The City’s Economy and Its Residents are Generating an Increasingly Large Share of the State Government’s Resources

New York City and its economy have been growing at an extraordinary pace in recent years.

It is quite clear that the City is generating jobs, development, and wealth. It continues to have major problems – an affordable housing and homeless crisis, a deteriorated mass transit system, and nearly 20% of its population still trapped in poverty – but its overall economy has been growing. This growth is occurring in the context of a set of perennial questions, both in the State budget season when the allocation of resources across the State is decided every winter, and in campaign season, where most of the competitive legislative districts, and especially the State Senate this 2018 election year, are actually outside New York City.

Those questions are: What is the place of New York City in the State economy? Is it a drain on the resources of the rest of the State’s residents, or a net contributor to the rest of the State? Should the City be forced to pay more to the State, or less?

In the campaigns outside the City, a standard Republican refrain is to persuade voters to stick with the Republicans or lose power to ” New York City Democrats,” which presumably means there is a danger to out-of-city residents that more of their tax dollars will be spent on urban problems.

Ideally, of course, the State’s policies should allocate resources based on meeting the needs of all the people of the State in every region, rather than merely sending back equal amounts of money to the communities the dollars come from on the basis of how much they contributed in taxes.

But one thing is true:  the idea that New York City is a drain on the resources of the rest of the State’s residents is ABSOLUTELY NOT ACCURATE.

In 2011, The Rockefeller Institute of Government ( a research Institute affiliated with the State University of New York ) analyzed the basic question of where the money for New York State comes from by region, and where it is then spent by region, and confirmed that the City is a net contributor to the State of New York as a whole. The data came from the State 2009-10 Fiscal Year, nine years ago. This article looks at trends since that time, but the evidence overwhelmingly shows that the City’s residents and its economy are providing an ever larger share of the State’s resources.

THE CITY’S STATUS IN 2009

The City economy’s strength in providing revenue to the State might seem intuitively obvious these days, but more surprising is that the Institute study showed that the City does not receive in spending its per capita share of the State’s population.

As a member of the State Assembly at budget hearings over the years, I would listen to Republican State Senators complain about the Medicaid program, and, guess what?  They were right but not about the program’s overall value or burden, but about the fact that a lot of money in that program does go to New York City, which took 62% of the expenditure of the “State funds only” part of the Medicaid program. What they failed to acknowledge was that it was practically everything else that went the other way!

When you add in the State Universities, the state prisons and psychiatric hospitals, other state hospitals, the road, bridge, and highway programs, and even State aid to elementary and secondary education, the totality of the expenditures brought the City’s share of the “state funds only” budget to 40% of spending, while the City’s share of the population then was 42.9%, as pictured in this table from the study:

“Giving and Getting: Regional Distribution of Revenue & Spending in the NY State Budget, Fiscal Year 2009-10,”, Rockefeller Institute of Government 2011.

Local Assistance grants in the table above included both the Medicaid program and Aid to Education, revenue sharing, community colleges, and property tax relief spending (in which the State gives money to school districts in compensation for lost revenue from the STAR property tax exemptions for homeowners, where the districts lost funds). The average of all the Local Assistance programs came to 49% for the City, but in two other large categories of spending, State Agency Operations and State Capital Projects, the City amounted to less than a fourth of the spending, resulting in the overall 40% share.

THE CITY’S CONTRIBUTION TO THE STATE’S RESOURCES IN 2009

The source of the State’s tax and other revenues, even in 2009, exceeded the City’s per capita share of the State’s population, whether calculated from the residents of the City only, or the City as a place of work ( Rockefeller):

The City economy’s share of the State’s tax and other receipts in 2009 (48.7%) is partly explained by the large number of New Jersey, Connecticut, and other non-residents who work in the City and pay nonresident income taxes. About 14% of the State’s income taxes come from nonresidents. The City residents’ share of the State’s revenues also exceeded its share of the population in 2009 (45.1% vs. 42.9%), reflecting a combination of some very high-income and low-income taxpayers and residents. The City’s overall status in the State in terms of income and shares in 2009 is also reflected in this table:

THE CITY’S STATUS TODAY

The City’s economy is now providing a far higher share of the State’s revenue than in 2009, during the national recession.

