B 1,042,275 THE POS-WAR EXPANSION OF STATE EXPENDITURES CLARENCE HEER ATIONAL INSTITUTE OF PUBUC ADMINISTRATION 1837 *ES 014 it:TA so sCNR usrCfu Trmmrmymmrmrymmrwr Hs, boba ý\ a - STUDIES IN PUBLIC ADMINISTRATION THE POST-WAR EXPANSION OF STATE EXPENDITURES AN ANALYSIS OF THE INCREASE BETWEEN 1917 AND 1923 IN THE COST OF STATE GOVERNMENT IN NEW YORK BY CLARENCE HEER NATIONAL INSTITUTE OF PUBLIC ADMINISTRATION 261 BROADWAY, NEW YORK CITY COPYRIGHT, 1926, BY NATIONAL INSTITUTE OF PUBLIC ADMINISTRATION NATIONAL INSTITUTE OF PUBLIC ADMINISTRATION 261 Broadway, New York City The National Institute of Public Administration was incorporated in 1921, as an educational and research institution. The New York Bureau of Municipal Research, established in 1906, was combined with it. An important part of the work of the Institute is scientific research in public administration, especially in state and local governments. Through this research the Institute brings together and publishes, from time to time, studies in the field of public administration with the hope that these studies will be helpful to public administrators, legislators, teachers and students of government, and to the general public. NEWTON D. BAKER ROBERT S. BROOKINGS RICHARD S. CHILDS R. FULTON CUTTING RAYMOND B. FOSDICK MRS. E. H. HARRIMAN E. TRUSTEES A. R. HATTON HERBERT HOOVER VERNON KELLOGG FRANK 0. LOWDEN CHARLES E. MERRIAM CARL H. PFORZHEIMER R. A. SELIGMAN FOREWORD This monograph is another in the series which is being published by the National Institute of Public Administration on special phases of state and local governments. It treats a subject of wide interest at the present time. The author, Clarence Heer, has been associated for two years with the National Institute of Public Administration. During this time the research staff of the Institute, of which Mr. Heer was a member, made several studies for the Special Joint Committee on Taxation and Retrenchment of the New York legislature. The present study on the post-war expansion of governmental expenditures is an outgrowth of this work. While this study is limited to an examination of the expenditures of New York state government from 1917 to 1923, the method of analysis is applicable to the expenditures of other state governments and even to the expenditures of local governments. The general conclusions of the study are doubtless true to a large measure in the case of other states and also cities. During the period of six years beginning in 1917, Mr. Heer found that the New York state expenditures increased from $61,000,000 to $132,000,000, or 118 per cent. Subjecting this increase of $71,000,000 to a careful analysis, he found that 44 per cent of it was due to price inflation. Owing to the advance of prices and wages, the state tax dollar was worth only 65 cents in 1923 in terms of its pre-war value. Another 13 per cent of the total increase he found was due to more extensive use of current revenues in financing capital outlays. Approximately another 23 per cent of the increase was in the nature of compulsory additions to the state's costs growing out of the unusual conditions of the period and over which the state legislature had little or no control. The remaining 20 per cent of the increase comprised the cost of new state services and the improvement of existing services. In terms of 1917 dollars, the total optional increase in state expenditures between 1917 and 1923 amounted to less than $15,000,000. During the same period, the estimated private income of the people of the state, likewise measured in 1917 dollars, increased in the aggregate by over $700,000,000. In view of the foregoing facts, Mr. Heer's conclusion is that the optional increase was not extravagant. CONTENTS PART I THE RISING COST OF STATE AND MUNICIPAL GOVERNMENT CHAPTER PAGE I. CURRENT INTERPRETATIONS OF INCREASE............ 1 II. THE POST-WAR INCREASE IN NEW YORK STATE EXPENDITURES................................ 7 PART II THE INFLUENCE OF PRICE AND WAGE FACTORS III. MEASURING THE PURCHASING POWER OF THE TAXPAYER'S DOLLAR............................ 14 IV. THE TREND OF COSTS IN EDUCATION............... 21 V. THE TREND OF COSTS FOR PERSONAL SERVICE....... 26 VI. THE TREND OF HIGHWAY COSTS..................... 34 VII. ALL OTHER EXPENDITURES........................ 41 VIII. COMPOSITE INDEX OF COST OF STATE GOVERNMENT.... 50 PART III NON-PRICE FACTORS IX. HOW THE TAXPAYER'S DOLLAR IS SPENT............. 60 X. FIXED CHARGES AND CONTRIBUTIONS................ 67 XI. CAPITAL OUTLAYS AND DEBT SERVICE............... 77 XII. CURRENT EXPENSES............................ 83 XIII. CURRENT EXPENSES - CONCLUDED................ 97 XIV. GENERAL SUMMARY AND CONCLUSION............... 108 APPENDICES I. GOVERNMENTAL EXPENDITURES, 1903-1922, NATIONAL GOVERNMENT, 146 SELECTED MUNICIPALITIES, 48 STATES AND NEW YORK STATE.................... 114 II. ANALYSIS OF EXPENDITURES AND CORRESPONDING INDEX NUMBERS AS SET FORTH IN TABLE XII..... 115 III. CLASSIFICATION OF EXPENDITURES BY FUNCTIONS.... 118 IV. CANAL MAINTENANCE, EXPENDITURES, FISCAL YEAR 1923, REDUCED TO TERMS OF 1917 PRICES......... 120 V. EXPENDITURES FOR ADMINISTRATION, MAINTENANCE AND OPERATION OF STATE DEPARTMENT OF EDUCATION, NORMAL AND AGRICULTURAL SCHOOLS AND COLLEGES, FISCAL YEAR 1923, REDUCED TO TERMS OF 1917 PRICES................................. 120 INDEX......................................... 121 PART I THE RISING COST OF STATE AND MUNICIPAL GOVERNMENT CHAPTER I CURRENT INTERPRETATIONS OF INCREASE The rapid expansion of state and municipal expenditures following the close of the World War offers fertile material for the political alarmist. During the five years ending with 1922, the combined governmental cost payments of the forty-eight states of the union increased by nearly 150 per cent. During the three-year period from 1920 to 1922, inclusive, state expenditures exactly doubled. This latter increase may be made to appear all the more startling by reference to the fact that during the same three years, the expenditures of the federal government were reduced from a peak of $19,000,000,000 to less than $4,000,000,000, a cut of over 80 per cent.' The post-war increase in municipal expenditures, although not as spectacular as in the case of state governments, is nevertheless impressive. Between 1917 and 1922, the governmental cost payments of 146 selected municipalities, as compiled by the United States Bureau of the Census, show an increase of 97 per cent, and between the years 1919 and 1922, the increase is 78 per cent. The Pessimistic Viewo of the Increase Various explanations are currently given concerning the underlying causes for this rapid expansion of expenditures. According to one point of view2 which finds frequent if not always temperate expression, the blame must in the main be placed on governmental waste and inefficiency. All governments, it is said, are from their very nature peculiarly prone to unwise expenditure and extravagance. In normal times these proclivi1 For the sources of these figures see appendix i. See also chart 1. 2 Of. Beveridge, The State of the Nation (Indlanapolls, 1924), pp. 175 et seq. 2 POST-WAR EXPANSION OF STATE EXPENDITURES ties are somewhat inhibited by the necessity of maintaining the good will of a taxpaying electorate. During the World War, however, all erstwhile inhibitions were broken down. The public became accustomed to the idea of governmental disbursements on a hitherto undreamed of scale and a new standard of public expenditure was set up. State and municipal governments, so the argument runs, although they bore no share of the cost of the war, were nevertheless affected by the general war-time psychology and embarked on a reckless orgy of spending, the results of which are just coming to light. As to the specific forms of extravagance of which state and local governments are accused, it is possible to mention only some of the more frequently iterated. It is said that there has been a large and unwarranted increase in the number of civil employees and that we are rapidly developing into a nation of bureaucrats. Tax-free state and municipal bonds are made to bear a considerable share of blame. It is asserted that the extreme facility with which these bonds can be marketed by virtue of their tax-exemption feature has acted as a constant incentive to extravagance. With the knowledge that revenue deficits might readily be refunded, public officials, it is said, have not been averse to allowing current expenses to outrun current revenues. The states and municipalities are further charged with embarking upon ambitious construction projects both untimely and ill-conceived, with the result that the taxpayers of the country are now saddled with interest and amortization charges on a vast accumulation of uneconomic debt. Another factor which is frequently blamed for the increase in public expenditures is the alleged multiplication of the regulatory activities of the state. The rapid growth of these activities, it is contended, has not only increased the burden of taxation, but at the same time has hampered and interfered with the free conduct of industry, thus threatening the source of taxation itself. From the point of view which has just been described, the present level of state and municipal expenditures calls for immediate and ruthless economy. Government payrolls must be greatly reduced. Needless commissions must be abolished and public construction projects abandoned or at least postponed to a more propitious period. CURRENT INTERPRETATION OF INCREASE p3 04 05 06 07 o0 09 10 11 12 13 l 15 16 17 15 19 20 21 22 CHART I. COMPARATIVE GnoWTH OF GOVERNMENTAL EXPENDITURES, NATIONAL GOVERNMENT, 146 SELECTED MUNICIPALITIES, ALL STATE GOVERNMENTS, AND STATE OF NEW YORK, 1903 To 1922. 4 POST-WAR EXPANSION OF STATE EXPENDITURES The Optimistic View In contrast with the pessimistic view expressed above, are the views of those who regard the recent increase in public expenditures with equanimity, as being in the main legitimate and unavoidable. The ideas of this latter group may be expressed somewhat as follows. The apparently enormous increases in state and municipal expenditures are for the most part nominal and not real. The dollar has shrunk in value. All prices are considerably higher than they were before the war; prices of commodities and services purchased by states and municipalities are no exception. Moreover, entirely aside from the effects of price inflation there are, it is said, legitimate reasons for an increase in expenditures. During the war, owing to the scarcity of labor and materials, public works were under-maintained and there was little public construction. Governments are now behind in their maintenance and construction programs and must increase their expenditures in order to catch up. It is further contended that the present increase is neither unprecedented nor abnormal. On the contrary the history of all modern states is cited to show that it is normal for expenditures to increase. This tendency, it is said, results inevitably from the growth of population and its increasing concentration in large urban centers. With the steady progress of economic specialization, the individual loses more and more of his economic independence and is increasingly dependent for his livelihood on the functioning of a complex economic mechanism over which he can individually exercise little control. To insure the smooth working of this mechanism and to guard it against sabotage it is claimed that the activity of the state must be invoked to an ever greater extent. In view of these tendencies, it is maintained, it is futile to expect that public expenditures can ever be reduced. Scope and Purpose of Present Inquiry Fundamentally, the difference between the two views which have just been described arises from two conflicting conceptions of the function of the state. According to the first view the state is regarded as a necessary evil whose activities must be CURRENT INTERPRETATION OF INCREASE kept down to the barest minimum. According to the second the state is conceived as an instrument for collective action which may legitimately be utilized to satisfy any collective want. The harmonizing of this theoretical difference does not lie within the scope of the present inquiry. It is believed, however, that regardless of what one's political bias may be, no proper determination as to the appropriate course of action called for by the present high level of expenditure can be made without first separating fact from fancy, and ascertaining the actual fiscal developments which lie behind the large increase which has recently taken place. The following study is intended as a contribution toward that end. Most of the current explanations of the increase in state and municipal expenditures are based on certain assumptions as to the facts. It is proposed here to investigate some of these assumptions. Is the present increase really a unique and unprecedented phenomenon as it is often made to appear? Exactly what proportion of it has been due to price inflation? How much of the increase has been due to the assumption of new governmental activities? After making allowance for the changed purchasing power of the dollar, has the cost of carrying on the old and long-established functions of government increased? If so, has this increase been due to the necessity of increasing the volume of service rendered, or has it been due to the fact that a different and more expensive quality of service is now given? Did governments actually fall behind in their maintenance and construction programs during the war, and how much of the recent increase in public expenditures is attributable to that cause? Finally is there any evidence that the new level of expenditure is the result of waste and extravagance? What has been the role played by tax-free bonds? Have governmental payrolls increased beyond real needs, and has there been much unwise and untimely public construction? Satisfactory answers to the above questions can only be had upon the basis of a minute and painstaking analysis of governmental expenditures, and this requires that the governments concerned keep full and accurate accounts. Detailed information must be available showing not only the nature and cost of the various services rendered, but also the volume and quality of 6 POST-WAR EXPANSION OF STATE EXPENDITURES such services. It is also necessary to have data regarding the quantity and quality of the various commodities and services consumed by the state in the performance of its functions, and the unit prices paid for such commodities at various periods must be known. To make the analysis outlined above in respect to all of the states and municipalities of the country would be a herculean task. Besides, very few governments would possess the requisite records and accounts. In the present study an attempt at such an analysis is made only for the state of New York. This state has been chosen principally because it affords an unusual wealth of data of the sort needed for the kind of analysis proposed. There are, however, other reasons for choosing New York State for an initial study of the causes of increasing expenditures. As has already been pointed out, the expansion of state expenditures has far exceeded that of municipalities. An analysis of state expenditures would, therefore, seem to offer a more fruitful field of study than an analysis of municipal expenditures. Of the states, New York is the largest in point of population and wealth. In 1922 its total governmental cost payments as reported by the United States Bureau of the Census represented 11 per cent of the total payments of all states combined.1 Moreover, reference to Chart I will show that the trend of New York State expenditures has been strikingly similar to the composite trend for all the states. The facts revealed by an investigation of the increase in New York State expenditures should, therefore, throw some light on the underlying causes of the increase in the expenditures of other states. 1 Appendix 1. CHAPTER II THE POST-WAR INCREASE IN NEW YORK STATE EXPENDITURES During the six years ending June 30, 1923, the total ordinary general budget expenditures of the state of New York increased from $61,000,000 to $132,000,000 per annum. In other words, the cost of state government more than doubled within the space of six years. Increasing Expenditures Not Abnormal Large as this increase appears when viewed by itself, it is by no means without precedent in the financial history of the state. A more rapid increase occurred during the Civil War when the expenditures of the state tripled within a space of three years. Even as regards periods unaffected by war-time influences, it will be found that the trend of expenditures in New York State has invariably been upward. At the beginning of the nineteenth century the total expense of carrying on the state government was less than $300,000 per annum. By 1860 expenditures had increased to $3,000,000 per annum and by 1870 they were running at the rate of $10,000,000 per annum.' Chart II, which depicts the trend of state disbursements for general purposes during the last forty years, shows that throughout the thirty years preceding the World War the cost of government in New York State advanced steadily at an average rate of about 5 per cent per annum.2 It may safely be said that increasing expenditures have been the rule rather than the exception in New York State and refer1 DI. c. Sowers, Financial History of New York State, Columbia Studies in History, Economics and Public LaV, vol. lvii, no. 2, appendix i. 2 Chart ii Is based on data taken from the annual report of the state comptroller for the fiscal year ended.Tune 30, 1923, p. 249. " Disbursements for general purposes of government " differ slightly from " expenditures for general purposes " as used elsewhere in this study in that the former Includes amounts disbursed for the redemption of temporary loans and certain advances made by the state but subsequently returned to it. The disbursements for each year have been plotted on a ratio scale. Consequently equal percentage increases in disbursements are represented by equal vertical distances on the chart. The slopes of the straight lines which have been fitted to the curve by the "method of least squares " represent the respective normal rates of increase for the periods covered. The equations of these lines are respectively, Log p =.022393 X + 7.011155, and Log pV=.080544 x + 5.111803. Since the fiscal year ended June 30, 1916, comprised only nine months, the disbursements for that year have been omitted in computing the trend from 1884 to 1917. [7] 8 POST-WAR EXPANSION OF STATE EXPENDITURES ence to Chart I will show that the experience of other states has not been different. This generalization, moreover, need not be confined to the United States. The Italian economist, Nitti, in an interesting statistical study1 has shown that a progressive growth in public expenditures has been characteristic of all modern states at all periods of their history, regardless of their form of government or the character of their inhabitants. This applies to both national and local governments; to democracies like England and despotisms like old Russia; to militarist countries like Germany and France; and to pacifist countries like Holland and Switzerland. Even Asiatic countries, such as Japan and India, have been no exception to the general rule. In the case of France, Nitti gives figures for national expenditures running back to the 13th century; throughout this long period, whether under the absolutism of the Louis or in the days of the modern republic, the trend has been uniformly upward.2 Recent Upswing Warrants Investigatigon The fact that expenditures have always increased, however, does not mean that this tendency should be viewed with complacency, nor does it mean that a particular increase need not require investigation. As shown by Chart II, the growth of New York State expenditures since 1917 differentiates itself sharply from the normal rate of growth during the thirty preceding years. As has already been noted the average increase up to and inclusive of 1917 was about 5 per cent per annum. Commencing with the fiscal year 1918, however, there was a marked departure from the previous trend; during the next four years disbursements began suddenly to grow at an average rate of over 20 per cent per annum. Reference again to Chart I will show that the same sharp upturn after 1917 characterized the trend of the combined expenditures of all of the 48 states as well as that of municipal expenditures. It is this abnormal upswing since 1917 which it is proposed to investigate on the basis of what has happened in New York State. I Francois Nitti, Principes de Science des Financsc, chapter i. Jbid., p. 61. CI 0 CHART II. TREND OF STATE DISBURSEMENTS FOR GENERAL PURPOSES OF GOVERNMENT, 1884 TO 1917. 10 POST-WAR EXPANSION OF STATE EXPENDITURES Sources of Information Before proceeding further it may be in order to comment briefly upon the character of the data upon which this study has been based. The expenditure figures used have been obtained from the annual reports of the state comptroller. For the purpose in view it was desirable to have an exceedingly complete classification of disbursements and the reports of the New York State comptroller are unusually satisfactory in this respect since they contain a five-fold classification as follows: 1. According to the fund from which the expenditure was made, i.e., whether from the general fund maintained principally by the general state taxes, or from special funds such as the highway and canal construction funds which are accumulated mainly through the sale of bonds. 