Joseph Zambon
The Rockefeller Institute of Government’s 7th annual analysis of Federal funding reveals a dramatic shift in New York’s balance of payments (BOP) for Federal Fiscal Year (FFY) 2022. It got much worse.
The balance of payments between states, like between nations, measures winners and losers. The losers are the states that give more to the federal government than they receive back. The winners are the states that receive more from the federal government than they send.
After two years of winning due to COVID-19 relief spending, New York returned to its pre-pandemic position as a net subsidizer (loser) of other states. New York’s money goes to subsidize other states rather than coming back to New York.
Here’s a breakdown of the Rockefeller Institute report’s key findings and implications for New York and the nation.
Key Findings
- New York’s 2022 Balance of Payments:
- New York had a net negative balance of 19.4 billion, which means it sent 19.4 billion more money to the federal government than it received in 2022.
- New York’s ranking, from states that got the most (net recipients) to states that lost the most (net contributors) to the federal budget, dropped from 5th most favorable in 2021 to 46th in 2022
- 46th is just 4 spots above its pre-pandemic position when it was the worst in the nation. Worst, meaning New York had the largest negative balance of payments.
- COVID-19 Spending Impact:
- Federal emergency spending during the pandemic was a more equitable distribution of federal aid. It benefited populous states like New York, California, and Texas. Less populous states didn’t get less than before but more populous states got more than pre-pandemic.
- However, in 2022, COVID-19 relief spending ended, and federal funding to states returned to what it was before the pandemic.
National Comparisons:
These states have the Least Favorable balance of payments in 2022. They send more money to the federal government than they get back
- California (-$72.0 billion)
- Massachusetts (-$30.0 billion)
- Washington (-$22.5 billion)
- New Jersey (-$19.4 billion)
- New York (-$19.4 billion)
These states have the Most Favorable balance of payments. They get back more money from the federal government than they send.
- Virginia ($129.2 billion)
- Maryland ($71.6 billion)
- Kentucky ($65.4 billion)
- Ohio ($56.7 billion)
- North Carolina ($52.7 billion)
These lists show just the top five in each category. Most states are net recipients, that is, winners. There are only about 11 states that are losers in this game. They get back much less than they send to the federal government and were listed in my previous post. They are Illinois, Utah, New York, Colorado, Connecticut, Minnesota, New Hampshire, California, Washington, New Jersey, and Massachusetts.
Per Capita Analysis
- New York’s per capita balance of payments dropped in 2022 with the end of COVID relief money.
- It fell from a net positive $7,750 and $6,178 in 2020 and 2021, respectively, to a net negative $984 in 2022
- That’s -$984 for each person in New York compared to the national average of +$2,799.
- Between 2020 and 2022, that is a swing of about $8,750.
- The state’s excess burden (the difference between its per capita balance of payments and the national average) is the largest in the history of the analysis.
What Drove the Shift From Positive to Negative? Where Did New York’s Money Go?
- Pandemic Relief Wind-Down:
- Federal COVID-19 spending in 2020 and 2021 greatly benefited New York and other large states due to its population size and level of need.
- As emergency COVID spending decreased in 2022, New York’s share of Federal expenditures shrank and went back to before the COVID pandemic.
- Economic Recovery:
- When COVID-19 vaccines became widely available, the economy recovered. Federal spending shifted away from emergency COVID relief.
- That shift in federal spending reduced the yearly federal budget deficit by $1.4 trillion in 2022 but to the detriment of states like New York
- Wealth Concentration:
- New York’s negative balance of payments is also due to the fact that there are a few very wealthy people in New York. They pay a lot of federal taxes but receive less in return than other states.
Implications for New York
- Net Subsidizer Role: New York’s return to its pre-pandemic position means it contributes more to the federal government than it returns.
- Policy Considerations: The Rockefeller Institute report should inform policymakers that they must evaluate the consequences of fiscal decisions, particularly for states like New York that bear an unfairly large share of the Federal tax burden.
- Strategies. New York could implement several strategies to minimize the negative balance of payments. I’ll discuss those strategies in a future blog.
Looking Ahead
The 2022 data signals a return to “business as usual” for U.S. fiscal policy and New York’s balance of payments. While pandemic-era relief programs provided temporary equity, the winding down of emergency spending has reignited debates about the fairness of Federal funding distribution.
The question is, why do a few states continually subsidize other states? With few exceptions, why does federal policy require that predominantly blue states subsidize predominantly red states?