Imagine an alternative career history for the governor, in which Cuomo decided not to pursue a career in law and politics. Instead, after graduating from Fordham in 1979, he went straight to work as a public school teacher in, let’s say, the city of Yonkers. Today, after 34 years in the classroom, he’d be a Tier 3 retirement system member making a salary of $118,709.*  And, having turned 55, he’d be eligible to immediately retire with a pension of $78,384, which has a net present value equivalent of nearly $1.6 million — i.e., it would cost a man Cuomo’s age $1.6 million to purchase an annuity worth $78,384 a year for the rest of his life.**

The hypothetical Cuomo-as-teacher example illustrates an aspect of public-sector compensation that government employees themselves often fail to recognize: by the end of their careers, their constitutionally guaranteed pension benefits effectively make them millionaires. Indeed, after 30 or more years on a state or local payroll in New York, the majority of public employees in jobs requiring professional degrees have earned pensions that effectively push their net worth over seven figures. So do most police and firefighters, including virtually all uniformed public-safety employees in the downstate region. These pension net-worth values, some of which can be simulated using the calculator at NyPensionBomb.com, don’t include the added value of lifetime health insurance coverage, for which most state and local employees also qualify. Heavily subsidized health coverage would typically add at least $100,000 or so to the total lifetime value of a career government job.

Because it excludes the value of the public pension he has already earned, Cuomo’s net worth is actually understated  by the state’s financial disclosure formula for public officials, which only counts the value of corporate equities and other financial investment assets. If he left office today, after four years as attorney general and two years as governor, Cuomo could start collecting a $17,800-a-year pension once he reached age 62.*** A male of the same age would need $329,848 to purchase an annuity yielding that income stream. If Cuomo serves an additional full term as governor, leaving office at the end of 2018, he will qualify for a pension of $35,600, which currently equates to a net present value of $536,555.

————————————

* Assumes that, along the way, he earned a master’s plus 30 graduate credit-hours, not at all atypical for a senior teacher.

** The minimum retirement age for fullk benefits was raised to 62 for Tier 5 teachers and 63 for Tier 6 teachers, and lifetime employee contributions in the new tiers are also higher. The Tier 5 benefit is essentially the same as the Tier 3 and 4 benefit, while the Tier 6 benefit formula for the hypothetical Cuomo-as-teacher example would yield an income about 95 percent of the Tier 3 level.

*** It’s not clear whether Cuomo was credited with pension system service for his two years as a $1-a-year advisor to his father, Governor Mario Cuomo.

12-month job change. Darker shading=less growth

The state added 137,000 jobs, a gain of 1.9 percent during a period when the nation was growing 2 percent. Fifty-seven percent of the net new private jobs were created in New York City, which grew at a rate of 2.5 percent. The strongest job growth (2.9 percent) was in Nassau-Suffolk–which may, in part, reflect ongoing reconstruction and recovery from Superstorm Sandy. The fastest-growing private-sector job category (up  43,100) was educational and health services, which also heavily dependent on federal, state and local government subsidies. The next fastest-growing, business and professional services, has been strongest in New York City in recent years.

The weakest year-to-year April job growth was in the gas-rich, frack-free Southern Tier, while Westchester, Putnam and Rockland turned in sub-par job growth downstate.

Continuing a now-familiar trend, the unemployment rate–measured in a separate household survey–is higher in New York City (8.4 percent) than in the rest of the state (7.4 percent), and the state as a whole had unemployment of 7.8 percent, a four-year low, but still slightly above 7.5 percent for the U.S. as a whole.  Outside the Bronx and Brooklyn, double-digit unemployment was concentrated in upstate rural areas, as shown in this breakdown from the Labor Department.

CEOs apparently aren't buying it.

Maybe the nation’s CEOs don’t watch enough TV, or perhaps they lack a sufficient appreciation for Jay-Z and Alicia Keys.

Whatever the reason, respondents to Chief Executive magazine’s ninth annual survey of ”Best and Worst States for Business“ ranked New York among the worst at 49th, unchanged from last year. Other bottom-dwellers included California (#50), Illinois, Massachusetts, New Jersey and Connecticut. The top-rated states: Texas, Florida, North Carolina and Tennessee.

Chief Executive reported that its ninth annual survey received 736 responses from CEOs, the highest number ever.