2. According to the governmental function in the performance of which the cost was incurred, i.e., legislative, judicial, regulative, etc. 3. According to the administrative unit responsible for the expenditure, i.e., department of labor, tax department, comptroller's office, etc. 4. According to the character of the expenditure, i.e., whether the expenditure is an item of current expense, a fixed charge, or a capital outlay. 5. According to the object of the expenditure, i.e., the nature of the service or commodity purchased, such as personal service, office supplies, printing, fuel, power and light, etc. An obvious defect of the comptroller's reports is that they are based on a cash expenditure as opposed to an accrual basis. Consequently they do not always accurately reflect the liabilities and expenses actually incurred and chargeable to a given fiscal period. However, as will subsequently appear, precautions have been taken to make the proper adjustments wherever the use of the cash basis tends to become misleading. A more serious defect from the point of view of the present study is the incomplete and inadequate classification of expenditures by objects. Except as regards personal service, there is in recent reports no summary of the aggregate amounts expended on each specific object. The classifications of expenditures by objects is in fact only carried out in reporting the expenditures of the various administrative units. Thus, in order to ascertain THE POST-WAR INCREASE IN NEW YORK 11 the state's total bill for, say, fuel, light and power during a given year, it is necessary to pick out this item from the detailed expenditures of each individual administrative unit, after which a laborious summation is required. Moreover, some of the classifications given such as " equipment, materials and supplies," " administration and operation," and "contingencies" are too general to be of any use. Fortunately the state possesses other records, which may be used to remedy the deficiencies just noted. Commencing with 1917, the legislative budget committee has annually compiled and published the requests for appropriations to be made at the forthcoming sessions of the legislature.' These legislative budgets are in effect a compilation of formal statements filed with the legislative budget committee by the various department heads. In addition to containing estimates of needed appropriations for the ensuing year, they show the schedule of appropriations currently in force, and, what is most valuable of all for the present purpose, a statement of liabilities and expenses actually incurred during the two preceding years. The legislative budgets thus give the expenses of each departmental unit on an accrual basis, and were it not for the fact that the separate departmental statements are nowhere adequately summarized and that they are apparently not tied in with the state's general system of accounts, thus raising a question as to their accuracy, their use for the present purpose would be preferable to that of the comptroller's reports. As it is, the legislative budgets are extremely useful as a means of revealing any serious discrepancies which might exist between the costs actually incurred and the corresponding cash payments within a given period. The chief value of the legislative budgets, however, lies in the fact that they contain a very complete classification of expenditures by objects and thus may be used to supplement the comptroller's classifications where the latter are too vague or general. They also contain lists of government employees together with the corresponding positions and salary ratings. These lists have been utilized in calculating the increase in the 1The legislative budgets for 1918 and 1919 are contained in New York senate documents, 1917, no. 5, and 1918, no. 5; for the years 1920 to 1924, inclusive, they appear in New York legislative documents, 1919, no. 11; 1920, no. 11; 1921, no. 11; 1922, no. 30; and 1923, no. 7. 12 POST-WAR EXPANSION OF STATE EXPENDITURES number of state employees and their average salary ratings during the period covered by this study. Other sources of information which have been made use of in the present investigation are the various departmental reports, particularly the reports of the education and highway departments. Data regarding price trends have been secured from various official and technical publications which are cited further on. Expenditures Defined Several categories of expenditures are given in the annual reports of the comptroller. It is important, therefore, to understand at the outset exactly what is meant by this term. From the viewpoint of taxation, expenditures are chiefly important in relation to their effect upon the general tax burden. Since this is the viewpoint from which the present study is being undertaken it is desirable that consideration be limited to those expenditures which influence the determination of the amount to be raised by taxation. As reported by the comptroller the expenditures most nearly conforming to the above description are the so-called " expenditures for general purposes " or the total ordinary general budget expenditures, which will accordingly be used. Expenditures for general purposes may be defined as all state expenditures defrayed out of general revenues. Expenditures paid for out of the proceeds of the sale of bonds are therefore not included. The expenditures in question comprise the current expenses of government, fixed charges and contributions, and capital outlays paid for out of general revenues. They represent actual cash disbursements except as regards contributions to sinking funds for interest and amortization of debt and contributions from general revenues for canal construction. In these cases, expenditures mean the amounts transferred from the general fund to the special sinking and construction funds involved. Although expenditures for general purposes include only those capital outlays which are paid for out of current revenues and exclude those which are financed through the sale of bonds, nevertheless it is not possible to omit the latter class of outlays from consideration, since it is this class of expenditures which determines the amount of current interest and amortization THE POST-WAR INCREASE IN NEW YORK 13 charges. For certain purposes, therefore, notably in considering the effect of price inflation, an expenditure category somewhat different from any reported by the state comptroller will be used. This will be known as " aggregate expenditures from general revenues and bond proceeds " and will consist of expenditures for general purposes as reported by the comptroller plus capital outlays financed through the sale of bonds. Unless otherwise stated, however, the term expenditure will mean expenditures for general purposes as reported by the state comptroller. TABLE I INCREASE IN NEW YORK STATE EXPENDITURES 1917-1923 Expenditures for General Capital Outlays from Aggregate xpenditures Purposes* Bond Proceeds Bond Proceeds % Incr. (-) % Incr. (--) % Incr. (+) Date Amount or Deer. (-) Amount or Deecr. (-) Amount or. Deer. (-) over 1917 over 1117 over 1171917 1917 $59,805,600 $17,194,700 $76,910,300 1918 72,008,500 + 20.4 13,006,300 -24.0 85,014,800 + 10.5 1919 77,136,600 + 30.0 13,456,800 -21.3 90,593,400 - 17.8 1920 92,587,000 + 54.8 7,843,200 -54.1 100,430,200 + 30.6 1921 134,069,500 + 124.2 5,781,200 -66.2 139,850,700 + 81.8 1922 124,131,800 + 107.6 10,442,800 -38.9 134,574,600 + 75.0 1923 130,348,500 + 118.0 5,686,500 -66.8 136,035,000 + 76.0 * Refunds to counties in respect to court expenses and armory taxes have not been considered state expenditures, although they are included among expenditures for general purposes in the reports of the comptroller. Statistics of Increase Between 1917 and 1923 Table I shows the growth in expenditures for general purposes, capital outlays financed through the sale of bonds and aggregate expenditures from revenues and bond proceeds, as between 1917 and 1923. As has already been noted, the fiscal year 1917 was the last year in which expenditures increased at a rate which approximated the normal rate for the thirty years preceding the World War. The following period was characterized by the sharp upward movement which it is proposed to explain. The culmination of this movement was reached in 1921, but expenditures have not notably decreased since then. For this reason it was decided to take as a measure of the present level of expenditures the latest figures available, which, at the time the study was initiated, were those for 1923. The investigation which follows, therefore, will be based on an analysis of the increase in state expenditures as between 1917 and 1923. PART II THE INFLUENCE OF PRICE AND WAGE FACTORS CHAPTER III MEASURING THE PURCHASING POWER OF THE TAXPAYER'S DOLLAR How much of the 118 per cent growth in state expenditures which took place between 1917 and 1923 is merely nominal and due to the reduced purchasing power of the dollar? Conversely, how much of the expansion is real and due to an actual increase in the quantity or a change in the quality of the commodities and services purchased by the state? In order to answer these questions it will be necessary to reduce the sum spent by the state in 1923 to its equivalent in terms of the 1917 purchasing power of the dollar. More specifically it will be necessary to compute what would have been the total cost of the commodities and services purchased by the state in 1923 if they had been paid for at 1917 prices. Index Numbers of Cost of State Government In the following section it is intended to make an estimate of this hypothetical cost. It is proposed, in fact, to go further,and to convert the state's 1923 expenditures into terms of the price levels prevailing in various other years, commencing with 1915. The results obtained will be expressed as percentages of the expenditures for 1923, thus forming index numbers of the cost of state government. In other words, just as cost of living indices have been developed to measure the variations in purchasing power of the wage-earner's dollar, so it will be attempted to develop an index which will reflect the fluctuations in purchasing power of the taxpayer's dollar. This is an ambitious project and it may well be said at the outset that available data as to quantities, qualities, and unit prices of the various commodities and services consumed by the state are too scanty to enable a very high degree of accuracy 14 PURCHASING POWER OF TAX DOLLAR 15 to be attained. Nevertheless, in view of the extreme practical importance of gaining some idea as to how much of the present increase in state expenditures is attributable to price influences, it is believed that even a rough approximation will be of value. The method to be used in constructing the projected index can best be explained by considering first how such an index might be constructed if all needed data were available and if all of the required computations, no matter how laborious, could be performed. Having indicated the ideal method, it can then be shown how the method actually used departs from this norm. Base Period To begin with, it must be realized that the state's budget changes considerably from year to year. It is probably much more variable in this respect than the typical budget of a group of wage earners. As has already been pointed out there has been a constant tendency for state expenditures to expand. Moreover, the character and relative proportions of the commodities and services used by the state are subject to considerable variation. For instance, the state spends a much larger share of its revenues on education and highways than it did formerly. The quality of the service given in both these fields has undergone a marked transformation. This is especially apparent as regards highways. The type of highway constructed in 1923 was of a more expensive and durable character than the type prevalent say ten years ago. If an index is to be constructed which will reflect the effect of price variations upon the aggregate cost of the state's budget, it must be decided first of all what year's budget shall be taken as a standard. This question is decided in the present instance by the purpose in view. It is desired to ascertain the variations in the cost of the state's 1923 budget on the basis of prices prevailing in previous years. Ideal Method of Procedure One way of realizing this purpose would be to draw up a list of all commodities and services purchased by the state in 1923, being careful to specify the exact grades and qualities as well as the quantities of the various items purchased. It would next 16 POST-WAR EXPANSION OF STATE EXPENDITURES be necessary to ascertain the unit prices at which similar commodities of like quality were purchased in previous years. Multiplication of the unit prices applicable to any given year by the corresponding quantities as shown on the list, and the summation of the resulting products would give the aggregate cost of the state's 1923 budget at the price level of the year in question. This method, however, cannot be used in actual practice because of a lack of adequate data concerning the quantities of the various commodities and services purchased by the state. The only comprehensive information regarding state expenditures is contained in accounting records and the facts which such records afford are stated not in units of physical measurement but in terms of money costs. There is, however, another method of procedure which does not require that the actual quantities be known. The total money expenditures for a given item are a product of the quantity of the item purchased multiplied by the unit cost. If, therefore, the total money costs of the various commodities and services purchased in 1923 and also their unit prices in that year be known, it is possible to ascertain the quantities involved by dividing the money costs by the appropriate 1923 unit prices. Multiplication of the resulting quotients by the unit prices of other years will give the value of the state's 1923 expenditures in terms of the price levels of those years. The same result may be obtained for any given year by multiplying the 1923 expenditures for each item by the ratio which the unit price of that item in the given year bore to its unit price in 1923. Unit prices for various years, expressed as ratios of the corresponding unit price in 1923, are equivalent to a series of relative numbers to the base 1923. The method outlined above, therefore, appears to involve two main operations. In the first place, the 1923 expenditures of the state must be broken up into subtotals, each of which represents the expenditure for some homogeneous commodity or service capable of being measured by a simple quantitative unit. In the second place, relative numbers must be developed expressing the unit prices of these commodities and services as ratios of their unit prices in 1923. Multiplication of the various subtotals of expenditure by the PURCHASING POWER OF TAX DOLLAR 17 corresponding price relatives pertaining to any given year and summation of the resulting products will give the hypothetical cost of the state's 1923 budget in terms of the price level of the year in question. Practical Difficulties When it is attempted to carry out the above operations in actual practice, seemingly insurmountable obstacles appear. It is out of the question to expect that accounts can be kept in such minute detail as to permit the classification of expenditures by homogeneous commodities and services. As will be seen from Table II, the reports of the state comptroller give a classification of expenditures only by general categories, such as personal service, highway construction, building repairs, food, clothing, and similar groupings, which are really conglomerates of many different kinds of items. Personal service, for instance, comprises a whole range of unlike services, from those of executives and skilled technicians to those of office boys and porters. Highway construction comprises the cost of grading under varying conditions of difficulty as well as the cost of various kinds of crushed stone, sand, gravel, cement, bituminous materials, and skilled and unskilled labor. The classification "food" consists of hundreds of different articles of food, and the same article may be represented by numerous grades. An even more troublesome problem than that of classification is the problem of obtaining adequate price data. Strictly speaking, the prices used should be those which were actually paid by the state. However, outside of data as to salaries and highway costs, very little information concerning prices is to be found in published state records. Moreover, unless all of the commodities and services purchased by the state in 1923 were bought in previous years as well, there will be serious gaps in price data based exclusively upon state purchases. Method Actually Used In view of the practical difficulties outlined above, the method actually used for converting the state's 1923 expenditures into terms of price levels of other years was as follows. The aggre 18 POST-WAR EXPANSION OF STATE EXPENDITURES gate expenditures were first of all divided into subtotals representing expenditures not for simple homogeneous items but rather for groups of related commodities and services on the basis of the classifications provided by the accounts of the state comptroller. An effort was next made to obtain index numbers on a 1923 base which would reflect the trend of prices within the various expenditure groups. These index numbers may be considered as representing the variations in cost, relative to 1923, of composite units of the composite groups of commodities and services to which they pertain. In respect to the largest expenditure classifications, such as educational costs, personal service, and highway construction, special index numbers were developed based in the main on prices actually paid by the state. In respect to other classifications, however, the trend of unit prices was assumed to have been substantially the same as the trend of aggregate costs of groups of similar commodities, as shown by various ready-made series of index numbers. Thus, for food, clothing, fuel, light and power, and furniture and furnishings, the appropriate wholesale price indices of the United States Department of Labor were used. Accuracy of Method The prices paid by the state are not in all cases strictly wholesale prices. The commodities and services which it consumes differ somewhat, both in kind and in relative proportions, from the assortments of commodities and services forming the basis of the ready-made index numbers which have been used. The use of these outside index numbers, therefore, requires some defense. The main justification for their use is the fact that all price variations are strongly concentrated around a central tendency, and the fact that this concentration increases as commodities approach each other in similarity. A further justification is the fact that the particular classes of state expenditures to which outside indices have been applied represent for the most part a wide diversity of component items. Index numbers based on separate groups of commodities which, however, have a genera, likeness to each other show very little variation where the nurn PURCHASING POWER OF TAX DOLLAR 19 ber of component items in each group is large and diversified. This observation may be verified by comparing the respective wholesale food price indices of the United States Bureau of Labor Statistics, the War Industries Board, the United States Food Administration, and the Times Annalist.' In spite of the considerations mentioned above, the fact remains that the use of already existing index numbers will give TABLE II ANALYSIS OF AGGREGATE EXPENDITURES FROM REVENUES AND BOND PROCEEDS BY PRINCIPAL OBJECTS OF EXPENDITURE, FISCAL YEAR ENDED JUNE 30, 1923 Per Cent Object of Expenditure Amount of Total Grants in support of local education......... $38,716,400 28.5 Personal service (salaries and wages)........ 26,196,100 19.3 Interest and amortization of funded debt.... 12,079,100 8.9 Highway construction...................... 8,866,900 6.5 Highway maintenance...................... 8,070,400 5.9 Highway subsidies to towns and counties..... 4,865,400 3.6 Canal and tunnel construction*.............. 6,867,800 5.1 Building and building repairs................. 5,593,800 4.1 Food..................................... 4,099,800 3.0 Indemnities for diseased animals............. 2,468,700 1.8 Fuel, light and power....................... 2,434,200 1.8 Fixed charges.............................. 2,185,900 1.6 Travelling expenses........................ 1,521,900 1.1 Purchase of land............................ 1,048,900.8 Printing and advertising.................... 1,075,500.8 Damages, incident to canal construction..... 989,000.7 Furniture and furnishings.................... 966,600.7 Relief of war veterans................... 976,900.7 Clothing................................. 717,600.5 Communication........................... 541,600.4 Miscellaneous commodities and services...... 5,752,500 4.2 Total................................ $136,035,000 100.0 * Including canal repairs. only a rough approximation of what the state's 1923 budget would have cost at the price levels obtaining in previous years. It is believed, however, that the estimate made in the present study through the partial utilization of such index numbers, represents as close an approximation to the facts as it is possible to obtain on the basis of existing data. Moreover, since the character of state expenditure is constantly changing and since, therefore, the variations at different price levels in the hypothetical 1 Cf. Index Numbers of Wholesale Prices in the United States and Foreign Countries, Bulletin of the United States Bureau of Labor Statistics, no. 284. 20 POST-WAR EXPANSION OF STATE EXPENDITURES costs of any year's budget can have only 'limited significance, it is seriously doubted whether a more elaborate computation would be worth while. Classification of Expenditures by Object The first step in the development of an index number of the cost of state government is the classification of expenditures ii'to subgroupings of related commodities and services. Table II furnishes such a classification in respect to the state's aggregate expenditures from revenues and bond proceeds for the fiscal year ending June 30, 1923. It will be seen from Table II that the most important single item of state expenditure comprises grants to localities for educational purposes. In 1923 these educational grants represented considerably more than a quarter of the state's aggregate expenditures from revenues and bond proceeds. Personal service, which includes the total amount spent for salaries and wages of state officers and employees, is the next largest item, comprising about a fifth of the state's expenditures. Highway construction and highway maintenance come next in importance, representing 16 per cent of all expenditures from revenues and bond proceeds. Interest and amortization of funded debt is the fourth largest item and comprises about 9 per cent of the total. Together the four items mentioned above comprise about 73 per cent of the state's aggregate expenditures from revenues and bond proceeds. The remaining 27 per cent is fairly evenly distributed among a variety of less important objects. Having broken up the total expenditures of the state into convenient commodity and service groupings, it is next in order to develop index numbers reflecting the trend of unit prices within each group. This will be done in the following chapters, the various groups being considered in order of their importance. CHAPTER IV THE TREND OF COSTS IN EDUCATION As has already been indicated, state subsidies in support of education represent the largest item of expenditure in the entire budget. In 1923 these subsidies amounted to nearly $39,000,000. The bulk of this amount, about 93 per cent, was for the support of the common schools of the state. Various special payments to high schools and academies comprised about 41/ per cent of the total. The remaining 2~/ per cent consisted of miscellaneous subsidies such as state aid to institutions for the deaf, dumb and blind, state scholarships, and grants to libraries. No portion of the $39,000,000 granted in support of education in 1923 was spent directly by the state. For the purpose in view, however, it may be regarded as having been used to purchase a certain quantity of public instruction of a certain kind and quality determined by the present educational standards of the state. The problem then becomes one of estimating how much the same quantity of the same sort of public instruction would have cost on the basis of price and salary levels obtaining in other years. For this purpose it is necessary to develop an index number of the cost of public instruction in New York State. Classification of Educational Expenditures Nearly all of the data needed for the construction of such an index are to be found in the annual reports of the University of the State of New York, which has for years kept detailed records relating to the cost of maintaining the public schools of the state. Unfortunately the latest published records of school costs are for the year ending July 31, 1921.1 However, it has been possible to obtain directly from the department of education the total educational expenditures for the fiscal year 1923, as well as the total disbursements for teachers' salaries and the aggregate amount expended for school houses, sites, furniture and repairs. On the basis of these figures, supplemented by the detailed infor1 University of the State of New York, Eighteenth Annual Report, 1923, exhlibit c, table vi, p. 420. 21 22 POST-WAR EXPANSION OF STATE EXPENDITURES mation as to the character and relative importance of the various cost elements, available in respect to 1921, Table III has been constructed, showing the estimated distribution among various classes of expenditure of the total cost of maintaining the public schools of the state in 1923. Sources of Price Data Having obtained an idea from Table III of the nature and relative importance of the items comprising the cost of education in New York State, the next step involves the development of TABLE III COST OF MAINTAINING PUBLIC SCHOOLS OF NEW YORK STATE, YEAR ENDING JULY 31, 1923 Per Cent Class of Expenditure Amount of Total Salaries of teachers, principals, supervisors, principals' clerks and administrative officers and clerks......................... $127,313,000* 60.5 Wages of janitors and laborers............ 8,500,000** 4.0 School houses, furniture and repairs....... 40,946,000t 19.4 Fuel, power and light.................... 4,848,000f 2.3 All other expenditures................... 28,957,000 13.8 Total............................... $210,564,000 100.0 * Expenditures in fiscal year 1923 for salaries of teachers, principals and supervisors as reported by department of education $121,763,000. Salaries of principals' clerks and administrative employees estimated on basis of ratio which salaries of these employees bore to salaries of teachers, principals and supervisors in 1921. **Aggregate wages of janitors and laborers, assumed to be substantially the same as in 1921. Wages of unskilled labor were somewhat lower in 1923 than in 1921, but this was probably more than offset by an increase in number of laborers employed. t Aggregate expenditures in fiscal year 1923 for school houses, sites, furniture and repairs, as reported by department of education $44,554,650. The estimated value of building sites has been deducted from this amount to arrive at the figure given in table iii. The cost of building sites in 1923 was estimated on the basis of the ratio which site values bore to the total cost of school houses, sites, furniture and repairs in 1921. $ Expenditures for fuel, power and light assumed to be the same as in 1921. Fuel costs were somewhat lower in 1923 than in 1921 but this was probably offset by an increase in consumption. index numbers reflecting the trend of unit costs of the items in question. Such index numbers are given in Table IV. A word, however, needs to be said concerning the manner in which they were obtained. The average annual salaries of teachers, principals and supervisors employed in the public schools of the state for the years 1907 to 1921, inclusive, are given in the eighteenth annual report of the University of the State of New York. The corresponding averages for the years 1922 and 1923 have been obtained directly THE TREND OF COSTS IN EDUCATION 23 from the department of education. The index numbers of teachers' salaries given in Table IV have been computed from these data. The wages of janitors and laborers are assumed to have followed the trend of unskilled labor, and the index numbers which have been applied to this category of expense, in Table IV, are those of the United States Bureau of Public Roads, relating to the average wages of unskilled labor in the Middle Atlantic States. As regards expenditures for school houses, furniture and repairs, since over 94 per cent of these expenditures comprise the cost of building or repairing school houses,1 an index of building costs developed by the National Industrial Conference Board has been used.2 For fuel, power and light, the " fuel and light " wholesale price index of the United States Bureau of Labor Statistics has been employed. As regards the item " all other expenditures," its most important component is interest and amortization of funded debt, which comprises about a third of the entire classification. The cost of building sites represents about an eighth of the total. The remainder consists of miscellaneous items such as text books and supplies, rent, taxes, insurance and pensions. No information is available concerning the effect of price changes on this class of expenditures. In view of the preponderance of fixed charges, however, it is apparent that the effect, whatever it may have been, was considerably less than in the case of the other classifications. In the absence of definite knowledge, it has been arbitrarily assumed that the effect of price changes on the expenditures in question might be disregarded. This is of course contrary to fact and the percentage increase in educational costs is thereby somewhat understated. The Composite Index of Educational Costs By multiplying each of the component series of index numbers by the percentage representing the relative importance of the expenditure group to which it applies, and by adding the resulting products for each year, it is possible to obtain a weighted index of the combined cost of education which is shown on the 1 Cf. University of State of New York report, op. cit. 2 The writer is indebted to the National Industrial Conference Board for a typewritten -copy of the index numbers in question together with supporting data. TABLE IV INDEX NUMBERS OF COST OF PUBLIC INSTRUCTION IN NEW YORK STATE Fiscal Year Ended July 31, 1923 = 100 Relative Class of Expenditure Importance Index Numbers-Average for Fi~scal Year Fiscal Year > 1923 19 15 1916 1917 1918 1919 1920 1921 1922 1923 X Salaries of teachers, etc.*............ 60.5 49.7 49.3 50.4 52.2 56.5 65.2 96.5 98.9 100.0 Wages of janitors and laborers**.. 4.0 48.7 53.6 65.7 82.8 96.2 110.8 103.5 86.4 100.0z School houses and repairsi.......... 19.4 51.3 56.3 66.0 76.1 83.2 116.5 109.0 90.6 100.0 Fuel, power and lightt.............. 2.'3 48.7 53.6 65.7 82.8 96.2 110.8 103.5 86.4 100.0 All other expenditures.............. 13.8 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Total (1923 base)................. 100.0 56.9 57.8 61.2 65.4 70.1 82.7 99.8 96.6 100.0 Total (1915 base)................. 100.0 100.0 101.6 107.6 114.9 123.2 145.3 175.4 169.8 175.7H *Index numbers for teachers' salaries based on data contained In Annual Report, 1922, of the University of tho State of New York, exhibit b, table 8, p. 351. ** Index numbers of wages of janitors and laborers based on index of wages of unskilled labor for Middle Atlantic states compiled by the, United States Bureau of Public Roads and published in the SurveV of Current Business of the Department of Commerce. t Index numbers of cost of building and repairing school houses based on an index of building construction costs developed by the National Industrial Conference Board. In effect this Index is a combination of an index of average hourly wages in the building industry as compiled by the National Industrial Conference Board and the United States Bureau of Labor Statistics Index of building material prices. Bach index H Is given equal weight by the board in the construction of the combined Index of building costs. -C SIndex for feel, power and light based on corresponding wholesale price Index of United States Bureau of Labor Statistics. THE TREND OF COSTS IN EDUCATION 25 last line of Table IV. It will be noted that this index, which stood at 100 in 1923, was only 56.9 for the fiscal year 1915. This may be interpreted to mean that the same sort of education for which the taxpayers of the state paid $100 in 1923 could have been obtained for $57 on the basis of the 1915 price and salary level. In other words, the 1923 educational dollar was worth only 57 cents in comparison with what a dollar would have purchased in 1915. CHAPTER V THE TREND OF COSTS FOR PERSONAL SERVICE Personal service expenditures are different from other state disbursements in that they represent not the purchase price of commodities but compensation for human effort. A special significance, therefore, is attached to index numbers reflecting the trend of personal service costs. Not only will such index numbers serve to explain the increase in an important item of state expense, but they will also furnish answers to certain questions of general public concern. Have state salaries been adequately adjusted to meet the rise in the cost of living? Are the real wages of state employees higher or lower than they were in 1915? How have state civil servants as a class fared in the matter of salary increases as compared with other groups of workers? Nature of Salary and Wage Data As reported in the accounts of the comptroller, expenditures for personal service comprise amounts disbursed directly by the state for salaries and wages, including payments for temporary work.' Wages of gang workmen employed in repairing the highways, however, are not reported as personal service but are included under the classification " highway maintenance." The only comprehensive source of information concerning state salary and wage rates is to be found in the annual requests for appropriations as filed with the legislative budget committee to which reference has already been made. These legislative budgets list by name and title of position every state employee whose salary must be provided for by legislative appropriation. Opposite each employee's name are stated his present salary rating, his proposed rating for the ensuing year, and his respective ratings for the two immediately preceding years. The budgets also contain general summaries, giving, by administrative units, the total number and aggregate salary ratings at existing schedI Personal service as here used does not include the compensation of public school teachers, etc., the trend of whose salaries is set forth in table iv. [26] THE TREND OF COSTS FOR PERSONAL SERVICE 27 ules of all employees whose compensation is provided for by appropriations currently in force. The first legislative budget was compiled in 1917. Consequently complete information as to the number of state employees and their aggregate compensation at current salary schedules does not go back further than that year. The 1917 requests for appropriations, however, give the salary ratings of employees who were on the state payroll in 1917 back to the fiscal year 1915. It is thus possible to obtain some idea of the increase in salary ratings between 1915 and 1917, although usable data regarding the increase in the number of state employees during this period are lacking. Method of Procedure In view of the character of the data which have to be dealt with, it is not easy to devise a sound method of computing the desired index numbers. Since these index numbers are to be used to calculate what the state's 1923 payroll would have amounted to on the basis of salary ratings in force in previous years, the theoretically correct procedure would be to construct separate series of index numbers on a 1923 base, which would measure the variations in average salary ratings applicable to each separate occupational group. The separate indices would then have to be weighted on the basis of the relative amounts expended on each occupation in 1923. The weighted index numbers finally obtained would accurately measure the variations in cost of a composite unit of personal service embodying the same occupational activities in the same relative proportions as the personal service purchased by the state in 1923. Unfortunately the various state positions are too little standardized and occupational lines are too loosely drawn to permit the use of the method just described. Although the legislative budgets list all employees by title, nevertheless the titles are generally too ambiguous to be of value. For instance, the title which appears most frequently, that of clerk, is used indiscriminately to describe many different kinds of employees, ranging from those whose duties are of a semi-executive nature to those whose activities are limited to a simple routine. 28 POST-WAR EXPANSION OF STATE EXPENDITURES The First Approximation An obvious, though not necessarily accurate, method of measuring the average increase in state salaries is to divide the total appropriations for personal services as given in the legislative budgets by the number of authorized employees. An average appropriation per employee is thus obtained in respect of each year and these averages may be thrown into the form of relative numbers. This method has been followed in Table V, which furnishes what might be called a first approximation of the facts which it is desired to ascertain. TABLE V ESTIMATED TREND OF STATE SALARIES, 1917-1923 (First Approximation) No. of Fiscal Employees Aggregate Average Year Provided for Current Appropriation Per cent Ending by current Appropriation per of June 30 Schedule of for Personal Emploee 1917 Appropriations Service 1917.......... 17,734* $16,851,720 $950.24 100.0 1918.......... 19,620 18,985,039 967.63 101.8 1919.......... 19,796 21,134,202 1,067.60 112.4 1920.......... 20,506 22,986,411 1,120.96 118.0 1921.......... 21,099 28,421,197 1,347.04 141.8 1922.......... 19,078 26,405,693 1,384.09 145.7 1923.......... 19,671 26,857,391 1,365.32 143.7 * The requests for appropriations compiled in 1917 do not state the number of employees covered by the personal service appropriations in force for that year and the above figure has been obtained from the secretary of the legislative budget committee. Tests and Corrections The last column of Table V gives the percentage increase over 1917 in the average personal service appropriation per employee. This is not, of course, the information which it was set out to obtain. What is wanted for the present purpose is the average increase in rates of pay for specific kinds of work and, as will subsequently appear, this is not necessarily the same as the increase in average compensation per employee. Before the figures given in Table V can be used with any degree of confidence, they must accordingly be subjected to certain tests and corrections. In the first place, it must be ascertained whether, in the present instance, the increase in the average compensation of state THE TREND OF COSTS FOR PERSONAL SERVICE 29 employees may legitimately be used as a measure of the average increase in rates of pay. It is obvious that this procedure will not be justifiable unless there has been no change in the relative proportion of low and high salaried positions during the period under review. If, for instance, there has been any considerable addition to the number of state employees, and if the new employees belong largely to the higher salaried ranges, the effect will be to increase the average compensation per employee altogether apart from changes in rates of pay. Conversely, if the new employees belong to the lower salaried groups, the average compensation will be depressed even though rates of pay remain stationary. As a matter of fact about 1,900 new employees were added to the state's payrolls between 1917 and 1923. Consequently, before the index numbers given in Table V can be accepted as indicative of the average increase in rates of pay, it will have to be established that the salary distribution of the new employees was such as to exert neither an elevating nor a depressing effect. This condition will be met if the average salary of the new employees is not materially different from the general average for all state employees taken as a group. It is, of course, not possible to identify and segregate the new employees for the purpose of computing their average salary. A rough estimate has, however, been made on the basis of the increase in the number of employees in each governmental function, taken in connection with the average salaries prevailing in those functions. This estimate indicates that the average salary of the new employees is not much different from the general average for the entire group of state employees, and in view of this fact variations in average compensation per employee, as shown in Table V, may safely be taken as representative of average variations in rates of pay. The data given in Table V, however, still contain certain defects which must be eliminated before a final index of the average increase in state salary ratings can be obtained. The total appropriations for personal service include payments for temporary work. The amount of such temporary work varies from year to year. Moreover, temporary employees have not been included in the employee column of Table V. There has 30 POST-WAR EXPANSION OF STATE EXPENDITURES been included, however, a large number of per-diem and parttime employees whose term of employment is subject to fluctuation from year to year. In order to obtain a true picture of the increase in salary ratings, free from the distorting influences enumerated above, recourse was had to the detailed budget statements which list each state employee by name, position, and salary rating. These lists were carefully gone over and per-diem and part-time employees were eliminated wherever their inclusion was likely to produce misleading results. In the case of canal employees, suitable adjustments were made to allow for the fact that the period of employment had been lengthened. The average salary rating of what might be called the regular employees of the state was then computed. TABLE VI INCREASE IN SALARY RATINGS OF SELECTED STATE EMPLOYEES, 1915-1923 Fiscal Year Number Aggregate Average Per Cent Ending of Annual Salary Rating per of June 30 Employees Ratings Employee 1916 1915.......... 