I estimate the share based on residency now reaches 50%, and the share as a place of work reaches 53% or more. An explanation for this estimate follows:

In 2009, the City’s share of the State’s employment was 43%, but the City has gained 715,000 jobs out of the 977,000 gain statewide between 2009 and 2017 (N.Y. State Labor Dept.), and now stands at over 46% of the State’s employment. The City was 44.9% of the State’s personal income in 2009, producing 45.1% of the State’s revenue from the City’s residents, and 48.7% of the State’s revenue as a place of work ( See Rockefeller Table above). A New York State Assembly economic report showed the City’s status as of 2016:

According to the Assembly economic report, the City’s share of the State’s personal income in 2016 was 46.6%,  higher than the 44.9% in 2009. If the same proportion for resident revenue share and place of work share held from 2009 to 2016, the City share of revenue rises to 46.8% as a place of residence, and 50.4% as a place of work. Personal income statistics, however, do not include capital gains income, but it is a source of income tax revenue. Capital gains income was severely depressed in 2009 due to the recession, and its rebound since that time has affected the City’s share of the State’s tax revenue.

In 2018, several billion more dollars in income tax revenue from capital gains, heavily concentrated among wealthy New York City residents, has increased New York City’s share of the State’s revenue above and beyond the general growth in jobs and income. This table from the State Division of the Budget( Economic and Revenue Outlook, ‘2012-2013, p.145), shows the impact of the recession:

The table above shows the spectacular $84 billion drop in capital gains in New York between 2007 and 2009 ( From $118B to$33.9 billion). The Rockefeller report data reflected the low level of tax revenue associated with the capital gains drop that year. What about now?

NY STATE DOB, ECONOMIC AND REVENUE OUTLOOK, 2018-2019, p.111

This table shows that capital gains realizations for income tax purposes have risen $66 billion since 2009, to 2019, from $33.9 to $100.2 billion. What does that mean for the City?

The State Division of the Budget (DOB) estimates that the top 1% of New York taxpayers pay 42%-43% of the State’s income tax liability. What about the City? A New York City Independent Budget Office study of City tax returns showed that in 2014 the top 1% of New York City residents paid $9.9 billion in State income taxes, which was about 60% of the tax liability of the top 1% of New York State taxpayers that year. DOB figures also show that the top 1% of taxpayers have about 80% of capital gains income, meaning that most of the tax revenue from capital gains comes from the wealthiest taxpayers. Income taxes provide 60% of the State’s tax revenue.

THE CITY ECONOMY SHARE OF STATE TAX & OTHER RECEIPTS NOW REACHES 53% OR MORE

I estimate that when NY’s tax rates on upper-income and super-wealthy taxpayers are applied to the extra $66 billion in capital gains income, the City’s share of total State revenue moves up 2 1/2 percentage points, reflecting $2 1/2 billion more paid in income taxes from capital gains out of an additional $4 1/2 billion in capital gains paid statewide, using $78 billion in receipts in 2009 and $106 billion in 2019 as the bases for the calculations.

An extra two and one-half points brings the City’s share from 50.4% to about 53% of total revenue payments. The overall concentration of growth in the City likely also brought in more sales tax, real estate transfer tax, and other revenue, bringing the share to more than 53% of the State’s revenue, ten points higher than the City’s 43% share of the State’s population. On the resident side, the share should be at least 50%.

THE SPENDING SIDE TODAY

On the spending side of the equation, I don’t believe there are significant differences from 2009.

There have been many changes in the ensuing years but they tend to cancel each other out. New York City’s revenue sharing from the State, which was $246 million in 2009, was eliminated that year. The State later enacted a new property tax relief program worth $1 billion a year that provides rebates exclusively outside New York City, in addition to the STAR program. Governor Cuomo and the Legislature agreed in 2012 to a 2% property tax increase cap for municipalities outside New York City, along with an agreement for the State to absorb all additional local government Medicaid expenses above their 2012 spending base, including New York City’s obligation. This freeze on local Medicaid spending had the effect of helping both the City and the counties outside the City in the same proportion as the overall regional expenditure for the Medicaid program. The City’s gain from this Medicaid freeze was offset by the loss of revenue sharing and the added property tax relief rebates going outside the City, on a regional allocation basis.

In 2014, Mayor DeBlasio sought and won a universal full-day prekindergarten program, worth $300 million a year, from the State. But the money ended up incorporated in the City’s overall share of Aid to Education, which stayed at the same 39% of total aid from the State as it had been for years before that.

In 2016 the State approved a new Capital Spending program for the MTA, but the State Senate insisted on parity for highway, road, and bridge spending, and a capital program of $27 billion for road and bridge work was adopted at the same time, most of which is spent outside the City. The State received more than $10 billion in funds from legal settlements with financial institutions related to recession-era wrongdoing, and applied large portions of the funds to Upstate economic development and infrastructure projects.

The State also cut taxes extensively during the Cuomo years, both corporate, estate, and income taxes (a high rate was maintained on incomes now above $2.1 million/yr.), but these policies tended to concentrate tax payments in the upper income brackets and thus concentrate them in the City, as I analyzed above.

How these changes will affect future budgets is uncertain, but the facts are that the City economy keeps generating a larger share of the State’s resources while not receiving an outsize proportion of the State’s spending.