“Business leaders were asked to grade states with which they are familiar on a variety of competitive metrics that CEOs themselves regard as critical. These include: 1) taxation and regulation; 2) quality of workforce; and 3) living environment. The tax and regulatory grade includes a measure of how CEOs grade a state’s attitude toward business, a key indicator.”

New York got a single star for Taxes and Regulations, three stars for Quality of Workforce, and two-and-a-half stars for Living Environment. Texas, by contrast, received four stars in the first two categories and three-and-a-half stars in the third. (Unfortunately for Albany, there was no ranking for Most Money Spent on a Ubiquitous Business Marketing Campaign.)

Among northern states most like New York, Ohio had the greatest improvement in the magazine’s survey over the past year, moving up 13 places to #22 in the Chief Executive rankings. “Ohio has made a dramatic turnaround under Republican leadership,” one reader commented. CEO comments on the New York page were less positive, including the following:

“New York’s taxes on the job creators is broken and taxing authorities are too bureaucratic – a glimpse of everything bad in the federal government.”

“New York headed in the right direction, but still way behind other states.”

“No matter how good the people and the weather are, activist departments of revenue, lots of regulations, and high taxes make states like CA and NY bad options, always.”

“Given New York’s onerous tax regulations, we are seriously going to consider whether we allow employees to travel to or participate in events in that state. We can’t afford for NY to become a tax nexus for us just because our employees participate in a conference in NY or the like.”

“New York and New Jersey have high costs of doing business and favor local companies to a greater extent than other states favor their local companies.”

So happy days are here again in public pension land, right?  Um, no—not quite. A couple of points:

1. DiNapoli is quoted as saying that the pension fund’s asset values as of the March 31 end of the 2012-13 fiscal year had reached had “an all-time high” of $160.4 billion. This is simply another way of saying that the fund has finally climbed back above the $154.6 billion level it had reached five long years ago, at the end of fiscal 2006-07, before losing 26 percent in fiscal 2008-09.
2. This year’s 10.38 percent gain, nicely exceeding the 7.5 percent target rate of return, is on top of a sub-par gain of about 6 percent in 2011-12. With double-digit gains in each of three of the last four years, the fund’s assets have returned a net 27 percent since fiscal 2006-07. But if the fund had hit its target return rate in each of those years, its gain since 2006-07 would have been 56 percent. In short, the fund is still in the hole to the tune of tens of billions of dollars, while paying out more than $9 billion in benefits a year. Taxpayers are still digging out of it.

DiNapoli also says that 2014-15 will be “the final year that employer contribution rates will reflect the market loss of 2008-2009.”  That’s not right, though. Barring a repeat of the 2003-07 economic and market bubble, it will be years more, probably the end of the decade at least, before rates subside to the expected long-term rate of 11.6 percent percent or less for Tier 3 and 4 ERS employees, compared to the 2013 billed rate of 18.4 percent.  This assumes the fund meets or exceeds its target every year, on average.

Perhaps the comptroller meant to say that 2014-15 will be the last year that contribution rates must increase to make up for 2008-09 losses. That’s probably the case, but it doesn’t mean pension rates will never again increase.

That loophole will push the average “levy limit” in this year’s upcoming school votes to 4.6 percent statewide, more than double the base cap and the inflation rate, according to a report issued by the Empire Center today. And, ironically, the pension exclusion will make it easiest for the poorest districts to avoid a “supermajority” requirement for passing their budgets.

If not for the pension exclusion, the levy school tax limit statewide this year would average 2.7 percent, including allowances for factors such as physical additions to the tax base (new construction, not assessment manipulations) and partial “carry-forwards” of unused cap space from last year.

Withholding taxes are driven mainly by changes in employment and wages and thus serve as an indicator of economic growth. The Rockefeller Institute’s report says New York’s withholding receipts grew by 3.3 percent in the fourth quarter of 2013. That was less than half the national average of 7.8 percent, and also below the five-state Mid-Atlantic regional average of 4 percent. Only six of the 41 states with income taxes had lower withholding growth during the same period. (According to the same Rockefeller Institute report, New York’s employment growth in 2012 was also below average.)