14,979 $13,750,938 $923.55 100.0 1917.......... 15,502 14,544,194 943.61 102.2 1923.......... 17,814 23,016,375 1,301.31 140.9 The Final Results In view of the large number of employees to be dealt with, the process described above was an exceedingly tedious one and averages were worked out only for three years, 1915, 1917, and 1923. These averages are given in Table VI. The 1915 average was computed on the basis of the 1915 ratings for positions listed in the requests for appropriations made at the 1917 session of the legislature. It will be noted that the average increase in state salary ratings, after deducting payments for temporary service and eliminating or making adjustment for per-diem and part-time employees, was approximately 41 per cent as between 1915 and 1923 and 38 per cent as between 1917 and 1923. The percentage increases for the years intervening between 1917 and 1923 have not been worked out, but it is possible to interpolate values for those years on the basis of the trend of average personal service THE TREND OF COSTS FOR PERSONAL SERVICE 31 appropriations as given in Table V. It is thus possible to obtain a series of index numbers depicting the trend of state salary ratings since 1915. Table VII exhibits these index numbers on both a 1923 and 1915 base. For purposes of comparison, index numbers reflecting the trend of the cost of living and the compensation of various classes of salary and wage earners are also given. CHART III. COMPARATIVE SALARY AND WAGE TRENDS, STATE EMPLOYEES, PUBLIC SCHOOL TEACHERS, NEW YORK STATE FACTORY WORKERS. Comparison with Other Classes of Workers Table VII deserves careful study since it shows how inadequately and tardily state salaries have been adjusted to meet rising living costs, and how poorly state civil servants have fared in the matter of salary increases as compared with other classes of workers. It will be noted that in 1923 the index of the cost of living was 64 per cent above the 1915 level, whereas the TABLE VII TREND OF STATE SALARIES COMPARED WITH SALARY AND WAGE TRENDS FOR OTHER CLASSES OF WORKERS AND TREND OF COST OF LIVING Fiscal Year Ended June 80 Salaries of State Employees 1915 1916 1917 1918 1919 1920 1921 1922 1923...................................................................................I........................................... I........... 1923 = 100 71.1 72.9 73.8 79.2 83.8 98.8 101.2 100.0 1915 = 100 100.0 102.2 103.8 111.5 118.1 139.2 142.6 140.9 Cost of Living* Dec. 1914 = 100 100.0 102.0 114.9 138.3 169.3 191.9 193.3 166.2 163.7 Salaries of Teachers in Public Schools"* 1915 = 100 100.0 99.2 101.3 104.9 113.6 131.2 194.0 198.7 201.0 Wages of Common Labor, Middle Atlantic Statest 1915 = 100 100.0 110.0 135.0 170.0 197.5 227.5 212.5 177.5 205.4 Average Earnings New York State Factory Workerst 1915 = 100 100.0 112.9 127.7 158.4 183.2 219.8 201.0 195.0 211.9 Average Earnings OffEce Workers in New York State Factoriest June 1914 = 100 100.0 102.1 109.9 125.7 141.4 161.9 163.0 162.7 C s Cd H z 0 ca H H O 0 tT. z H Cd In * United States Bureau of Labor Statistics, Monthly Labor Review, Feb., 1925, p. 78. Index numbers for fiscal years 1915 to 1919 are those for December of the preceding calendar year. Index number for 1920 is average for June and Decemuber, 1919, and June, 1920. Index number for 1921 is average for June and December, 1920, and May, 1921. Index numbers for 1922 and 1923 are averages for September and December of the first half of the fiscal year and March and June of the second half. ** Fiscal year ends July 31. t Compiled by United States Department of Agriculture, Bureau of Public Roads, and published in Survey of Current. Business of the Department of Commerce. $ Industrial Bulletin, issued monthly by the Industrial Commission of New York State. Figures given are on a calendar year basis. T Ibid. Figures for fiscal years 1917 and 1918 are those of December of preceding calendar years. Index numbers for other years are those of October of preceding calendar year. THE TREND OF COSTS FOR PERSONAL SERVICE 33 level of state salaries had advanced only 41 per cent.1 In other words, even after the considerable decline in living costs which took place after 1921, it would have required a general salary increase of approximately 16 per cent to bring the 1923 salary level to a parity with the cost of living. The real compensation of state employees measured by the things their salaries would buy, was actually 14 per cent less in 1923 than in 1915. The comparatively meagre advance of 41 per cent in the salaries of state employees stands out in striking contrast to the increases granted another class of public servants, the school teachers, whose average compensation doubled during the period under review. It should not be inferred from this, however, that the advance in teachers' salaries was exceptional. As will be noted from Table VII the wages of common labor and the average earnings of factory workers experienced an even greater rise. The earnings of office workers in factories increased by only 63 per cent, but even this was considerably greater than the average increase accorded state employees. 1 It may be objected that this percentage is not truly representative of the real wage increases accorded to the rank and file of state employees because the state payrolls contain a certain proportion of high salaried officials whose compensation remained practically stationary throughout the period of inflation. That the Inclusion of these officials exercises a negligible effect on the general average is indicated by a tabulation appearing on page 144 of the 1925 report of the special joint committee on taxation and retrenchment (New York legislative document, 1925, no. 97). Here the average increase in salary ratings between 1917 and 1923 has been worked out both for the entire group of New York State employees and for those receiving less than $2,400 per annum, and the difference between the two results is founded to be less than 3 per cent. CHAPTER VI THE TREND OF HIGHWAY COSTS The construction and maintenance of public highways is a comparatively new state activity which so far as New York is concerned does not date back farther than the year 1898. Since then the growth of highway expenditure has been exceedingly rapid. In 1913 disbursements for highway purposes comprised 7 per cent of the state's total expenditure from revenue and bond proceeds. In 1923 they represented more than 17 per cent of the total. At the present time, in fact, the state spends more for highways than for any other function with the sole exception of education. The phenomenal growth of highway expenditures is explained in part by the pressure for good roads which came with the advent of the automobile. The rapid popularization of motor transportation resulted in a tremendous growth in highway traffic which necessitated the construction of more durable and expensive types of road and the spending of ever greater sums for maintenance and reconstruction. These factors, however, are by no means sufficient to account for all of the growth. Price inflation has played an exceedingly important role, especially as regards that portion of the increase which has occurred since 1914. In order to furnish a basis for determining how much of the recent increase in highway expenditure has been due to the greater cost of labor and road materials and how much has been due to other causes, index numbers have been developed reflecting the trend of unit prices in respect to each specific class of highway costs. These costs are of three general kinds: (1) the cost of new highways constructed by the state, (2) subsidies for the construction and improvement of county and town highways, and (3) the expense of repairing and reconstructing the system of state and county highways, maintenance of which has been assumed by the state. [34] THE TREND OF HIGHWAY COSTS 35 New Construction The new highways under construction by the state at the present time are of two main types, concrete and bituminousmacadam. During the calendar year 1922, which is the latest year for which published information is available, 62 per cent of the total new mileage for which contracts were awarded represented concrete roads. The remaining 38 per cent represented roads of the bituminous-macadam type. Tables VIII and IX furnish index numbers of the trend of unit prices for each of these types of roads. It has unfortunately been necessary to construct these index numbers on a calendar instead of a fiscal year basis. Moreover, it has not been possible to extend them beyond the calendar year 1922. The method followed in their construction was to compute the average cost in different years of a strip of road 100 feet long by 16 feet wide. The unit prices used were average bidding prices obtained from bids received by the New York State Highway Commission on 3,175 miles of road. These prices were compiled by Mr. W. G. Crandall, an engineer attached to the office of the highway commissioner.' Each highway was taken separately and the bids of all contractors for each item were averaged. The individual averages were then tabulated and a general average for the entire year computed. It will be noted that highway construction costs reached a peak in 1920, when unit prices for concrete and bituminousmacadam roads were respectively 182 and 150 per cent above their 1915 levels. Since 1920 there has been some decline; but in 1922 the cost of the concrete type of road was still two and one-fifth times as great as in 1915, and the cost of the bituminous-macadam type was approximately double the 1915 cost. Table X furnishes index numbers of the aggregate cost of constructing highways of both the concrete and bituminousmacadam type, the cost of each type being weighted on the basis of the relative mileage of that type contracted for in 1922. These index numbers have been expressed on a 1922 base, and consequently show what the highways now being built by the state would cost on the basis of price and wage levels prevailing 1 W. G. Crandall, " Seven Years' Bidding Prices on New York Roads," Engineering News-Record, June 29, 1922, p. 1101. TABLE VIII INDEX NUMBERS OF AVERAGE COST OF CONSTRUCTING A FIRST CLASS CONCRETE ROAD, BASED ON AVERAGE BIDDING PRICES RECEIVED BY NEW YORK STATE HIGHWAY DEPARTMENT, CALENDAR YEARS 1915 TO 1922 1915 1916 1917 1918 1919 1920 1921 1922 Average bidding price per cubic yard Excavation........................ $.45 $.52 $.63 $1.07 $1.14 $1.57 $1.20 Concrete pavement................ 6.42 6.99 9.21 11.13 13.04 17.59 15.36 Cost per section of road 16 by 100 feet Excavation, average depth 10 inches, 0 02 H z o 02 0 z 0 tJ z e 49.4 cubic yards.................. 22.23 25.69 31.12 52.86 Concrete pavement, 6-inch thickness, 29.63 cubic yards................. 190.22 207.11 272.89 329.78 Total cost..................... $212.45 $232.80 $304.01 $382.64 S Index numbers, 1915 base............... 100.0 110.6 143.1 180.1 Index numbers, 1922 base............... 45.1 49.4 64.5 81.2 * Estimated on the basis of the percentage decline between 1921 and 1922 in the average cost of Report of the State Commissioner of Highways, 1922, p. 43. 56.32 77.56 386.38 521.19 $442.69 $598.75 208.4 281.8 94.0 127.1 concrete pavement as 59.28 455.12 $514.40 242.1 221.7* 109.2 100.0 shown in the Annual TABLE IX INDEX NUMBERS OF AVERAGE COST OF CONSTRUCTING A BITUMINOUS-MACADAM ROAD,* BASED ON AVERAGE BIDDING PRICES RECEIVED BY THE NEW YORK STATE HIGHWAY DEPARTMENT, CALENDAR YEARS 1915 TO 1922 Average bidding price per cubic yard Excavation................... Foundation course.................. Bottom course...................... Top course..................... Cost per section of road 16 by 100 feet Excavation, average depth 10 inches, 49.4 cubic yards................. Foundation course, 3~ inches, 17.28 yards........................... Bottom course, 21/2 inches, 12.35 cubic yards.......................... Top course, 2~ inches, 12.35 cubic yards........................ Total cost...................... Index numbers, 1915 base........... Index numbers, 1922 base........... * Penetration method. ** See note under table viii. 1915 1916 1917 1918 1919 1920 1921 1922 $.45 $.52 $.63 $1.07 $1.14 $1.57 $1.20 1.80 1.94 2.42 2.64 3.91 4.72 3.89 3.00 3.33 3.75 5.06 5.70 6.63 5.79 3.80 4.17 4.46 7.10 7.47 8.35 7.90 o 22.23 25.69 31.12 52.86 56.32 31.10 33.52 41.82 45.62 67.56 77.56 59.28 81.56 67.22 37.05 41.13 46.31 62.49 70.40 81.88 71.51 46.93 $137.31 100.0 50.2 51.50 $151.84 110.6 55.5 55.08 $174.33 127.0 63.8 87.69 $248.65 181.1 90.9 92.25 $286.53 208.7 104.8 103.12 $344.12 250.6 125.8 97.57 $295.57 215.3 108.1 0 mn 199.2** 100.0 co 0 TABLE X INDEX NUMBERS OF COST OF CONSTRUCTING COMPOSITE UNIT OF HIGHWAY, COMPRISING 62 FEET OF FIRST CLASS CONCRETE AND 38 FEET OF BITUMINOUS-MACADAM ROAD* 1915 1916 1917 1918 1919 1920 1921 1922 w Cost of 62 feet of concrete road......... $131.72 $144.34 $188.49 $237.23 $274.47 $371.23 $318.93 $292.14 0 Cost of 38 feet of bituminous-macadamX road............................... 52.18 57.70 66.25 94.49 108.88 130.76 112.32 103.89 o Total............................ $183.90 $202.04 $254.74 $331.72 $383.35 $501.99 $431.25 $395.03 Index numbers, 1915 base............... 100.0 109.9 138.5 180.4 209.0 273.0 234.5 214.8 M Index numbers, 1922 base............... 46.6 51.1 64.5 84.0 97.0 127.1 109.2 100.0 * The composite index numbers here shown have been obtained by combining the index numbers given in tables viii and ix, the weightings used, viz., 62 per cent and 38 per cent, respectively, being based on the relative mileage of concrete and bituminous-macadam roads contracted for In the calendar year 1922. TABLE XI INDEX NUMBERS OF COST OF LABOR AND MATERIALS EMPLOYED IN HIGHWAY MAINTENANCE, CALENDAR YEARS 1915-19221 Labor 3.................... Broken stone................. Sand and gravel 4............. Bituminous materials 5........ Cem ent 4................... Miscellaneous materials6...... Equipment-supplies 7........ Total, 1922 base.......... Total, 1915 base.......... Relative Importance 1922 2 1915 51.8 55.6 13.8 47.9.9 52.2 21.9 96.5 1.3 47.6 2.8 67.8 7.5 81.1 100.0 65.6 100.0 100.0 1916 66.7 52.2 53.2 98.2 61.1 85.2 132.8 76.9 117.2 1917 83.3 66.0 64.9 114.9 75.0 118.8 189.3 96.5 147.1 Index Numbers 1918 1919 105.6 113.9 94.8 100.7 82.6 108.8 184.2 115.8 88.4 97.9 130.2 138.3 153.3 132.8 125.2 114.3 190.9 174.2 1920 138.9 112.8 125.6 214.9 113.1 151.7 157.4 153.2 233.5 1921 97.2 113.8 113.6 131.6 107.0 98.7 105.7 108.0 164.6 1922 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 152.4 *Z 0 z 0 S 0 0 I 92 O to 1Includes only direct expenditures of state highway department. 3The relative importance in 1922 of the various items entering into highway maintenance costs were obtained from a statement found on page 49 of the report of the state commissioner of highways for the calendar year 1922. 3 Based on index numbers of wages paid common labor in the Middle Atlantic States, compiled by the United States Department of Agriculture, Bureau of Public Roads. - Index numbers for broken stone, sand, gravel and cement are based on average wholesale prices of road building materials as compiled by the United States Bureau of Labor Statistics and published in Good Roads, March, 1924, p. 86. 5 Index numbers for bituminous materials are based on average bidding prices received by the New York state highway department as published in Engineering News-Record, June 29, 1922, p. 1101. The average price for 1922 was obtained from the 1922 report of the state commissioner of highways. 6 Prices for miscellaneous materials have been assumed to have followed the trend of the United States Bureau of Labor Statistics' wholesale commodity price index. 7 The United States Bureau of Labor Statistics wholesale price index of metals and metal products has been applied to this item of expense. 40 POST-WAR EXPANSION OF STATE EXPENDITURES in earlier years. It will be seen that $100 spent on highways at the present time will purchase no more than $47 would have purchased in 1915. In other words, the highway construction dollar has shrunk to less than half its 1915 value. Highway Subsidies In 1923, the state granted to towns and counties in the form of highway subsidies a sum equivalent to more than half of what it spent for highway construction on its own account. These grants were to be expended for the construction and improvement of local roads, and for the present purpose they may be regarded as the purchase price paid by the state for a certain mileage of such roads. Of the total mileage of town and county highways under construction at the close of 1922, approximately 52 per cent comprised bituminous-macadam, 26 per cent waterbound-macadam and the remainder rolled gravel roads., The trend of average unit prices for all of these types has been substantially similar2 and the index numbers of the cost of constructing a bituminous-macadam road developed in Table IX may be taken as roughly representative of the trend of local road construction costs in general. In constructing the composite index of the cost of state government, therefore, the index numbers of the cost of bituminous-macadam highway will be applied to expenditures for local highway aid. Highway Maintenance Costs Owing to the paucity of data, it is not possible to measure the increase in highway maintenance costs with any great degree of precision. Table XI, however, gives index numbers which furnish an approximate idea of the trend of such costs during the period under review. It will be noted that the increase in road maintenance costs between 1915 and 1922 was only about 52 per cent as against an increase of over 100 per cent in the cost of road construction. The main reason for the relatively moderate increase in maintenance costs is the fact that the price of bituminous materials, which are an important item in Ihighway repairs, was practically no higher in 1922 than in 1915. 1 Report of State Commissioner of Highways, 1922, p. 55. 2 Crandall. op. cit. CHAPTER VII ALL OTHER EXPENDITURES The index numbers developed in the preceding sections were for the most part based on prices actually paid by the state. These special index numbers cover 64 per cent of the state's aggregate expenditures from revenues and bond proceeds. As regards the remaining items of expenditure, very little information is obtainable concerning prices actually paid by the state. In seeking to measure the changes in unit costs applicable to these expenditures, therefore, index numbers have been computed in certain cases on the basis of price data procurable from such sources as trade journals and corporation reports. In other cases ready-made indices compiled by official bureaus or trade agencies have been utilized. This latter procedure has of course only been possible where existing series of index numbers could be found which were fairly representative of the trend of prices within the particular expenditure classifications to which the index numbers in question were to be applied. Miscellaneous Index Numbers Table XII presents index numbers obtained in the manner described above, in respect to canal and tunnel construction, building, indemnities for diseased animals, food, fuel, light and power, traveling expenses, land purchases, printing, furniture and furnishings, clothing, communication, and miscellaneous commodities and services. A detailed discussion of the derivation and applicability of these index numbers is given in Appendix II and they may be passed here without further comment. The disbursements covered by Table XII comprise 24 per cent of the state's total expenditures from revenues and bond proceeds. In order to complete the data required for a composite index of the total cost of state government, information must still be secured regarding the effect of price changes upon interest and amortization charges which comprise 9 per cent of the state's total expenditures, and upon certain miscellaneous expenditures which constitute the remaining 3 per cent. [41] TABLE XII INDEX NUMBERS COMPILED BY OFFICIAL BUREAUS OR TRADE AGENCIES AND SELECTED AS REPRESENTATIVE OF THE TREND OF UNIT COSTS FOR SPECIFIED ITEMS OF STATE EXPENDITURE, FISCAL YEARS 1915 TO 19231 Year 1915 1916 1917 1918 1919 1920 1921 1922 1923 Canal and Tunnel Construction 2 45.3 61.0 85.3 94.1 99.5 114.8 121.8 101.7 100.0 Building and Building Repairs 3 51.3 56.3 66.0 76.1 83.2 116.5 109.0 90.6 100.0 Indemnities for Diseased Animals 4 105.1 110.0 129.6 149.9 165.9 161.5 107.2 96.6 100.0 Fuel, Light Food5 and Power 5 74.4 76.0 100.9 126.0 140.3 156.5 124.4 97.5 100.0 48.7 53.6 65.7 82.8 96.2 110.8 103.5 86.4 100.0 Traveling Expenses 6 52.8 52.7 56.7 68.8 77.7 85.4 92.1 95.1 100.0 Purchase ofLand for Forest Preserve 7 97.1 97.1 97.1 94.3 108.6 111.4 114.3 108.6 100.0 54.2 68.4 85.7 93.3 101.6 128.6 96.5 92.9 100.0 55.0 56.4 62.3 75.5 91.4 122.2 131.9 98.1 100.0 Furniture Print- and ing Furnishings5 Cloth- Coming 5 munication 6 49.7 56.3 77.6 104.3 118.1 161.3 113.3 90.9 100.0 93.3 93.3 93.3 126,6 129.1 98.2 99.6 99.8 100.0 Miscellaneous Commodities and Services 5 63.4 71.0 97.6 119.8 128.3 145.7 120.2 91.4 100.0 o I t;d 02 H z o I SI 1 A detailed description of the derivation of the indices set forth in the above table, together with an analysis of the composition of the state expenditures to which these indices are applied, is given in appendix ii. 2 Construction cost index compiled by Engineering News-Record. See issue of Jan. 8, 1925, p. 81. a Index numbers of building costs secured from National Industrial Conference Board. 