiscal emergency, and that on that basis, David Paterson can make like Arnold Schwarzenegger of California, where public-sector workers are already furloughed without pay for four days a month. Paterson has mentioned that idea again, suggesting he’ll send 100,000 workers home one day a week starting Masy 17 until a budget is passed.

Such a policy might be very good politics. The economic consequences of reducing wages in an already low-wage environment, however, could be quite negative.

How taxes recycle

We on the outside of state government won’t know for a while exactly where the recovery of 2009 and 2010 is happening, at least not with the same specificity and precision that the specialists deep in the bowels of the state taxation and finance office do. What we have to go on is some firm information from before the crash.

The picture those data paint is of a fairly well settled polarization of income, with a very large portion of workers—ranging from about 42 percent of income tax filers in Erie County to about 46 percent in Manhattan—making under $30,000 a year. Folks making over $100,000 a year are, not surprisingly, much more numerous in Manhattan than in Erie County; there are about 800,000 Manhattanites who filed state income tax forms in 2007 compared to about 430,000 in Erie County. About 21 percent of the Manhattan filers made over $100,000 in that pre-crash year. About nine percent reported making that much in Erie County. And, as everybody knows, when you include folks like billionaire New York City Mayor Mike Bloomberg and a few thousand others from Wall Street, the phrase “over $100,000 in taxable income” means something quite different from a joint tax filing by two $55,000-a-year veteran high school teachers in Hamburg.

It’s actually easy to sort through the blizzard of numbers: Most people in New York State have very modest incomes. So when state services are cut, most of the cuts will be experienced by people with modest incomes. And when those taxpayers include a couple hundred thousand schoolteachers, public safety workers, public health workers, and other state and local government employees, then we’re talking about reducing their pay, either by freezing their wages, by furloughs or by outright layoffs, which will reduce the amount of money in the New York economy.

Using the latest available figures from the Bureau of Economic Analysis in Washington, public workers in Erie County in 2008 made about 21 percent of the money that all working people in this county were paid, or about $5 billion in salary and benefits.

Public workers in 2000 in Erie County (not just county employees, but all public employees who happened to live in Buffalo’s county) were paid $3.5 billion. The worst year of the recent crash was 2008, when layoffs in the automobile and other manufacturing plants were toughest. Compared to 2000, when manufacturing employees made $3.5 billion, in 2008 they made the same $3.5 billion.

Comparing these figures is enlightening and yet tricky, too, because anti-government ideologues are prone to suggest that that crash wouldn’t have been so bad had it not been for all those darned public employees sucking down that extra $1.5 billion. But what the numbers really demonstrate is this: In the environment of almost no inflation, the share of total income in Erie County that came from manufacturing jobs dropped slightly; the share of total income that came from government went up very slightly. The big increases in income came from people who had jobs in finance (up almost $600 million), healthcare (also up about $600 million), professional services (up $500 million), and in the category known to federal officials as “administration and waste management” (up $300 million). The other big sectors in which more wages were paid were retail, wholesale, and manufacturing, each up about $250 million.

How that money got distributed is a whole separate issue.

Slicing the pie

Government in New York State is not just about the salaries of public workers. When you see that wages rose in the healthcare sector in Erie County (for Kaleida, ECMC, the Catholic hospitals, the Veterans Administration, and for private and public officers), please note: At least two-thirds of every healthcare dollar spent here is public.

Construction? Ditto. Roads and sewers and bridges and airports and schools and other infrastructure are of course made possible by public dollars, but so are many of the other buildings that were built in this community. Waste management? Remediation of brownfields, removal of toxic sludge from waterways, and other cleanups are almost exclusively about public money, whether federal, state, or local. Professional services? Not just lawyers, but the contracts let to architects, engineers, lawyers, psychologists, counselors, and others happen through government outsourcing.

And those are generally the good jobs, the ones that pay more. But as UB professor Sam Magavern’s law students made clear in their recent presentation at a Partnership for the Public Good forum, there is a large world of low-wage work out there. Actually, it’s right here, in our midst—tens and tens of thousands of working people whose incomes are very modest. Read that number again: In Erie County, 42 percent of the income tax returns filed before the crash were filed by people—often couples—whose earnings were below $30,000. Almost 64 percent of the folks reporting income in Erie County before the crash made less than $50,000 a year.

These are the people who may be the most economically insecure, and the most politically attuned to the message that public employees have a better deal than private-sector workers—except for the fact that low-wage workers are far less likely to participate in elections than higher-wage workers. When the good-paying jobs of manufacturing disappear to the extent that they have in Erie County, there is anxiety about the jobs that have replaced them—lower-paying jobs in wholesale, retail, and temporary work. That’s the anxiety that has proved fertile political territory for those who pledge to deal with New York’s budget crisis by reducing taxes and cutting public spending. Politicians of the Right know that people who are broke tend to be alienated and scared; politicians on the Left have, except in the 2008 presidential election, been less and less good at communicating how government may have something to do with helping lift the low.

But in our environment, there has been downward mobility, especially recently, as poverty becomes more and more suburban. There’s a new Brookings Institution study that confirms and amplifies our local experience and observations about Food Stamps cases growing out where the school district taxes are soon to go up.

It is hard to explain to a once high-wage worker who is now a low-wage worker why it’s a good thing that the regional economy had federal “stimulus” money for maintaining jobs in state and local government and in schools. It’s harder still to explain that the “stimulus” money that helped foot the bill for Medicaid costs went mainly into the salaries of healthcare workers, salaries that recycled right straight back into the local economy, as do the salaries of teachers and other public servants. The down-sized, the never-before-unemployed, and the economically anxious still want the “free market” to rescue them.

It’s a very powerful and enduring message. So as the political season in Albany grinds from the budget-balancing spring through the campaigning and finger-pointing summer, be prepared for both parties to embrace it, as follows: They will say that government spending has to be brought under control, and they will either hint or shout that public employees’ salaries have to reflect compensation in the rest of the area. You will also hear many talk like Ronald Reagan about taxes. Chances are good, though, that you won’t read many explanations of how public money cycles through regional economies. Nor will much political ink be invested in explanations of what would happen if the public money were to be withdrawn from healthcare, construction, prescription drugs, and the various supplies that keep things in the rest of the economy moving. Nobel Prize-winning economists understand this stuff. At the moment, though, our political culture—even in a place where so many people have such low incomes—doesn’t even try.

Bruce Fisher is visiting professor of economics and finance at Buffalo State College, where he directs the Center for Economic and Policy Studies.