One important caveat: on a year-over-year basis, New York’s personal income tax receipts in 2012 were reduced in part due to the Dec. 31, 2011, sunset of a portion of the “millionaires tax” that applied to incomes as low as $200,000. The extended tax applies only to incomes above $1 million for individuals and $2 million for couples. ***See added note at bottom of post.***

Quarterly “estimated payments” by high-income filers are another important component of personal income tax receipts. As Rockefeller Institute’s Lucy Dadayan and Donald Boyd explain:

The highest-income taxpayers generally make estimated tax payments (also known as declarations) on their income not subject to withholding tax. This income often comes from investments, such as capital gains realized in the stock market. Estimated payments represent a relatively small proportion of overall income-tax revenues … but can have a disproportionate impact on the direction of overall collections.

Estimated payments filed in mid-January for the final calendar quarter of 2012 rose strongly across the country, as high-income households rushed to cash in assets in advance of a federal tax hike that everyone expected to result from “fiscal cliff” negotiations at the end of the year.  However, New York was below average in this category too — rising 22 percent compared to a national average of 29 percent.

Other New York State revenue indicators and national comparisons from the Rockefeller Institute tally of year-over-year changes for the fourth quarter of 2012:

• Combined personal income tax revenues were up 6.8 percent, compared to a national average of 10.8 percent.
• Sales taxes were up only 0.2 percent, compared to a national average of 2.7 percent. Sales tax was the revenue category hit hardest by the impact of superstorm Sandy last October.
• Corporate income taxes were up 5.2 percent, compared to a national average of 1.2 percent.
• Growth in all three major state tax categories combined came to 3.4 percent–below the national average of 5.2 percent, and ranking 36th out of 50 states for the period

The Rockefeller Institute report repeats a general warning that New York policymakers should heed:

States are on a revenue roller coaster, and there is a bumpy ride ahead. It will be hard for states to interpret revenue data in coming months, and hard to rule out the possibility that any short-run revenue surge is simply borrowed from the future. It will be tempting to treat unexpected revenue growth as a sign of continuing economic improvement, when it could mean instead that future revenue will be lower. Caution should be the watchword.

*** However, if one assumes that the roughly $1.75 billion in annual revenue attributed to the expired portion of the “millionaires tax” was distributed evenly among quarters of the year, than New York’s underlying base income tax growth in the fourth quarter actually would look quite strong.***

Dark = not so hot

Private employment in New York State grew by just 1.3 percent in March on a year-over-year basis, compared to the nation’s 1.9 percent growth during the same period, according to today’s employment report from the state Labor Department.

Continuing a longer-term trend, virtually all the job growth has occurred downstate, concentrated in New York City and Long Island, which grew by 1.8 percent and 2.1 percent, respectively.  However, private employment in the Westchester-Rockland-Putnam region  of the lower Hudson Valley has grown by just 0.5 percent since March 2012.

Upstate’s growth over the past year is also just 0.5 percent. The Elmira, Binghamton and Utica areas all lost private jobs in the past year, and Rochester’s growth rate was zero, the new data indicate, while only Glens Falls (+1/.9 percent) and Kingston (up 2.9 percent) among upstate labor markets managed to match the national rate, and only Ithaca (at 1.7 percent) exceeded the statewide rate.

New York’s unemployment rate fell to 8.2 percent, compared to the national rate of 7.6 percent in March.  The unemployment picture is the mirror image of job growth; the highest unemployment was concentrated in New York City (8.9 percent), while the number in the rest of the state is closer to the national average at 7.7 percent.

The opening section of the report (which is, by the way, useful and well-researched in most respects) focuses on how bad it would be for New Yorkers if the federal government were to completely eliminate the deduction for state and local taxes. However, no one in a position of authority in Washington is actually proposing such a thing. The much more more serious risk to New York is that the White House and Congress will agree to some form of limit on itemized deductions for high-income taxpayers, as Obama proposed in his budget last week (reviving a proposal he first trotted out three years ago).