4 Milk cows, farm price per head, United States Department of Agriculture, Year Book, 1923, p. 891. o United States Bureau of Labor Statistics, index numbers of wholesale commodity prices. o For derivation of index numbers see appendix 1i. 7 Based on average price of poor plow lands in New York State as compiled by United States Department of Agriculture, Year Book, 1923, pp. 1164-65. ALL OTHER EXPENDITURES 43 Expenditures not Measurably Affected by Price Changes The effect of price changes upon these miscellaneous expenditures will be considered first. The expenditures in question comprise fixed charges, including such items as taxes, insurance, local assessments and judgments, damages assessed against the state in barge canal cases and relief payments to disabled veterans. It will be noted that none of the above expenditures can, properly speaking, be regarded as a price. Most of them were, nevertheless, indirectly influenced by the changing level of commodity prices. There is no means of measuring the degree of this influence, however, and in the present calculation, it has been assumed that the effect of price changes on these expenditures may be disregarded. INTEREST AND AMORTIZATION CHARGES Thus far the task of developing index numbers applicable to the various categories of state expenditure has been simply one of computing the unit costs of different assortments of commodities and services. A much more complicated problem is involved in the task of securing index numbers which will measure the effect of price changes on expenditures for interest and amortization of funded debt. The effective rates of interest paid by the state on its various bond issues may be regarded in the light of unit prices paid for the use of capital. Index numbers of interest rates, however, will not reflect all of the price influences which are operative to produce a given total of interest and amortization charges. The amount of these charges is dependent not only upon interest rates, but also upon the volume of the state's borrowings and the latter in turn is materially affected by the unit prices which the state must pay for the improvements which it finances through its borrowings. Thus, if the present cost of highway construction is double what it was in 1915, the state must now borrow twice as much to finance a given highway project, and the resulting interest and amortization charges are twice as great as they would be had highway construction costs remained fixed at the 1915 level. The problem of constructing index numbers to measure the 44 POST-WAR EXPANSION OF STATE EXPENDITURES effect of the price changes on expenditures for interest and amortization of funded debt, therefore, resolves itself into the task of estimating the respective amounts which would have been chargeable to the year 1923 had both the rate of interest and unit prices for improvements financed through the sale of bonds become stabilized after reaching the successive levels obtaining during the respective years under review. In other words, the first step in the development of the desired index numbers is to compute what the state's 1923 interest and amortization charges would have amounted to, had both the rate of interest and prices become fixed at their 1915 levels, all subsequent state borrowings being made at the 1915 interest rate TABLE XIII STATE BOND ISSUES, 1915 TO 1923 Amount Effective Rate of Interest* Year of Issue Per Cent 1915........ $27,000,000 4.08 1916........ 25,000,000 3.8.5 1917........ 25,000,000 3.79 1918........ no bonds issued 1919......... " t " 1920........ " " i 1921........ $31,800,000 4.91 1922......... no bonds issued - 1923........ " " SObtained from Conmncercial a.nd Financial Chronicle. and all subsequent extensions and improvements being purchased at 1915 prices. A similar computation must next be made on the basis of the assumption that the rate of interest and unit prices became stabilized after attaining their 1916 levels and so on for each successive year to 1923. Trend of Interest Rates In order to make these estimates it is necessary to know what were the respective amounts of the state's various bond issues during the period under review and what were the effective rates of interest applicable to these issues. It is also necessary to know what projects were financed from bond proceeds and what were the unit costs of such projects. Information as to bond issues and the effective rates of interest pertaining thereto is given in Table XIII. ALL OTHER EXPENDITURES 45 It will appear from Table XIII that changes in the rate of interest had an insignificant effect upon the total volume of interest and amortization charges. There were four different bond issues during the period under review. In respect to only one of these was the rate of interest higher than in 1915. In fact, had all four issues been sold on the basis of the 1915 interest rate, the total saving in interest costs would have been little more than $100,000 per annum. Effect of Increase in Construction Costs Variations in the unit costs of projects financed from bond proceeds exercised a much more important influence upon the state's debt service requirements. Three sorts of projects were paid for out of bond proceeds during the period under review, viz.: canal construction, highway construction, and the purchase of land for the forest preserve. From the standpoint of studying the effects of price changes, however, only canal and highway construction need be considered. As shown by Table XII fluctuations in land values were so slight as to permit their being disregarded. Index numbers reflecting the trend of unit costs for canal and highway construction have already been developed. All the data are, therefore, at hand for estimating the respective amounts which the state would have had to expend in 1923 for interest and amortization of debt, had construction costs and interest rates remained fixed at the levels prevailing during the respective years under review. This estimate is given in Table XIV. It will be seen from this table that the state's actual expenditures from bond proceeds between 1915 and 1923 for canal and highway construction amounted to $104,325,700. Had all of these expenditures been made at 1915 prices, the state would have been able to save some $36,939,200, which would have reduced its 1923 debt service requirements by $2,099,400. However, had the 1915 interest rate remained in effect during the entire period under consideration, the above reduction would have been slightly offset by an increase of $115,000 in interest costs. The net reduction in 1923 debt service requirements, had construction costs and interest rates remained at the 1915 level, would therefore have been $1,984,300 and the state's aggregate TABLE XIV ESTIMATED INTEREST AND AMORTIZATION CHARGES FOR FISCAL YEAR 1923, HAD CONSTRUCTION PRICES AND INTEREST RATES REMAINED FIXED AT LEVELS PREVAILING IN SPECIFIED YEARS Fiscal Year 1915..... 1916..... 1917..... 1918..... 1919..... 1920..... 1921..... 1922...... 1923.... (1) Total Actual Expenditures from Bond Procceds for Canal and Highway Construction for Period Beginnuing With Year Specified and Ending June 30, 1923 $104,325,700 81,056,100 66,829,900 51,783,900 38,829,900 25,877,200 19,040,900 13,909,300 4,637,600 (2) Estimated Construction Expenditures, Had Prices Remained Fixed at Level of Year Specified 1 $67,386,500 54,361,000 53,726,900 45,919,600 36,611,900 30,038,400 20,676,100 13,921,200 4,637,600 (3) Estimated Increase (+) or Decrease (-) in Construction Expenditures from Bond Proceeds, Had Prices Remained Fixed at Level of Year Specified -$36,939,200 -26,695,100 -13,102,800 -5,864,300 -2,218,000 +4,161,200 +1,635,200 + 11,900 (4) Estimated Increase( +) or Decrease (-) Interest and Amortization Charges, Had Prices Remained Fixed at Level of Year Specified 3 -82,099,400 -1,591,000 -780,900 -349,500 -132,200 +248,000 + 97,500 + 700 (5) Estimated Increase( +) or Decrease (-) in 1928 Interest Charges, Had Interest Rates Remained Fixed at Level of Year Specified.1 +$115,100 -3,000 -210,000 (6) Total Increase( +) or Decrease (-) in 1923 Interest and Amortization Charges, Had Both Prices and Interest Rates Remained Fixed at Level of Year Specified 6 -S1,984,300 -1,594,000 -990,900 -349,500 -132,200 +248,000 + 97,500 + 700 (7) Aggregate Interest and Amnortization Charges for 1923, Had Construction Prices and Interest Rates Remained Fixed at Level of Year Specified ~ $10,094,800 10,485,100 11,088,200 11,729,600 11,946,900 12,327,100 12,176,600 12,079,800 12,079,100 A 1 In Ac Ch (8) 0 Per Oent of cetual 1923 terest and mortation targes 0 83.6 " 86.8 m 91.8 H 97.1 H 98.9 102.1 100.8 100.0 100.0 g 1 Expenditures as given in column (1) deflated through application of index numbers for highway and canal construction as set forth in tables x and xli. 2 Column (2) subtracted from column (1). 3 Based on actual interest and amortization charges for fiscal year 1923 in respect to the state's most recent bond issue, viz., the issue of $31,800,000, 5 per cent serial bonds sold in 1921. For the year 1923, these charges represented 5.96 per cent of the total par value of the issue. The figures in column (4) have been obtained by taking 5.96 per cent of the corresponding figures in column (3). 4 Estimated on basis of interest rates given in table xli. 0 Column (4) plus column (5). o Corresponding figures of column (6) plus $12,079,100. Io ALL OTHER EXPENDITURES 47 expenditures for interest and amortization of debt would have been only $10,094,800 instead of $12,079,100, the amount actually expended. Similarly had prices and interest rates become stabilized at their 1916 level, the state's 1923 debt service requirements would have amounted to $10,485,100 and so on for the other years. Final Index of Debt Service Requirements By expressing the hypothetical debt service requirements, obtained as described above, as percentages of the actual requirements for 1923, index numbers are obtained which measure the effect of price and interest rate changes upon the expenditures in question. Such index numbers are given in the last column of Table XIV. It will be noted that had there been no change either in interest rates or prices between 1915 and 1923, the state's total debt service requirements would have been about 16 per cent less than they actually were. This indicates that price inflation affected expenditures for interest and amortization of debt to a lesser extent than other state expenditures, an outcome which should naturally be expected since the bulk of the state's debt service requirements apply to bond issues and construction projects belonging to an earlier period than the one under review. TABLE XV COMPOSITE INDEX NUMBERS OF THE COST OF STATE GOVERNMENT FISCAL YEARS 1915 TO 1923 Expenditures 1923 1 Operating expenses Personal service 2............. $26,196,100 Highway maintenance 3.......... 8,070,400 Canal repairs.................. 1,268,900 Building repairs................ 812,000 Food 4.......................... 4,099,800 Fuel, light and power 4............ 2,434,200 Traveling expense4.............. 1,521,900 Printing 4...................... 1,075,500 Furniture and furnishings 4....... 966,600 Clothing4........................ 717,600 Communication4................ 541,600 Miscellaneous 4.................. 5,752,500 Total....................... $53,457,100 Index Numbers 1915 1916 1917 1918 1919 1920 1921 1922 1923 71.1 65.6 45.3 51.3 74.4 48.7 52.8 54.2 55.0 49.7 93.3 63.4 66.5 72.0 72.9 73.8 79.2 83.8 98.8 101.2 100.0 76.9 96.5 125.2 114.3 153.2 108.0 100.0 100.0 61.0 85.3 94.1 99.5 114.8 121.8 101.7 100.0 56.3 66.0 76.1 83.2 116.5 109.0 90.6 100.0 76.0 100.9 126.0 140.3 156.5 124.4 97.5 100.0 53.6 65.7 82.8 96.2 110.8 103.5 86.4 100.0 52.7 56.7 68.8 77.7 85.4 92.1 95.1 100.0 68.4 85.7 93.3 101.6 128.6 96.5 92.9 100.0 56.4 62.3 75.5 91.4 122.2 131.9 98.1 100.0 56.3 77.6 104.3 118.1 161.3 113.3 90.9 100.0 93.3 93.3 126.6 129.1 98.2 99.6 99.8 100.0 71.0 97.6 119.8 128.3 145.7 120.2 91.4 100.0 70.7 81.0 93.4 96.4 111.8 105.9 98.3 100.0 02 O H z 0 > 0> 2 H H Vtj z H 0 od M d Fixed charges and contributions Educational subsidies............ $38,716,400 56.9 57.8 61.2 65.4 70.1 82.7 99.8 96.6 100.0 Highway subsidies................ 4,865,400 50.2 55.5 63.8 90.9 104.8 125.8 108.1 100.0 100.0 Indemnities for diseased animals-. 2,468,700 105.1 110.0 129.6 149.9 165.9 161.5 107.2 96.6 100.0 Relief of war veterans7........... 976,900 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Miscellaneous 7.................. 2,185,900 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Total........................ $49,213,300 61.4 62.9 67.4 74.4 80.3 92.0 101.0 97.2 100.0 Capital outlays From revenues: Building construction.......... $4,781,800 51.3 56.3 66.0 76.1 83.2 116.5 109.0 90.6 100.0 Highway constructions.......... 4,927,900 46.6 51.1 64.5 84.0 97.0 127.1 109.2 100.0 100.0 Tunnel construction4........... 3,422,300 45.3 61.0 85.3 94.1 99.5 114.8 121.8 101.7 100.0 Canal construction 4............ 1,478,000 45.3 61.0 85.3 94.1 99.5 114.8 121.8 101.7 100.0 Canal damages'................ 989,000 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Total........................ $15,599,000 55.4 58.9 73.7 85.8 93.7 118.3 112.5 97.7 100.0 From bond proceeds: Highway construction 8......... 3,939,000 46.6 51.1 64.5 84.0 97.0 127.1 109.2 100.0 100.0 Canal construction '............. 698,600 45.3 61.0 85.3 94.1 99.5 114.8 121.8 101.7 100.0 Land purchases4............... 1,048,900 97.1 97.1 97.1 94.3 108.6 111.4 114.3 108.6 100.0 o Total........................ 5,686,500 55.8 60.8 73.1 87.1 99.4 122.7 112.4 101.8 100.0 Total outlays.................... $21,285,500 55.5 59.4 73.6 86.1 95.3 119.5 112.3 98.8 100.0 Debt service9..................... $12,079,100 83.6 86.8 91.8 97.1 98.9 102.1 100.8 100.0 100.0 Total expenditures for general purposes........................... $130,348,00 64.9 67.8 76.0 85.6 90.2 104.2 104.4 98.0 100.0 Total expenditures from revenues and m bond proceeds................... $136,035,000 64.5 67.5 75.9 85.7 90.6 105.0 104.7 98.1 100.0 1 sed as basis for weighting in construction of composite index numbers. SSee table vii. See table xi. See table xii and appendix ii. SSee table iv. ' See table lx. SAssumed to have been unaffected by price changes. s See table x. 9 See table xiv. CHAPTER VIII COMPOSITE INDEX OF THE COST OF STATE GOVERNMENT Enough information is now at hand to permit the construction of composite index numbers of the cost of state government. Such index numbers are given in Table XV. As previously explained, they indicate what the services rendered by the state in 1923 would have cost on the basis of the various price levels obtaining in previous years. Separate series of indices have been worked out to measure the trend of unit costs applicable not only to the state's aggregate expenditures from revenues and bond proceeds, but also to the so-called " expenditures for general purposes " which must be met through taxation. The expenditures for general purposes, moreover, have been grouped as to character, viz., current expenses, fixed charges and contributions, debt service, and capital outlays, and index numbers have been worked out in respect to each of these sub-groups. Table XV summarizes all of the price data developed in the sections immediately preceding. The Purchasing Power of the Taxpayer's Dollar Considering, first, the index numbers which measure the trend of unit costs applicable to all state expenditures of whatever kind, it will be seen from Table XV that this index stood at 64.5 in 1915, indicating that the governmental services which cost the state $1,000 in 1923 could have been supplied for $645 at 1915 prices. It will be seen further that the index applicable to expenditures for general purposes stood at 64.9 in 1915. Since these latter expenditures are defrayed practically in their entirety from the proceeds of taxation, this means that the taxpayer's dollar in 1923 was worth only about 65 cents in terms of its 1915 purchasing power. Table XV also indicates that $1,000 spent on capital outlays in 1923 would go no farther than $555 spent on the same kind of projects in 1915. It shows further that for every $1,000 required for current expenses in 1923, only $665 would have been required had prices and wages become stabilized at the 1915 [50] COMPOSITE INDEX OF COST OF GOVERNMENT 51 level. Similarly in the matter of fixed charges and contributions, had there been no change in prices after 1915, only $614 would have been necessary to accomplish the same purposes for which $1,000 was actually required in 1923. Significance of Composite Index It is generally recognized that comparisons of governmental expenditures as between different periods of time can have little meaning unless allowance is made for the element of price TABLE XVI INDEX NUMBERS OF PRICES FOR COMMODITIES AND SERVICES PURCHASED BY STATE GOVERNMENT, COMPARED WITH INDEX NUMBERS OF COST OF LIVING AND WHOLESALE COMMODITY PRICES Fiscal Year 1915 = 100 U. S. Bureau U. S. Bureau Commodities of Labor of Labor and Services Statistics' Statistics' Fiscal Purchased Index of Index of Year by State Cost of Wholesale Government Living * Commodity Prices 1915.......... 100.0 100.0 100.0 1916.......... 106.4 102.0 112.0 1917.......... 121.9 114.9 153.9 1918.......... 144.5 138.3 189.0 1919.......... 151.5 169.3 202.4 1920.......... 179.8 191.9 229.8 1921.......... 169.9 193.3 189.6 1922.......... 155.3 166.2 144.2 1923.......... 157.7 163.7 157.7 * See note marked by asterisk under table Tii. fluctuation. In other words, before any valid conclusions can be drawn it is necessary to express all expenditures in terms of dollars of uniform value. The final index numbers shown in Table XV have been devised primarily with this object in view. If these index numbers are reliable and properly applicable, it should be possible to equate the state's 1923 expenditures to the price and wage level of any year desired by multiplication with the index of the year with which comparison is sought. It should be borne in mind, however, that the index numbers developed are not price index numbers in the sense in which 52 POST-WAR EXPANSION OF STATE EXPENDITURES this expression is ordinarily understood. In addition to payments for commodities and services purchased, the expenditures of the state include such payments as interest and amortization charges, various other fixed charges and grants in aid to local political units. These latter forms of expenditure are not, properly speaking, prices. Nevertheless, their amount is affected indirectly by the changing level of prices. In order to equate all of the state's expenditures to a common price level, it is necessary to take cognizance of these indirect price influences. This can only be done by developing index numbers which cover not only payments for commodities and services purchased, but also non-price payments such as fixed charges and state subventions. In essence, the composite index of governmental costs, as worked out in Table XV, is equivalent to a series of reduction factors for use in translating the state's 1923 expenditures into terms of the price levels of various earlier years. Comparative Price Trends It may be of some value, however, to compare the trend of prices paid by the state government with the trend of other classes of prices. For this purpose it is necessary to construct a price index covering only the commodities and services purchased directly by the state and eliminating non-price elements such as interest, amortization charges and grants in aid. An index of this kind is given in Table XVI, which also gives index numbers of the cost of living and wholesale commodity prices as compiled by the United States Bureau of Labor Statistics. The outstanding fact brought out by Table XVI is that prices paid by the state government have, on the average, been subject to a much narrower range of fluctuation than either wholesale commodity prices or the cost of living. The reason for this difference is probably traceable to the preponderant influence of the salary and wage element in governmental costs, coupled with the fact that governmental salaries were much less responsive to the rising level of prices than were the salaries and wages of other classes of workers. The extreme sluggishness of the index of average governmental prices makes it conform much more closely to the cost of living index than to that of wholesale commodity prices. COMPOSITE INDEX OF COST OF GOVERNMENT 53 The Shrunken Tax Dollar It has already been pointed out that the tax dollar is not expended in its entirety for the purchase of commodities and services. Nearly half of it is used up in payments of state aid to local political units and in meeting charges for interest and amortization of funded debt. Considering not merely its purchasing power in terms of commodities and services, but the extent to which it satisfied all of the various claims made upon TABLE XVII INDEX NUMBERS OF VALUE OF TAX DOLLAR, WAGE EARNER'S DOLLAR AND WHOLESALE TRADE DOLLAR 1915 = 100 Value of Fiscal Value of Wage Year Tax Earner's Dollar * Dollar ** 1915.......... 