Monthly Archives: January 2009

Economic Development

Swinging at the Wrong Pitch

Posted by George Sweeting, January 29, 2009

Much of the outcry over the recent vote to give the Yankees (and Mets) a second helping of tax-exempt bond financing for their new stadiums overshadowed the most important issue: would the public investment in the stadiums pay off? At times it seemed like a public policy version of an infielder holding the ball and arguing with an ump over whether a hit was fair or foul while base runners scored uncontested.

In the days leading up to the Industrial Development Agency’s vote on the financing, lots of attention focused on the question of the so-called PILOTs—payments in lieu of taxes— and if these dollars, which would be used to pay debt service on the tax-free bonds, should be counted as lost revenue to the city. It’s an important question, but not the one that ultimately determines who wins and who loses on the stadium deals.

In terms of the PILOTs, IBO concluded that since the current stadiums don’t pay property taxes, the fact that the new deals also leave the new stadiums tax exempt means there’s no new loss of revenue. The debt service payments are being called PILOTs in a creative dance around prohibitions against using tax-exempt financing for sports facilities that were enacted by Congress in 1986 under the sponsorship of Senator Daniel Patrick Moynihan. Absent the need to squeeze through a loophole in the IRS regulations—since closed—the payments probably wouldn’t have been called PILOTs and there would be little question that they are not really property tax payments.

What went largely unexamined leading up to the IDA vote was whether the tax revenues generated from the construction and operation of the new stadium would exceed the value of the public subsidies. Because such estimates are very dependent on the assumptions used, they should be accompanied by full disclosure so that decision-makers and the public can assess the reasonableness of the estimates. Unfortunately, we saw little evidence of such transparency.

When IBO asked the Industrial Development Agency for information about how the benefit estimates it cited were derived, we were told that the city’s staff was too busy. But they could get back to us later—after the vote.

Consider that the city’s Industrial Development Agency asserted that the benefits from the new Yankee Stadium will amount to $438 million, exceeding their estimate of the cost to taxpayers by $60 million. From the little information that was made public, it appears this might have resulted from some generous official scoring. The Yankees expect to draw the same 4 million fans in the new stadium as they did in the old one. And it’s unlikely that fans in 2009 will eat, drink, and buy Yankee regalia in much greater quantities than those who filled the stands in 2008. So besides the construction activity there’s little obvious reason to believe the new stadium will deliver much in the way of new jobs and tax revenue.

Spring training, a time when all fans are filled with hope for the upcoming season, is just a few weeks away. So let’s hope that consideration of future requests for taxpayer assistance for sports facilities and other big projects will provide greater detail on the claimed benefits. That detail will help all of us consider whether the public subsidies are a home run—or a strikeout—for the taxpayer.

Municipal Labor

Big City, Big Staff—But Maybe Not as Big as It Seems

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Posted by Doug Turetsky, January 21, 2009

As Mayor Bloomberg wrestles with the city’s projected budget gaps, pressure to reduce the size of the municipal workforce—by far the city’s biggest single expenditure—is growing. In the wake of the last recession, full-time city staffing dropped to 239,616 in 2003 from a previous high of nearly 251,000 in 2000. Since 2003, full-time staffing has grown steadily, reaching 280,649 at the end of the last fiscal year, a rise of more than 41,000 over five years.

While full-time staffing has grown at nearly every city agency, a large share of the growth occurred at just a few. The Department of Education saw the biggest rise in total number of employees: the number of teachers, principals, and other classroom staff (pedagogical employees in budget speak) rose by nearly 19,000 from 2003 through 2008, when it totaled 112,852; the number of non-pedagogical employees also jumped by nearly 4,000 over the same period, reaching 10,760 in 2008.

But numbers alone don’t tell the whole story. While the city has steadily increased the ranks of teachers, a significant share of the rise in education department staff isn’t really due to new hiring—but rather from a reclassification of about 15,000 paraprofessionals who were previously listed as part-timers and not included in full-time staffing levels. The same holds true at the parks department, where the official full-time headcount nearly doubled to 3,702 by 2008 as many so-called seasonal workers who were really working full time were added to the count.

Still, the staffs of many agencies increased because more people were hired. Under plans to beef up its inspection and enforcement efforts, the Department of Buildings has grown 45 percent since 2003 and had 1,162 full-time employees in 2008. Full-time staffing at the Department of Health and Mental Hygiene has grown even more since 2003 in both percentage and absolute terms, rising by 60 percent to 5,202 in 2008. The Mayor’s office has also gotten bigger, growing by nearly 11 percent since 2003 to a full-time headcount of 923 in 2008.