For all the talk of polarization in D.C. these days, Obama and the GOP don’t actually differ much on this point. Both are willing to tightly curtail if not eliminate tax breaks at the top end, of which the state and local tax deduction is among the largest. What keeps them apart is a Republican desire to accompany any broadening of the tax base with a reduction in rates.  But if a “grand bargain” ever materializes between Obama and Speaker John Boehner, it’s not difficult to picture congressional Republicans (dominated by representatives from low-wealth, low-tax states) agreeing to a deal that targets the state and local tax deduction for the wealthiest households

Any variation of an exemption cap targeted at the top brackets would have the greatest impact on states combining large numbers of high-income payers with steeply progressive state and local income taxes — particularly New York and California. New York’s tax base alone, including commuters from neighboring states, would generate 30 percent of any added federal revenues generated by such a move, federal tax data indicate.  If the federal tax code is changed in a way that makes New York even less competitive, it will affect the willingness of people to earn income here, not just to live here. This equates to a bigger overall hit on Albany’s fiscal foundation–the highest-earning 1 percent, who this year will generate about 43 percent of the total state income tax.

Although conservatives have been gunning for the state and local deduction since the Reagan era, when its elimination was fended off by a previous Governor Cuomo, a strong case can be made for retaining the deduction on both historical and federalist grounds, and Cuomo’s report today makes that case fairly effectively. Unfortunately, it’s difficult to sympathize with a governor who issues a press release warning of a potential “double tax” just weeks after extending a supposedly temporary state  tax hike on the same people who would pay the most in added federal taxes if something like the President’s proposal is ever adopted.

In a long article that could serve as a primer on Medicaid’s shortcomings as they relate to the current healthcare policy picture, Howard explains how Obamacare will give governors throughout the country leverage to press the federal government for much-needed “fixes to Medicaid that will help their states avoid a looming fiscal catastrophe.”

While Medicaid was supposed to provide care for the poor, Howard writes, there is little relationship between spending and health outcomes for program’s beneficiaries. Indeed, there is evidence that Medicaid is “deeply regressive,” spending more in wealthier states that get a lower federal reimbursement, he notes.

Which brings him to New York:

… While the Empire State has only 7% of the nation’s population, it accounts for more than 13% of national Medicaid spending (the price tag for New York’s Medicaid program is estimated at $54 billion for the 2012-13 fiscal year). In 2009, New York spent $8,960 per Medicaid enrollee, while Mississippi spent just $4,890, according to the Kaiser Family Foundation. New York in fact spends 62% more per Medicaid enrollee than the national average and spends more than almost any other state across every Medicaid category: In 2009, New York spent 47% more per adult enrollee than the national average ($4,277 versus $2,900), 89% more per disabled enrollee ($29,881 versus $15,841), and 71% more per elderly enrollee ($22,494 versus $13,149). Spending on children was comparatively modest: New York spent only about 9% more than the national average, $2,505 versus $2,305. While differences in cost of living explain some of the disparity between New York’s figures and those of the rest of the nation, much of the gap results from the regressive nature of a program that, in theory, is supposed to be part of a progressive national scheme of welfare benefits to the poor.

The state’s program is also notoriously plagued by fraud and shoddy accounting controls. In 2012, reports from the Congressional Committee on Oversight and Government Reform and the Office of the Inspector General at the U.S. Department of Health and Human Services revealed that New York had systematically overbilled federal taxpayers for Medicaid services for the mentally disabled for nearly 20 years. New York’s state developmental centers — which offer treatment and housing for individuals with severe developmental disabilities — had received a staggering $1.5 million annually per resident in 2009, for a total of $2.3 billion. Of that amount, the HHS Inspector General found $1.7 billion to be above actual reported costs. State centers were compensated at Medicaid payment rates ten times higher than the Medicaid rates paid to comparable privately run developmental centers.

How did this gross overpayment go unchecked for nearly two decades? According to the congressional oversight-committee report, the overbilling resulted from a funding formula agreed to by HHS and state Medicaid officials in 1990. Over the course of the following 20 years, however, HHS never bothered to audit the payment rate to ensure that it was still in line with actual costs. State officials, of course, had no incentive to bring the overpayment to the attention of federal regulators. As a result, New York pocketed at least $15 billion in excessive payments.

Despite this lavish spending, New York’s health-care outcomes generally range from poor to average compared with other states’. For example, in a 2009 report by the Commonwealth Fund, New York ranked 50th in avoidable hospital admissions. Indeed, Governor Andrew Cuomo’s Medicaid Redesign Team, tasked with slowing program growth, has readily conceded that the state’s Medicaid program offers poor value for both enrollees and state taxpayers — in part because of its excessive focus on institutional and hospital care instead of on primary care and on disease-prevention and -management programs.