100.0 100.0 1916.......... 95.7 98.0 1917......... 85.4 87.0 1918.......... 75.8 72.5 1919.......... 71.9 59.2 1920.......... 62.3 52.1 1921.......... 62.2 51.7 1922.......... 66.2 60.2 1923.......... 64.9 61.0 * Reciprocals of index numbers applicable to expenditures for shown on table xv converted to a 1915 base. ** Reciprocals of index numbers of cost of living. t Reciprocals of index numbers of wholesale commodity prices. Value of Wholesale Trade Dollar t 100..0 89.3 65.0 52.9 49.4 43.5 52.7 69.4 63.4 general purposes as it, the tax dollar of 1915 may be regarded as having possessed a certain value or efficiency. This efficiency has dropped off considerably since 1915. In other words the present tax dollar satisfies the various claims made upon it much less adequately than did the dollar of 1915. An exact measure of this decline in relative efficiency may be obtained by computing the reciprocals of the index numbers applicable to the state's expenditures for general purposes as given in Table XV. The results of this computation are given in the first column of Table XVII. The respective values of the tax dollar in successive years are here expressed as percentages of its value in 1915. For comparative purposes Table XVII also gives index numbers of the variations in the value of the wage-earner's dollar and the wholesale trade dollar, these indices being derived from the index numbers of 54 POST-WAR EXPANSION OF STATE EXPENDITURES the cost of living and wholesale commodity prices respectively. The data shown in Table XVII are exhibited graphically in Chart IV. It will be noted from Chart IV that the value of the tax dollar has suffered less shrinkage than either the wageearner's dollar or the wholesale trade dollar. One of the main reasons for this greater stability has already been pointed out, namely the fact that state salaries responded tardily and incom 1)lA 1-316 1917 1918 1919 19 20 CHART IV. INDEX NUMBERS OF VALUE OF TAX DOLLAR, WAGE EARNER' S DOLLAR, AND WHOLESALE TRADE DOLLAR.. 1915=100. pletely to the general rise in the price level and are not even now fully ad~justed to the rise in the cost of living. Another important reason is the fact that a large proportion of the state's expenditures consists of fixed charges, which are not affected by current price fluctuations. Incidentally, Chart IV reveals the essential inaccuracy of a method which is sometimes used in attempting to convert governmental expenditures over a series of years into terms of dollars of uniform value. This method is to divide the expenditures for each period by some general COMPOSITE INDEX OF COST OF GOVERNMENT 55 purpose index number such as, for instance, the wholesale commodity price index of the United States Bureau of Labor Statistics. It will be seen from Chart IV that this procedure is as inaccurate as it would be to measure changes in the cost of living by fluctuations in wholesale commodity prices. Underlying Assumptions It has already been pointed out that the index numbers developed for the present purpose, although representing as close an approach to the actual facts as is possible on the basis of existing data, are nevertheless founded on certain assumptions which preclude a high degree of accuracy. Before proceeding further it will, therefore, be worth while to review some of the more important of these assumptions for the purpose of ascertaining whether they are likely to result in an overstatement or in an understatement of the effect of rising prices on expenditures. It will be recalled that in respect to certain fixed charges it has been assumed that the effect of price inflation might be disregarded.' The expenditures in question include such items as taxes, insurance, local assessments, damages and relief payments to disabled veterans. In the aggregate the above items represented 3 per cent of the state's total disbursements from revenues and bond proceeds for the year 1923. The assumption that price changes exercised no influence upon the particular expenditures mentioned is necessary in the absence of definite information to the contrary, but undoubtedly the effect of this assumption is to understate, somewhat, the real influence of price factors. Another assumption which it has been necessary to make is that unit prices applicable to certain miscellaneous expenses which could not be separated into their component elements, or concerning which no price data were obtainable, followed the same trend as the wholesale commodity price index of the United States Bureau of Labor Statistics.2 Owing to the sharp decline in wholesale prices which occurred after 1920, the average level of this index for the fiscal year 1923, was only 2 per cent above its level in 1917. This is probably considerably less than the 1 See sujpra, p. 43. 2 See appendix ii. 56 POST-WAR EXPANSION OF STATE EXPENDITURES actual difference in unit costs as between 1917 and 1923 in respect of many of the items to which the wholesale price index has been applied, such as, for instance, rents, medical and surgical expense at state institutions and the operating costs of institutional farms and gardens. The effect of this second assumption is, therefore, likewise in the direction of understating the real effect of price changes. Finally, it is assumed in all the calculations which follow that index numbers representing the average of prices prevailing during the fiscal year may properly be associated with the aggregate cash disbursements of that year. In the case of highway expenditures, in fact, index numbers applying to the calendar year have been associated with expenditures applicable to the fiscal year which ends six months earlier. The price which determines a given cash payment is of course the price current at the time the original purchase or contract is made, which is not necessarily the price prevailing at the time of payment. Ordinarily there is some interval between the time an item is purchased or contracted for and the time payment for it is made. Furthermore, it is legitimate to associate an average price for the year with the aggregate cash payments of that year only provided purchases have been evenly distributed in point of time. In comparing the expenditures of 1915 with those of 1923, the considerations just, mentioned are of slight consequence, since prices were relatively stable throughout 1915 and for a considerable period preceding, and they also showed very little variation during the years 1922 and 1923. During 1916 and 1917, however, prices were advancing rapidly. Consequently, in calculating the extent to which the increase in expenditures between 1917 and 1923 is to be imputed to price inflation, the index numbers to be used will fall somewhat short of measuring the real effect of price changes as regards payments for items contracted for in advance or purchased mainly at the beginning of the fiscal year. It should be borne in mind, then, that the estimates given in the present study relative to the amounts by which various classes of expenditures were increased as a result of price inflation, are merely the best approximations possible on the basis of existing data. In general they are too low rather than too COMPOSITE INDEX OF COST OF GOVERNMENT 57 high. This applies especially to comparisons between the years 1917 and 1923. Were Price Increases Unavoidable? To the extent that expenditures have risen because the state has been forced to pay higher prices for the commodities and services which it purchases, it is of course not justifiable to ascribe the increase to waste and inefficiency, nor to the expansion of governmental activities, nor yet to expensive and illconceived construction projects. The mere fact that the state pays higher prices than it did formerly, however, does not clear it of the charge of extravagance. Whether or not it can be exonerated in respect of increased expenditure resulting from higher prices depends altogether upon whether the higher prices were really necessary. Most of the index numbers used in the present study are based not upon prices actually paid by the state but upon those obtaining in the open market. The estimated increase in state expenditures ascribable to the rise in prices as measured by these index numbers may, therefore, safely be regarded as unavoidable. The index numbers of highway construction costs are based upon average bidding prices received by the state. Not only accepted bids, but all bids tendered have been included in these averages. The increase in highway construction costs in so far as it is estimated to have been due to price influences must therefore also be regarded as unavoidable. The index numbers of salaries and wages have been computed from data derived from government payrolls. There is, accordingly, no guarantee that the average rise in salaries represents an absolutely necessary increase. However, as regards direct employees of the state, any doubts relative to the above point are speedily dispelled when it is recalled that the average increase in state salaries between 1915 and 1923 was only 41 per cent, which is considerably less than the increase in the cost of living and far below the standard set by private business enterprise. The salaries of teachers in the public schools of the state advanced about 100 per cent during the period under review. This increase is in excess of the rise in the cost of living and is consequently more open to question. Comparative wage statistics offer little enlightenment on this point. Public school 58 POST-WAR EXPANSION OF STATE EXPENDITURES teachers have apparently fared somewhat better in the matter of salary increases than have office workers in competitive industry. On the other hand, they have not fared as well as common laborers and factory workers. In the absence of conclusive evidence to the contrary it has been assumed, for the purposes of the present study, that all of the increase in public school salaries was necessary in order to maintain the schools at their pre-war efficiency. The Net Effect of Price Inflation It is apparent that the estimated increase in state expenditures resulting from the higher level of prices and salaries, as measured by the index numbers set forth in Table XV, represents an element of growth which for the most part was unavoidable. It is, therefore, of considerable importance to secure some idea of the numerical value of this unavoidable increase and of the proportion which it bears to the total growth of expenditure which took place during the interval under consideration. The state's actual expenditures for general purposes in 1923 amounted to $130,348,500, which represented an increase of $74,598,900 or 134 per cent over the corresponding expenditures for 1915. As shown by Table XV, the index of governmental costs for general purposes stood at 64.9 in 1915. Multiplying the 1923 expenditures by this index, it will be seen that had the 1915 price and wage scale been in effect in 1923, the cost of government in that year would have amounted to only $84,446,400. In other words, $45,792,000 or 61 per cent of the total increase of state expenditures, occurring between 1915 and 1923, is attributable to price inflation. The full significance of the rb1e played by the advance of prices and wages may be better appreciated when it is realized that had prices in 1923 returned to the 1915 level, it would have been possible to make a horizontal cut in all state taxes of approximately 38 per cent. The increase attributable to non-monetary factors between 1915 and 1923 was $28,807,000 which represented a growth of only 52 per cent. Earlier in this study it was shown that the normal rate of growth of state expenditures during the thirty years preceding 1915 was approximately 5 per cent per annum. Assuming the continuance of this rate, the normal growth in COMPOSITE INDEX OF COST OF GOVERNMENT 59 expenditures as between 1915 and 1923 should have been 51 per cent as compared to the actual increase of 52 per cent mentioned above.1 It will thus be seen that aside from the unavoidable effects of higher prices and wages, the increase in expenditures between 1915 and 1923 merely continued the normal rate of growth which had characterized the preceding three decades. When the expansion of expenditures between the fiscal years 1917 and 1923 is considered, the role played by price inflation becomes less important. The actual increase in expenditures between these two years was $70,542,900. Of this amount about $31,294,600 or 44 per cent was due to the advance in price and salary scales. The increase due to factors other than price changes was, therefore, $39,248,300, which represents a growth of 66 per cent over the comparable expenditures for 1917.2 In the following chapters of the study, it is proposed to discuss the principal non-monetary factors which were responsible for this increase. 1 The actual normal rate of growth in disbursements during the thirty years preceding 1915 was 5.29 per cent per annum which compounded for eight years results in a total growth of 51 per cent. SAs has already been noted, the expansion between 1915 and 1923, attributable to non-price factors, was only 52 per cent. It thus appears that the expansion due to other than price factors was greater between 1917 and 1923 than during the longer period between 1915 and 1923. This indicates that the state's actual consumption of commodities and services in 1917 was less than in 1915, a fact which is concealed by the increase in money expenditures arising from a higher price level. PART III NON-PRICE FACTORS CHAPTER IX HOW THE TAXPAYER'S DOLLAR IS SPENT The present analysis of increasing state expenditures has been undertaken primarily with a view to determining the underlying causes for the mounting burden of taxation. The particular expenditures whose growth it is desired to explain are those expenditures which exercise a direct influence upon the size of the tax burden. As previously stated the expenditures most closely conforming to that description in the reports of the state comptroller are the so-called expenditures for general purposes, which roughly speaking comprise all expenditures provided for through general revenue appropriations. Expenditures defrayed from the proceeds of the sale of bonds will be considered only incidentally and in relation to their effect upon the growth of interest and amortization charges. The Role of Non-Price Factors It was shown in the preceding chapter that the growth in expenditures for general purposes as between 1917 and 1923 amounted to $70,542,900 of which about $31,295,000 or 44 per cent was due to the effects of price inflation. It is now proposed to consider the non-monetary influences which were responsible for the remainder of the increase amounting roughly to thirtynine millions of dollars. At the outset of the study an enumeration was made of the various hypotheses which have been put forward to account for the recent rise in governmental costs. These hypotheses will now be investigated on the basis of a detailed analysis of the state's disbursements in 1917 and 1923. More specifically an attempt will be made to obtain definite answers to the following questions. Of the thirty-nine million dollar increase in expenditures, estimated to have been due to non-monetary factors, how [60] HOW THE TAXPAYER'S DOLLAR IS SPENT 61 much is attributable to the assumption of new activities by the state? How much is ascribable to the expansion of the older and well-established state functions? As regards this latter kind of growth, what proportion was due to the fact that the state is now offering a different and more expensive quality of service? To what extent were increased expenditures due to the slackening of construction and repair activities during the war and finally to what extent were they due to waste and extravagance? Functional Analysis of State Expenditures Table XVIII, which presents an analysis of expenditures by governmental functions, gives a general idea of the principal activities carried on by the state, the cost of such activities and the amounts which each of them contributed to the aggregate growth of expenditures as between 1917 and 1923. The classification of governmental functions appearing in the annual reports of the state comptroller is in many respects illogical and misleading, and in constructing Table XVIII it was necessary to substitute a somewhat different grouping of activities. The basic figures used, however, have been obtained from the comptroller's reports and a reconciliation between the comptroller's classification and the one used in Table XVIII is given in Appendix III. Table XVIII shows that the state spends more on education than on any other activity. In 1923 about 35 cents out of every dollar of state taxes was spent for educational purposes. Education looms up even more importantly when considered from the angle of increasing governmental costs. It will be noted from Table XVIII that practically half of the entire increase in the cost of state government as between 1917 and 1923 was due to growth of educational expenditures which more than quadrupled during the period under review. About seven-eighths of the state's educational costs represent grants to localities in support of common schools. The remaining eighth comprises the expenses of the education department, the state college for teachers, the ten state normal schools and various agricultural schools and colleges. Next to education the state's largest expenditures are for TABLE XVIII INCREASE IN EXPENDITURES FOR GENERAL PURPOSES, FISCAL YEAR 1923 OVER 1917 Analysis by Functions Expenditures 1917 Per Cent Amount of Total Expenditures 1923 Increase(+), Decrease(-) Per Cent Per Cent Per Cent Amount of Total Amount of Total Increase Education.................... Highways and transportation...... H ighways.................... Canals.................. Tunnels, bridges, etc.......... Charities, hospitals and correction. General government............. Development and conservation.... Regulation................. Protection of life and property.... Recreation................. M iscellaneous.................... T otal...................... $10,967,900 18,331,700 9,364,300 8,820,000 147,400 13,791,100 7,104,300 2,280,400 3,243,100 2,106,300 624,500 1,356,300 $59,805,600 18.3 30.7 15.7 14.7.3 23.1 11.9 3.8 5.4 3.5 1.0 2.3 100.0 $44,819,900 39,285,900 22,466,300 13,303,300 3,516,300 22,615,700 8,725,700 6,051,800 5,040,700 2,983,100 825,700 $130,348,500 34.4 30.1 17.2 10.2 2.7 17.4 6.7 4.6 3.9 2.3.6 100.0 +$33,852,000 + 20,954,200 + 13,102,000 + 4,483,300 + 3,368,900 + 8,824,600 + 1,621,400 + 3,771,400 + 1,797,600 + 876,800 + 201,200 - 1,356,300 +$70,542,900 +48.0 +29.7 +18.6 + 6.4 + 4.7 +12.5 + 2.3 + 5.3 + 2.6 + 1.2 +.3 - 1.9 100.0 309 114 140 51 64 23 165 55 42 32 118 0 Od p Cal w 0 H ca HOW THE TAXPAYER'S DOLLAR IS SPENT 63 highways, canals and other aids to transportation. In 1923, the state spent about 30 cents out of each tax dollar for the above purposes. This does not include some $4,500,000 expended from the proceeds of the sale of bonds. It will be noted from Table XVIII that highway and transportation expenditures more than doubled during the period under review and were responsible for 30 per cent of the total increase in state expenditures occurring within that period. About 17 cents out of each dollar received in state taxes is expended on charities, hospitals and correction. These expenditures represent for the most part the cost of maintaining the inmates of state institutions comprising seven state prisons, thirteen hospitals for the insane and eighteen miscellaneous institutions for delinquents, mental defectives, cripples and indigents who have become wards of the state. Disbursements for charities, hospitals and correction expanded some 64 per cent during the period under review and account for about an eighth of the total increase in state expenditures. Education, the furnishing of highway, canal and other transportation facilities, and the maintenance of charitable, curative and correctional institutions are by all odds the most important activities of the state. It is worth noting that these three services absorbed approximately 82 per cent of the state's entire budget for 1923 and were the cause of over 90 per cent of the total growth in state expenditures as between that year and 1917. It is also worth noting that all of these activities pertain to comparatively old and well established functions of the state. General government and protection of life and property comprise what are sometimes called the primary functions of government, to wit, those activities connected with the executive, administrative, legislative, judicial and protective arms. These primary activities required for their support only 10 cents out of each tax dollar received by the state in 1923. As factors in the expansion of expenditures between 1917 and 1923, they may be dismissed as practically negligible since they contributed but 31/2 per cent of the total increase. The principal activities comprehended under development and conservation are the operation of agricultural experiment stations, the eradication of plant and animal diseases, the conserva 64 POST-WAR EXPANSION OF STATE EXPENDITURES tion of wild animal life, the maintenance of game farms and fish hatcheries and the custody of the state forest preserve. Expenditures for the above purposes have been growing rapidly and in 1923 were 165 per cent greater than in 1917. At present the cost of these activities absorbs nearly 5 per cent of the taxpayer's dollar. The extension of the state's regulatory activities is sometimes put forward as one of the chief causes for the recent increase in expenditures. This contention is not borne out by Table XVIII which shows that the cost of regulation in 1923 represented less than 4 per cent of the total cost of government for that year. Moreover, the relative proportion of the state's revenues absorbed by this function has decreased since 1917. The regulatory activities of the state relate principally to the enforcement and administration of labor legislation, the safeguarding of the public health and the supervision of public service corporations, banks and insurance companies. The regulation of conditions of labor which includes factory and tenement house inspection, the operation of public employment offices and the administration of the workmen's compensation law, is the most expensive of the state's regulatory activities, but in 1923 the cost of this function represented little more than 1 per cent of the total cost of government. The recreational activities of the state are confined to the upkeep of various state parks, battlefields, monuments and historic mansions. The total disbursements for this purpose are relatively slight and exercised an insignificant effect on the general growth of expenditures. Classification of Expenditures by Character The functional analysis of expenditures is useful as a means of pointing out what activities of the state were mainly responsible for the recent rise in governmental costs. It shows what activities expanded and how much they expanded, but it supplies no information as to the specific reasons for the expansion. To accomplish the latter purpose a more detailed analysis is required, the starting point for which is furnished by Table XIX which classifies the state's expenditures according to their character, that is, according to whether they represent items of cur TABLE XIX INCREASE IN EXPENDITURES FOR GENERAL PURPOSES, FISCAL YEAR 1923 OVER 1917 Analysis by Character 0 H 1917 1923 Actual Increase 1923 over 1917 Increase after Eli of Price.Ii Per Cent Per Cent Per Cent Per Cent P Expenditure of Total Expenditure of Total Amount of Total Increase Amount o Items Current expenses.. S34,364,800 57.5 $53,457,000 41.0 $19,092,200 27.1 55.6 S8,937,800 Fixed charges and contributions..... 