Not every agency saw growth in its full-time staff. The number of uniformed officers at both the police and correction departments declined during the 2003-2008 period. The number of police officers fell by 715 to 35,405—though the number of civilian employees grew because school safety agents were reclassified as full-time workers. The number of correction officers dropped by 404 to 9,149. At the Commission on Human Rights staffing has declined by more than 25 percent, to 79 in 2008.

So while the total city workforce has certainly grown since the last recession, the number of workers newly added to the payroll is not as high as the numbers indicate at first blush. Nor are the increases equal across all agencies.

Federal and State Aid

Federal Stimulus and Medicaid: How Big a Savings for the City?

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Posted by J.W. Mason, January 16, 2009

As many Capitol Hill watchers expected, the latest version of a federal stimulus bill from the House includes significant assistance to state and local government. Some of the aid would come from Washington picking up a bigger share of Medicaid costs, just as it did temporarily in the wake of September 11.

The details of the bill probably will not be available for several weeks. But it’s expected that some key provisions of the new bill will resemble those in H.R. 7110, a federal stimulus bill passed by the House in October 2008, which also included language increasing the federal Medicaid share. So the earlier bill still serves as a good indicator of how much in Medicaid savings—a nearly $6 billion a year expense in the city’s budget—New York may be able to expect.

Currently, the share of a state’s Medicaid costs covered by the federal government, called the Federal Medicaid Assistance Percentage or FMAP, is based on mean state income, with higher-income states getting a lower federal share of Medicaid spending than poorer ones. (This formula is sometimes criticized for focusing on average incomes rather than the fraction of low-income residents.) FMAPs range from 50 percent to 75.84 percent; New York is one of a number of states with 50 percent. The 2008 stimulus bill would leave this basic structure in place but increase the FMAP by 1, 2, or 4 percentage points depending on various economic trends. In the absence of a major improvement in the state economy, New York would meet the criteria for the full 4 percentage point increase. So, federal payments would have increased by 8 percent, from 50 percent to 54 percent of total Medicaid spending.

New York is one of a handful of states that requires counties (including New York City) to bear a portion of the nonfederal share of Medicaid. The 2008 bill specifically required states to share the savings from an increased FMAP with local governments in proportion to their current share of costs. Therefore, one would expect it to reduce both the state and the city’s Medicaid costs by 8 percent. But two special Medicaid payments to hospitals with a high proportion of low-income and uninsured patients—the Disproportionate Share Hospital and Upper Payment Limit programs—were specifically excluded from the FMAP increase.

New York City hospitals receive about $2 billion through these special payments, and the state and local shares are different from other Medicaid payments; most importantly, the city pays the entire nonfederal share of the $760 million going to public hospitals through these programs. As a result, they account for a large fraction of city Medicaid spending—about 12 percent. Relatively little of the special payments go to hospitals in other parts of the state, and in all other counties the cost is divided between county and state, just like other Medicaid spending. So New York City would get significantly less relief under the 2008 stimulus bill than other counties in the state.

By IBO’s estimate, the 2008 stimulus bill would reduce state Medicaid expenditures by 7.7 percent, or $1.1 billion. Counties outside of New York would save a similar proportion of their Medicaid costs. But New York City savings would be nearly a full percentage point lower: 6.8 percent, or $377 million for 2009. If the higher federal match covered all Medicaid payments, the city would save an estimated $428 million.

It appears that the FMAP increase being considered now is somewhat larger—4.8 percentage points, plus more for states with high unemployment. New York’s unemployment rate of 6.1 percent in November 2008 (the most recent month available) was significantly below the national average, so under this formula, as opposed to the one in the 2008 bill, the state may get only the basic FMAP increase. That means the savings to the city and state would be 20 percent higher than estimated above. Of course, the exact savings depend on the details of the bill, which are still being worked out; in particular, it is unclear whether the new stimulus bill will have the same exclusion for the special Medicaid payments as the 2008 bill.

One other point is worth noting: The state legislation that capped annual growth in local Medicaid spending is specifically written to limit local shares of Medicaid spending before the federal match. So in the absence of specific language like that in the 2008 bill, nothing in state law would require an increase in FMAP to be shared with New York City or other local governments. This is an issue New York City policymakers will want to watch closely as negotiations over the federal stimulus move forward.