Yet as glaring as New York’s Medicaid problems are, and as costly as the program is to federal and state taxpayers, any attempt to fix the problems or control the costs is likely to face significant popular resistance. Medicaid has deep roots in state economies, where it is a significant source of revenue for hospitals, nursing homes, and personal-care providers. Medicaid is the single largest payer of the costs of long-term care services for the elderly and nursing-home care, accounting for more than 40% of both markets. It also pays for around 40% of all U.S. births, according to the National Association of Medicaid Directors. As a result, health-care providers and others who rely on Medicaid for a significant share of their incomes protest vigorously against any federal efforts to cut Medicaid spending or to even slow its growth. [emphases added]

Howard supports the idea of turning Medicaid’s reimbursement system into a “block grant,” modeled on the approach that worked with welfare reform.  Block grants will gives states more flexibility to experiment with changes in the program designed to fit their own circumstances, he says.  And he cites New York—along with Rhode Island and Indiana—as three states already “in the vanguard,” which “have embraced innovations that show how state policymakers can use increased flexibility in their Medicaid programs wisely. These states have pursued patient-focused reforms that are now poised to help lower costs and improve health-care efficiency.”

In 2011, the Empire State embraced a global cap on a substantial fraction of its Medicaid expenditures (excluding spending on disabled Medicaid recipients and on services related to addiction and mental-health problems). The cap will increase by 4% a year, based on a ten-year rolling average for inflation in the cost of medical services. While 4% may seem significant, it is still well below historical growth rates for New York’s Medicaid program: From 1991 to 2009, spending in New York’s Medicaid program grew at an average annual rate of 6.2%, according to a December 2011 report from CMS [Centers for Medicare and Medicaid Services].

As part of the reforms embraced under the cap, New York’s health-care providers have been granted increased flexibility to bring costs down — like reducing unnecessary testing and using care coordinators to ensure patients get the help they need. Recognizing the need for still further improvements, New York is now seeking a CMS waiver to move populations that are currently in fee-for-service Medicaid — such as the disabled — into managed-care arrangements like those that have succeeded in Rhode Island.

Howard doesn’t get into more New York details; if he had, he might have noted that Governor Andrew Cuomo hasn’t yet secured that needed CMS waiver.

Under current law, if you’re in the 39.6 percent tax bracket, you get a 39.6 percent discount on the cost of items for which you claim deductions, assuming you’re not subject to the Alternative Minimum Tax (and if you make enough to be in that bracket, you’re probably beyond AMT range). Obama would reduce it to 28 percent, the highest tax rate in lower brackets.

By far the largest deduction claimed by high-income taxpayers, especially those earning $1 million and more, is for state and local taxes.

So guess which state’s tax base (with the possible exception of California’s) would be hit hardest by this change?

I answered the question in this op-ed last December:

Deduction curbs would hit New York harder … because, thanks to their heavy state and local taxes, New York’s highest-income taxpayers claim higher deductions than their counterparts elsewhere.

Say, for example, that the feds tightly limit or even kill the state and local tax deduction for taxpayers with incomes over $1 million. In that case, IRS stats indicate that New York residents alone would pay nearly a quarter of the resulting tax hike.

That’s not all. Counting commuters from other states who are taxed by Albany on wages and bonuses earned here, New York’s tax base accounted for 30 percent of all the deductions for state and local taxes claimed by Americans earning $1 million or more as of 2010.

Any deal to squeeze or drop that tax break would have huge implications for New York. Thanks in part to Gov. Cuomo’s extension … of a “millionaire tax” surcharge, New York filers with incomes above $1 million are expected to generate 40 percent of state income taxes in 2012, or nearly $15 billion. If federal tax hikes prompt even a small number to leave New York, the state will lose hundreds of millions a year in revenues.

The idea of curtailing itemized deductions for high-income taxpayers was backed by Mitt Romney in last year’s presidential election and was being seriously discussed as part of Obama’s “fiscal cliff” deal with congressional Republicans late last year—but when the bill emerged from the Senate, that provision was nowhere to be found.

What influential senator from a high-tax state, which also benefits inordinately from the tax-exempt treatment of municipal bond interest, might have had a hand in that change?  Oh, yeah—him.  But can Chuck Schumer effectively block his president’s wishes and get away with killing the deduction cap again?