12,629,600 21.1 49,213,300 37.8 36,583,700 51.9 289.7 20,530,100 Debt service (interest and amortization) 10,548,300 17.6 12,079,100 9.3 1,530,800 2.1 14.5 539,900 Capital outlays.... 2,262,900 3.8 15,599,100 11.9 13,336,200 18.9 589.3 9,240,500 minating Effects nf lation* er Cent Per Cent d f Total Increase 22.8 26.0 cr, 52.3 163.0 e 1.4 5.0 ^ 23.5 408.0 W 100.0 66.0 $59,805,600 100.0 $130,348,500 100.0 $70,542,900 100.0 118.0 $39,248,300 Total......... * Deflation accomplished by application of appropriate index numbers as given in table xv. 66 POST-WAR EXPANSION OF STATE EXPENDITURES rent expense, fixed charges and contributions, interest and amortization charges or capital outlays. Table XIX shows not only the actual increases which each of the above expenditure classifications experienced during the period under review, but also the estimated increases after eliminating the effect of price inflation. This latter set of increases was obtained by expressing the expenditures for 1923 in terms of 1917 unit costs through the use of appropriate index numbers as given in Table XV. Considering only the real increase, that is, the increase which was due to non-monetary factors, it is seen that over half of the total is attributable to fixed charges and contributions which underwent a growth of 163 per cent during the period under review. Capital outlays exhibit a far greater percentage increase over 1917, viz., 408 per cent, but due to their relative unimportance they were responsible for only 24 per cent of the aggregate increase under consideration. Current expenses, which represent the largest expenditure classification, show an increase of only 26 per cent and contributed less than 23 per cent of the total growth. In view of the alarm which is frequently manifested regarding the part played by tax-free bonds in bringing about the recent increase of public expenditures, it is interesting to note that as far as New York State is concerned, the increase in interest and amortization charges was only 5 per cent which accounts for little more than 1 per cent of the total growth in expenditures due to non-monetary factors. In the following chapters each one of the above expenditure classifications will be subjected to a more detailed analysis with a view to discovering the specific items which were responsible for their growth. CHAPTER X FIXED CHARGES AND CONTRIBUTIONS As has already been noted, fixed charges and contributions were responsible for over half of the increase in state expenditures occurring between 1917 and 1923. A careful study of this class of expenditure should, therefore, be expected to shed considerable light on some of the major causes for the present high level of governmental costs. Fixed charges and contributions may be subdivided into (1) refunds, (2) fixed charges, and (3) contributions or grants in aid. Two classes of expenditures are classed as refunds in the annual reports of the comptroller. The first class comprises payments made out of the state treasury to meet costs which are actually a charge against the various counties. The counties benefited by such payments are required to reimburse the state by means of special tax levies on general property. Certain court expenses and the cost of erecting, repairing and maintaining armories are handled in this manner. The second class of refunds comprises payments to individuals and corporations in connection with taxes erroneously assessed and collected. Refunds are -not expenditures in the sense in which the term is used in this study and need be given no further consideration. Fixed charges as here used comprise items such as interest on temporary loans, taxes, local assessments, insurance, pensions, contributions to retirement funds, disability claims and indemnities. The most important fixed charges, as will subsequently appear, are relief payments to disabled veterans and indemnities paid to farmers in reimbursement of losses sustained through the destruction of tubercular cattle. Contributions or grants in aid may be classified as follows: (1) gr 'ants to local governmental units such as aid granted by the state to counties and towns for highway purposes; (2) grants and subventions to institutions and organizations, such as state aid granted to institutions for the education of the blind, deaf and dumb, and contiibutions to various codperative farm and home bureaus; (3) prizes, rewards and allowances to individuals. [671 68 POST-WAR EXPANSION OF STATE EXPENDITURES Principal Items of Increase Table XX gives an analysis of the increase in fixed charges and contributions between 1917 and 1923 on a basis designed to bring out the specific items which contributed most heavily TABLE XX INCREASE IN FIXED CHARGES AND CONTRIBUTIONS, FISCAL YEAR 1923 OVER 1917 Increase(+) 1917 1923 Decrease(-) Refunds Judgments, stock transfer tax.... $918,800........ --$918,800 Miscellaneous refunds, taxes, etc. 218,500 $103,300 - 115,200 Total refunds.............. $1,137Y00 $103,300 -$1,034,000 Fixed charges Indemnities for diseased animals, plants, etc.................... 174,900 2,468,700 + 2,293,800 Relief of war veterans.......... 13,400 976,900 + 963,500 Taxes, insurance and local assessments....................... 253,500 596,900 + 343,400 Judgments..................... 369,900 102,700 - 267,200 Miscellaneous.............. 389,600 444,500 + 54,900 Total fixed charges......... $1,201,300 $4,589,700 +$3,388,400 Contributions Educational: Support of common schools... 6,022,600 35,915,100 +29,892,500 Grants to high schools and academies................. 642,400 1,747,300 + 1,104,900 Grants to institutions for deaf, dumb and blind............ 409,100 516,700 + 107,600 Miscellaneous................ 407,900 537,300 + 29,400 Total educational.......... $7,482,000 $38,716,400 +$31,234,400 State aid for highway purposes: Aid to towns................. 1,589,300 2,489,.700 + 900,400 Aid to counties........................... 2,329,400 + 2,329,400 Miscellaneous................ 42,000 46,300 + 4,300 Total highway............... $1,631,300 84,865,400 +$3,234,100 Miscellaneous grants and subventions..................... 1,177,700 938,500 - 239,200 Total contributions........ $10,291,000 $44,520,300 +$34,229,300 Grand total...................... $12,629,600 $49,213,300 +$36,583,700 to the total growth. It will be seen that the aggregate increase of $36,600,000 is more than accounted for by abnormally large increases in the following four items: FIXED CHARGES AND CONTRIBUTIONS 69 Increase 1923 Over 1917 Grants in support of education.................... $31,234,000 State aid for highway purposes..................... 3,234,000 Indemnities for diseased animals.................. 2,294,000 Relief of war veterans.......................... 963,000 Total....................................... $37,725,000 GRANTS IN SUPPORT OF EDUCATION The growth of $31,000,000 in subventions for educational purposes is the largest single item of increase dealt with in the present study. The fact is worth emphasizing that practically all of the increase represents grants in aid to local political units. The system of aiding local education through the distribution of funds from the state treasury is not new. Ever since 1851 the state has apportioned to the localities for this purpose, money raised by the general state taxes. In 1917 the contributions of the state government in support of public instruction amounted approximately to $7,000,000 per annum, which was roughly about 9 per cent of the cost of maintaining the public schools of the state. By 1923 the state had increased its educational aid to about $38,000,000 per annum, which represented about 18 per cent of the total cost of public instruction in the state. It is apparent from this that the state not only increased the absolute amount of its support by some $31,000,000, but, what is more significant, it assumed double its former share of the total educational burden, thus measurably lightening the relative share to be borne by the localities. The immediate cause of the state's increased participation in the costs of local education was the Lockwood-Donohue bill which became effective in August, 1920, and which raised the minimum salaries of teachers in public schools throughout the state, providing the additional sums needed for this purpose by an appropriation from the state treasury.1 The conditions which practically compelled the state so greatly to augment its support of local education were by no means peculiar to New York. During the period under review no less than fourteen other states were obliged, by virtue of a similar combination of circumstances, substantially to increase their share of the burden of local education.2 As far as New York 1 Ch. 645, laws of 1919. 2 Cf. Biennial Survey of Education 1920-1922, Department of the Interior, Bureau of Education, vol. i, p. 16. 70 POST-WAR EXPANSION OF STATE EXPENDITURES is concerned, the need for increased state aid was due in the main to three factors: (1) the tremendous expansion of educational costs following the close of the World War, (2) the inability of the small and financially weak school districts to meet these increased costs, and (3) the anomalous situation created in cities having a population in excess of 100,000 inhabitants, certain of which cities were compelled under pressure of the mounting cost of public instruction to resort to various subterfuges in order to evade the constitutional provision which limits their tax rate to 2 per cent of their assessed valuation.1 Much has recently been written concerning the desirability of abolishing the small rural school district and substituting for it some larger and more economical unit.2 The school district dates from the time when rural life was isolated. It is said to be illogical in the present era of good roads and motor transportation. The sort of education provided by the small one-teacher school, though often poor and inadequate, is nevertheless expensive. Per pupil costs are on the average considerably greater than in large city schools offering far superior educational opportunities.3 Moreover, where the school district possesses little taxable wealth, other than farm or forest land, the furnishing of even a very mediocre educational opportunity becomes a crushing burden. There are many such weak school districts in New York, and, with the rise in educational costs which came after the close of the war, increased state support was absolutely essential to enable them to carry on. In the case of the large cities, the need for state aid arose from a different set of circumstances. The cities in question did not lack the financial resources required to pay for their enlarged educational programs, but they were restrained from fully utilizing these resources by constitutional tax and debt limitations. The extension of state aid offered the most immediate solution of this difficulty at a time when speedy relief was essential. Thus far the assistance extended by the state has merely served to ameliorate a situation which is still basically bad. The ideal of assuring to every child in the state an education conforming to some acceptable minimum standard is still far from being achieved. Moreover, the burden of school taxes in many of the ' Constitution of the State of New York, article vii, sec. 13. 2 For a comprehensive discussion of this problem see Annual Report, 1923, University of State of New York, introduction. a Ibid.. p. 11. FIXED CHARGES AND CONTRIBUTIONS 71 rural districts is intolerably high. Thus in 1923, one school district in New York State was forced to levy a tax for educational purposes alone of 5 per cent on the full value of its assessable property, and 67 school districts had rates of 2 per cent or more.1 The situation as regards cities subject to the 2 per cent tax limit is not reassuring. The city of Rochester, for example, has for several years been obliged to incur a special indebtedness in order to enable it to meet the current costs of its school budget and still remain within the 2 per cent limit.2 Other cities are rapidly approaching the point at which they may be compelled to resort to similar devices. In view of these facts, it is not surprising that provision is now being made for the assumption by the state of a still greater share of the cost of public instruction.3 Why Educational Costs Have Advanced The need for greater state support would probably not have developed at the time it did, had it not been for the extraordinary increase in school costs which came after the war. The total cost of maintaining the public schools of the state during the fiscal year 1917 was approximately $78,000,000. The comparable cost for 1923 amounted to over $210,000,000, representing an increase of about 170 per cent.' It is this remarkable expansion which lies in back of the increase of $31,000,000 in state aid for schools, and no explanation of the recent growth of state expenditures would be complete without some mention of the causes which contributed to the rise of local educational costs. The influences in question may be conveniently considered under four headings, viz.: (1) the effect of rising prices, (2) the effect of the war-time stoppage of school construction, (3) the increase in the number of school pupils, and (4) changes in the type of educational offering. Rising Prices Through the use of the index numbers of unit educational costs given above,5 it is a comparatively simple matter to calculate the 1 Report of the Special Joint Committee on Taxation and Retrenchment, State of of New York, legislative document (1925) no. 97, p. 25. 2 University of State of New York, Annual Report, 1923, p. 13. 3 Joint Committee on Taxation, op. cit. ch. 11. 4 The above figures as well as all other statlstirnI diltia on locall f'ducliio( u us(,d In the present discussion have been obtained from the Annual Report, 1923, University of the State of New York, exhibit b, pp. 336 et seq. 5 Cf. above page 24. 72 POST-WAR EXPANSION OF STATE EXPENDITURES influence which the advance in prices and teachers' salaries exercised on educational disbursements. Had the 1917 price and salary scale been in effect in 1923, the cost of maintaining the schools of the state in the latter year would have amounted to only $129,000,000 instead of the actual figure of $210,000,000. It therefore follows that of the increase of $133,000,000 in educational expenditures about $82,000,000, or 62 per cent, was due to the advance of prices and salaries. The remaining $51,000,000, which represent an increase of 65 per cent over the expenditures of 1917, reflect the effect of non-monetary factors. Deferred Construction The most important of these non-monetary factors was the interruption of school building during the war and the conseTABLE XXI SCHOOL BUILDING 1900-1923 Amount Expended Increase During for Schoolhouses, Period in Period Sites, Furniture and Average Daily Repairs at 1914 Prices School Attendance 1900-1904.......... $45,416,600 147,350 1905-1909.......... 68,517,700 108,767 1910-1914.......... 35,530,000 127,527 1915-1919.......... 31,268,700 77,752 1920-1923.......... 60,249,000 271,548 quent necessity for speeding up construction programs as soon as the return to more normal conditions permitted. The facts of the situation are brought out by Table XXI, which shows by five-year periods the aggregate amounts spent within the state for school houses, sites, furniture and repairs, as compared with the growth in average daily school attendance. As a rough means of eliminating the effects of price inflation and securing a measure of the actual physical volume of construction, the expenditures from 1915 to 1923 inclusive have been reduced to the 1914 price level by dividing them by the National Industrial Conference Board's index of building construction costs. It will be seen from Table XXI that the great increase in school construction which has occurred since 1920, has been due in part to the necessity of making up for the war-time deficiency, and in part has been due to the influx of new pupils which came after 1920. There is no means of separating the FIXED CHARGES AND CONTRIBUTIONS 73 effects of these two factors, but an estimate may be made of their combined influence. During the fiscal year 1917, the amount expended in the state for school houses, sites, furniture and repairs was approximately $7,783,000. The comparable expenditures for 1923 were $44,555,000. Expressed in terms of 1917 prices, however, the 1923 expenditures are reduced to approximately $29,406,000, which represents an increase of $21,623,000 over the expenditures for 1917. In view of the facts brought out by Table XXI, it is safe to attribute the entire amount of this increase to the effects of the sub-normal construction during the war and to the large increase in school attendance which took place after 1920. Growth of School Population One of the most striking developments of the post-war period was the rapid increase in the number of pupils attending the public schools of the state. As will be seen from Table XXI, the growth in average daily school attendance during the four years ending in 1923, was considerably greater than the growth during the entire decade from 1900 to 1910. As between 1917 and 1923 the growth in average daily school attendance was 20 per cent while the number of children enrolled in school registers increased by about 15 per cent. One of the most noteworthy phases of this situation was the phenomenal growth in the number of high school pupils. In 1917 there were only 191,000 pupils enrolled in the secondary schools of the state. The corresponding figure for 1923 was 305,000, which represents an increase of 60 per cent. Since the annual cost of educating a high school pupil is about two and one-half times as great as the cost of educating an elementary school pupil, this influx of high school pupils exercised a disproportionate effect on current school costs.' New Services The period under review was characterized by a change both in the variety and quality of the services rendered by the public schools. A compulsory part-time school law was enacted in 1919, according to the terms of which all employed minors between the ages of fourteen and eighteen, and not graduates of high schools, are obliged to attend part-time or continuation SBiennial Survey of Education, op. cit. vol. 1, p. 5. 