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Zack Hutchins
Director of Communications

October 14, 1999

Study: New York's state and local government spending exceeds need

New York's state and local government spending is far above the level justified by actual need for schools, welfare, health facilities, highways and other services, a new study by the Federal Reserve Bank of Boston shows.

The study estimates the "fiscal need" in each state and compares it to a national average need.

Fiscal need is defined as what the state and its local governments would have to spend, in per-capita terms, to provide a "standard bundle and level of services" based on population, poverty rates, numbers of school-age children, vehicle-miles traveled and so on.

The study calculates New York's "fiscal need" at 104 percent of the average for all states, as of 1996. Actual spending by state and local governments in New York that year, though, totaled 52 percent above the national average, at $7,990 per person.

The Federal Reserve study bolsters Governor Pataki's continuing insistence that state spending growth be held in check, Business Council President Daniel B. Walsh said.

"Pro-spending groups say New York's taxes are so high because our needs are greater," Walsh said. "This study proves otherwise."

The study shows that spending for health and hospitals in New York is 47 percent higher than is needed based on numbers of aged and disabled persons, and other cost factors. Education spending is 40 percent higher than cost factors indicate is needed.

The study also shows that New York's tax burden has improved, relative to the rest of the nation, but was still far out of line in 1996. It calculates a "tax effort" index for each state, estimating how much state and local government in each state collects in taxes relative to what its economy is able to produce.

The index shows New York's tax burden was 41 percent above the national average in 1996-still the highest in the nation, but down from 55 percent above average in 1994.

The study, published in the Federal Reserve Bank's journal New England Economic Review, is available on the Internet at www.bos.frb.org.