Of next year’s expected $700 billion federal infrastructure stimulus package, New York state likely will get $4 billion for mass transit, with most of that money going toward city projects, including a second station on the planned extension westward of the #7 train. The media greeted the announcement as good news, but it actually shows why it’s such a bad idea for wealthy cities to depend on federal policies for rational infrastructure planning.
Consider: if New York City had worked with the state since 2003 simply to keep its medical costs — health benefits for public-sector workers as well as for people on Medicaid — in line with inflation, the city would have an extra $5 billion rolling in every two years now to spend on whatever it wants, including subway infrastructure. The city also could have used the money as leverage over the state-run MTA to make sure that the authority used the funds wisely; another set of powerful, independent eyes can never hurt.
Plus, the city could have taken advantage of a particularly brutal economic trough now rather than fall completely prostrate to it.
How? As the local, national and global economies plummet, demand for construction materials, construction-intensive commodities like oil, and labor have fallen as well. New York and the MTA could have taken advantage of those lower costs by getting more projects done now for less money.
Instead, they’ve got to depend on a federal stimulus, the mass scale of which could push the costs of all of those things up again, meaning New York will get less work done per dollar than it would have otherwise.
Costs are going up in another way, too. Four billion dollars barely makes a dent in the MTA’s projected $30 billion long-term capital plan, and it could be much more expensive for the state to borrow for its own contribution to the rest of plan in the years ahead. Perversely, as the federal government borrows heavily to “contribute” money to our stimulus, that federal borrowing pushes our own costs of borrowing up, because it signals to investors to demand a higher return as compensation for the risk of inflation.
To wit: Municipal Market Advisors notes today that in 2009, “the muni market will either need extraordinary support via legislative change or must transition to steadily higher interest rates to restore demand and finance the massive current borrowing needs of state and local issuers.”
Plus, we’ll still be paying for our own federal stimulus money, and more, because New York still sends more money to Washington than it gets back each year, due to the nation’s progressive tax system. In other words, New Yorkers, even with their straitened finances, will be paying not only for our subway station but for sewer lines in Akron.
New York will pay a high price for its budgeting practices of the last decade. The price includes the opportunity cost of less-than-optimal infrastructure in a city that now needs to become more productive, now that one of its most seemingly productive industries, Wall Street, is gone. It also includes a dependence on the federal government’s inefficient allocation of the city’s own resources now to keep our already aging infrastructure from dangerously deteriorating.
The point of this is not to criticize the city for something that it did in the past — albeit the very recent past — that it can’t undo now.
But we should understand the numbers and learn the lesson well to make sure that we don’t make the same mistake this time around, making the structural budget problems that starved the city of world-class infrastructure during the record boom times worse instead of better during the record downturn.
We will make things worse instead of better, for example, if we sit around depending on federal infrastructure dollars and other federal bailout monies — i.e. for Medicaid next year — to avoid making hard choices about the rest of the city’s budget — read, medical costs, plus education — now.
If New York does learn any valuable lesson at all here, though, it will be ahead of the federal government, which seems to think that it can rescue the nation from a borrowing binge through more borrowing.