74 POST-WAR EXPANSION OF STATE EXPENDITURES schools for not less than four hours each week during the regular school year.1 During the fiscal year ended June 30, 1923, the enrollment at these new continuation schools aggregated nearly 70,000, and the total cost of operating them was about $1,400,000. Another act passed in 1919 provided for Americanization work among immigrants and for the instruction of illiterates.2 In 1923 the cost of this work, which was defrayed partly by the localities and partly by the state, was approximately $700,000. Trade and vocational education represents a comparatively new and expensive type of instruction. As between 1917 and 1923, the enrollment of pupils at trade and vocational schools practically doubled. So far mention has been made only of new educational activities. The gradual improvement in the quality of the educational offering has, however, in all probability, been a more potent factor in raising educational costs. It is difficult to generalize here because of the wide disparities which exist as between urban and rural communities. Moreover, the improvement in the quality of the educational offering has been gradual and began long before the period covered by this review. Such features as school doctors, nurses, dental clinics, psychological clinics, open-air schools, lunch rooms, supervised playgrounds, gymnasiums, special classes for mentally backward or deficient children, visiting teachers and extensive programs of physical and health education, are increasingly coming to be regarded as necessary adjuncts of modern systems of public instruction.3 The above list is by no means exhaustive but it serves to indicate the extent to which the quality of the educational offering is changing. STATE AID FOR HIGHWAY PURPOSES By contrast with the huge subventions provided for educational purposes, highway subsidies, which represent the only other form of state aid to localities, appear relatively unimportant. Nevertheless, as will be seen from Table XX, the state distributed nearly $5,000,000 in the form of highway aid in 1923, and this activity was responsible for approximately $3,230,000 of the total increase in state expenditures between 1917 and 1923. 1 Ch. 531, laws of 1919. ' C'. 617, laws of 1919, also ch. 852, lhnws of 1920. 3 Cf. Biennial Surircy of Educotion, op. cil. p. 6. FIXED CHARGES AND CONTRIBUTIONS 75 The main cause for the growth of highway subsidies was the passage of the so-called Lowman Act in 1920.1 This act (section 320-B of the highway law) provides for payment by the state to the various counties for the construction and improvement of town highways of an amount not to exceed thirty dollars per mile of the total mileage of such highways within the counties, subject to the provision that each county participating shall appropriate an equal amount for this purpose. Since the Lowman Act was not in effect in 1917, all of the $2,329,000 distributed under its provisions in 1923, appears as an increase in the present comparison. State aid for the construction and repair of town highways is also provided for under section 101 of the highway law, in accordance with the terms of which the state has made grants to towns ever since 1898. It will be seen from Table XX that the aid granted towns in 1923 was some $900,000 greater than that given in 1917. More than a third of this increase, however, is merely nominal and arises from the fact that the state accounts are on a cash disbursement basis and thus understate the actual aid granted in respect to 1917 by some $370,000. If allowance is made for this understatement, the aid granted towns in 1923 is found to be only $530,000 or 27 per cent greater than in 1917. Reference to the tables given in Chapter VI will show that the minimum advance in unit highway costs as between 1917 and 1923 was not less than 50 per cent. It thus appears that the increase in highway aid paid directly to towns has not been sufficient to compensate for the reduction in the purchasing power of the dollar. Since, however, highway aid distributed to counties is expended for practically the same purpose as that distributed to towns, these two forms of aid should properly be considered as a whole. The combined highway aid granted in 1917, after making adjustment for the discrepancy arising from the fact that the comptroller's accounts are on a cash disbursement basis, amounted to $2,000,000. The aid granted in respect to 1923 aggregated $4,865,000. When this sum is expressed in terms of 1917 prices by multiplying it by the appropriate index number, it is reduced to $3,104,000. It follows that of the total increase of $2,865,000 1 Ch. 840, laws of 1920. 76 POST-WAR EXPANSION OF STATE EXPENDITURES which took place between 1917 and 1923, approximately $1,761,000 may be considered as merely compensating for the depreciated purchasing power of the dollar. The real increase in state aid for town highways was, therefore, about $1,104,000. INDEMNITIES FOR DISEASE DANIMALS It was stated in the previous chapter that expenditures for development and conservation have been increasing rapidly and that they were 165 per cent greater in 1923 than in 1917. Practically two-thirds of this increase is attributable to a single item, indemnities for diseased animals, and reflects the cost of a movement recently inaugurated by the state to stamp out bovine tuberculosis. In 1923 nearly $2,500,000 was paid to cattle owners in partial indemnification for losses sustained through the slaughter of tubercular cattle. Since this movement for a clean milk supply was scarcely under way in 1917, practically all of the indemnities paid in 1923 show up as an increase in the present comparison. RELIEF OF VETERANS The growth of about one million dollars in expenditures for the relief of veterans is an aftermath of the World War, and results from the creation in April, 1922, of the bureau for the relief of sick and disabled veterans.' During the fiscal year ended June 30, 1923, this bureau distributed $977,000 to disabled Cand needy New York veterans. SUMMARY The findings of the present chapter may now be briefly summnarized as follows. Fixed charges and contributions increased by $36,584,000 during the period under review and were responsible for more than half of the total growth of the state expenditures. About $16,054,000 or 44 per cent of this growth is attributable to the effect of price inflation. About $17,700,000 or 48 per cent represents the vý,alue in terms of 1917 dollars of the state's more generous support of local education and highwvays. The remaining 8 per cent may be accounted for on the basis of the cost of the state's efforts to eradicate bovine tuberculosis and of payments to needy and disabled World War veterans. I Ch. 589, laws of 1922. CHAPTER XI CAPITAL OUTLAYS AND DEBT SERVICE Capital outlays comprise expenditures for permanent improvements and betterments such as canal and highway projects, the construction of bridges and tunnels, the acquisition of land and the building and equipping of schools, prisons, and hospitals. The cost of such projects may be defrayed either from the proceeds of the sale of bonds or out of appropriations made from general state revenues. For the purposes of the present study, only the increase of capital outlays financed out of current revenues need be explained. It is only this class of outlays which exercises a direct effect upon the burden of taxation. However, in order to give an adequate explanation of this increase, it will be necessary to give some consideration to the volume of capital outlays financed through the sale of bonds. Reference to Table XIX will show that capital outlays financed out of general state revenues were $13,336,000 or nearly seven times greater in 1923 than in 1917, and were responsible for 19 per cent of the total increase in state expenditures as between those two years. Price inflation was responsible for,about $4,096,000 of the above growth, leaving an increase of $9,240,000 to be accounted for on the basis of non-monetary influences. Barring the effect of fluctuations in the purchasing power of money, it is apparent that the magnitude of capital expenditures from revenues is dependent upon two factors: (1) the actual physical volume of capital projects to be financed, and (2) the relative proportion of such proj ects defrayed through the sale of bonds. The first step, therefore, in seeking an explanation of the extraordinary growth in capital outlays defrayed from current revenues, is to ascertain whether there was any growth in the physical volume of extensions and permanent improvements, including in this inquiry not only projects paid for through current taxation but also those financed through the sale of bonds. [77] 78 POST-WAR EXPANSION OF STATE EXPENDITURES Physical Volume of Capital Projects Table XXII gives the state's combined capital expenditures both from revenues and bond proceeds, by years, from 1914 to 1923. All expenditures have been reduced to a common price level, that of 1915, through the use of the appropriate index numbers developed earlier in the study. Table XXII, therefore, furnishes a rough measure of the trend of the physical volume. of capital projects from 1914 to 1923, inclusive. It will be noted that the physical volume of capital projects in 1923 was approximately 25 per cent less than in 1917 and 70 per cent less than in 1914. The data from which Table XXII has been compiled are available only as far back as 1914, but on the basis of such partial information as can be obtained for prior years, it is possible to state that in no year subsequent to 1917 did the volume of extensions and improvements ever equal or exceed that of any of the eight years from 1909 to 1916, inclusive. The above facts effectively answer the charge that the increase in New York State expenditures has been influenced by large and ill-considered construction projects. " Pay-as-you-go " Financing It is evident that the real reason for the increase in capital outlays paid for out of current revenues is not that the state has embarked upon a more ambitious program of extensions and improvements, but that it has financed a much larger proportion of its capital projects through current taxation. The extent to which the state has shifted from a borrowing to a " pay-asyou-go " policy in relation to its capital outlays is brought out in Table XXIII. This table shows that only 12 per cent of all capital outlays were defrayed out of current revenues in 1917, whereas in 1923 fully 73 per cent of all such outlays were financed from revenues. Prior to 1920, the principal capital expenditures of the state related to canal and highway projects, the purchase of land for the forest preserve, and the construction and equipment of buildings for various governmental purposes. Of these only buildings, equipment and small extensions and improvements of a miscellaneous character were financed by current taxation. In 1923, in addition to providing for building and miscellaneous CAPITAL OUTLAYS AND DEBT SERVICE 79 betterments, the general state revenues were made to provide 78 per cent of the cost of canal improvements, 56 per cent of the cost of highway construction and all expenditures connected with the construction of the New York-New Jersey vehicular tunnel. The unusually large proportion of capital outlays paid for out of current revenues was one of the principal reasons for the extremely moderate increase of interest and amortization charges which will be considered in the following section. TABLE XXII CAPITAL EXPENDITURES FROM REVENUES AND BOND PROCEEDS EXPRESSED IN TERMS OF 1915 PRICES, FISCAL YEARS 1914 TO 1923* Buildi.gs, Equipment Parks New York- and MiscelOanal Highway and New Jersey laneous Total Year Construe- Construc- Forest Vehicular Extensionsu tion tion Preserve Tunnel and Improvemen ts 1914.. $20,016,700 $9,455,100 $472,700........ $2,533,600 $32,478,100 1915... 12,453,700 10,884,800 269,700........ 3,901,600 27,509,800 1916... 6,721,500 4,707,000 39,800....... 1,567,800 13,036,100 1917... 5,065,600 3,992,700 2,066,200...... 1,735,000 12,859,500 1918... 4,733,200 2,097,800 78,300........ 2,094,200 9,003,500 1919... 5,003,500 1,084,700 519,800 $800 2,044,500 8,653,300 1920... 1,968,400 2,091,600 1,012,000 42,200 2,039,600 7,153,800 1921... 2,695,000 3,858,900 1,299,800 111,300 2,600,700 10,565,700 1922... 2,151,800 5,871,800 1,297,800 208,600 3,413,600 12,943,600 1923... 1,435,000 4,128,000 1,145,100 1,551,400 2,404,100 9,663,600 * For index numbers used in deflating expenditures to 1915 prices see table xv. Debt Service As shown by Table XIX, contributions to sinking funds for interest and amortization of funded debt were responsible for only 2 per cent of the total increase of state expenditures between 1917 and 1923. The aggregate growth of debt service charges was $1,530,000, which represents an increase of less than 15 per cent over 1917. Of the above amount approximately $990,000 may be imputed to the effect of the rise in construction costs and interest rates, leaving only $540,000 to be accounted for on the basis of non-price factors. It has already been indicated that the chief reason for this small increase was the more extensive reliance upon taxation as a means of financing permanent improvements. It will be seen from Table XXIV that only $31,800,000 of state bonds were sold TABLE XXIII PERCENTAGE OF TOTAL CAPITAL OUTLAYS FOR SPECIFIED PURPOSES, FINANCED BY GENERAL REVENUE APPROPRIATIONS, 1914-1923 Buildings, Equipment Parks and Forest New York-New Jersey and Miscellaneous Canal Constructi Co nstructin ghwa onstruction Preserve Vehicular Tunnel Extensions and Total Capital Outlays Improvements Per Cent Per Cent Per Cent Per Cent Per Cent Per Cent Provided Provided Provided Provided Provided Provided ^ Capital from Capital from Capital from Capital from Capital from Amount from O Outlays General Outlays General Outlays General Outlays General Outlays General General Revenues Revenues Revenues Revenues Revenues Revenues 1914.. $20,016,686.... $9,455,121 0.2 $472,684 7.6............ $2,533,562 100.0 $32,478,053 8.3 0 1915.. 12,453,671.... 10,884,788 0.4 269,729 2.3............ 3,901,623 100.0 27,509,811 14.4 1916.. 9,053,850...........*...............................*....* 15,986,888 10.8 1917.. 9,538,616.... 5,529,873 0.4 2,066,152.3............ 2,233,002 100.0 19,367,643 11.7 1918.. 9,830,898 6.5 3,784,360 0.7 78,322 33.1.......... 3,105,689 100.0 16,799,269 22.6 1919.. 10,987,823 1.4 2,267,007 6.7 519,814 3.0 $1,722 100.0 3,316,181 100.0 17,076,773 21.2 M 1920.. 4,987,938 42.7 5,710,187 30.3 1,011,991.5 106,893 100.0 4,631,910 100.0 16,448,919 52.3 1921.. 7,241,450 100.0 9,049,132 43.3 1,299,785 23.6 299,044 100.0 5,526,405 100.0 23,415,816 73.8 m 1922.. 4,826,510 46.9 12,612,701 46.8 1,297,852 9.8 468,061 100.0 6,028,500 100.0 25,233,624 58.6 1923.. 3,165,637 77.9 8,866,916 55.6 1,145,138 8.4 3,422,338 100.0 4,685,557 100.0 21,285,586 73.3 p * Not available. CAPITAL OUTLAYS AND DEBT SERVICE 81 during the six years ending June 30, 1923, despite the fact that capital outlays within the same period aggregated nearly four times that amount. This fact is extremely significant in view of the frequently iterated claim that the facility with which state bonds could be marketed by virtue of their tax exemption feature has resulted in the piling up of uneconomic debt. Another important factor in keeping down interest and amortization charges was the adoption of a more scientific basis for computing the annual sinking fund contributions, made possible by the ratification in November, 1920, of the necessary changes to the state constitution.1 Under the old provisions of the constitution the annual sinking fund contributions were based on fixed rates which resulted in a more rapid accumulation of funds than was required to meet semi-annual interest charges and to retire bonds as they matured. The new provisions charged the state comptroller with the duty of computing the contributions to sinking funds for each year on the basis of the fair market value not exceeding par of sinking fund investments held. As shown by Table XXIV, this change resulted in a reduction of over $5,000,000 in debt service requirements for 1922 as compared with the previous year, when sinking fund contributions were computed on the old basis. Moreover, for the fiscal year ended June 30, 1923, debt service requirements were still some $3,500,000 less than those for 1921, despite the fact that the gross funded debt had increased by $30,000,000 in the interim. Although the present analysis does not go beyond the close of the fiscal year ended June 30, 1923, it should, nevertheless, be pointed out that the outlook for the immediate future is for a considerable increase in debt service requirements. At the general election in November, 1923, new bond issues to the amount of $95,000,000 were authorized by the voters. Of this amount $45,000,000 was applicable to the payment of a soldiers' bonus provided for by special amendment to the constitution.2 The remaining $50,000,000 was for the purpose of providing safer and more adequate housing accommodations for patients in state institutions.3 At the general election in November, 1925, bond issues to the amount of $400,000,000 were authorized, of which 1 Constitution of the State of New York, Article VII, sec. 5, as amendedl Nov., 1920. 2 Constitution of the State of New York, Article VII, sec. 13. c Ch. 591, laws of 1923. 82 POST-WAR EXPANSION OF STATE EXPENDITURES amount $300,000,000 are to be used for the elimination of railroad grade crossings throughout the state.' The other $100,000,000 are to be available over a period of ten years, in amounts not TABLE XXIV CONTRIBUTIONS TO SINKING FUND, GROSS FUNDED DEBT, NEW BOND ISSUES AND CAPITAL OUTLAYS, 1914-1923 Contributions to Sinking Year Funds, Fiscal Year 1914.... 1915.... 1916.... 1917.... 1918.... 1919.... 1920.... 1921.... 1922.... 1923.... $9,668,600 7,681,030 9,648,987 10,548,309 13,168,459 13,330,145 13,591,721 15,584,817 10,441,113 12,079,063 Gross Funded Debt as of June 30 $159,260,660 186,400,660 211,404,660 236,309,660 236,214,660 236,119,660 236,024,000 257,729,000 266,998,000 264,244,500 Amount of New Bond Issues, Fiscal Year $51,000,000 27,235,000 25,099,000 25,000,000 31,800,000.......... Capital Outlays, Fiscal Year $32,177,404 27,485,813 15,986,888 19,367,643 16,799,269 17,076,773 16,448,919 23,415,816 25,233,624 21,285,586 exceeding $10,000,000 per annum, for the purpose of enabling the state to acquire property, construct buildings and make miscellaneous improvements.2 This latter issue should result in a considerable reduction in expenditures for capital outlays now financed out of current revenues. 3 Session laws, 1924, appendix, p. 1240. -4 Session laws, 1924, appendix, p. 1241. CHAPTER XII CURRENT EXPENSES Current expenses, or expenditures for administration, maintenance and operation, comprise the ordinary running costs of government. They include the state payrolls and the cost of all materials, supplies and services purchased for current purposes. It is unnecessary to stress the importance of this classification. As will be seen from Table XIX, current expenses are larger in amount than any of the other expenditure categories thus far considered. For the fiscal year ended June 30, 1923, they aggregated some $53,457,000, which represented over 40 per cent of the total of all state expenditure for that year. Aside from their magnitude, these expenditures are important in that they are practically the only class of state disbursements which are subject to administrative control. Generally speaking, therefore, they furnish the field within which administrative economy and efficiency may be exercised. Moreover, if there has been any administrative extravagance, it is among the state's current expenditures that the evidence of such extravagance is to be chiefly sought. Analysis by Functions As shown by Table XIX, expenditures for administration, maintenance and operation for the year ended June 30, 1923, were greater by $19,000,000, or 56 per cent, than the comparable expenditures for the year ended June 30, 1917, and contributed 27 per cent of the total increase in state expenditures as between those two years. Table XXV shows how this increase was distributed among respective governmental functions. It will be noted that the function which contributed the largest share of the total increase was charities, hospitals and correction. The expenditures of this function, comprising principally the cost of maintaining the inmate populations of prisons, hospitals and charitable institutions, advanced some O60 per cent as between 1917 and 1923 and were responsible for about 38 per cent of the total increase under consideration. The next largest share of the [83] TABLE XXV INCREASE IN EXPENDITURES FOR ADMINISTRATION, MAINTENANCE AND OPERATION, 0 FISCAL YEAR 1923 OVER 1917 Analysis by Functions Per Cent Per Cent Function 1917 1923 Increase(+) of Total Increase(+) Decrease (-) Increase Decrease(-) S Charities, hospitals and correction..... $12,181,700 $19,498,200 +$7,316,500 +38.3 +60.1 3 Highways and transportation.......... 6,183,200 11,798,500 + 5,615,300 +29.4 +90.8 Highway maintenancet........... 4,536,200 8,398,800 + 3,862,100 +20.2 +-85.1 0 Canal maintenancet.............. 1,645,300 3,330,800 + 1,685,500 + 8.8 +102.4 General government.................. 6,332,700 8,386,200 + 2,053,500 +10.8 +32.4 Education........................... 3,072,600 5,095,500 + 2,022,900 +10.6 +65.8 Regulation........................... 2,910,100 4,718,800 -- 1,808,700 + 9.5 +62.2 Development and conservation........ 1,378,700 2,059,100 + 680,400 + 3.6 +49.4 Recreation........................... 305,300 384,500 + 79,200 +.4 +25.9 X Protection of life and property........ 1,627,400 1,516,200 - 111,200 -.6 - 6.8 Miscellaneous*...................... 373,100........ - 373,100 - 2.0.... Total............................ $34,364,800 $53,457,000 +$19,092,200 100.00 +55.6 3 * Consists of undistributed cost of printing departmental reports. t These two items are subdivisions of the preceding item and the figures opposite them are not to be added in the total. CURRENT EXPENSES 85 aggregate growth in current expenses is attributable to highway maintenance, which contributed about 20 per cent of the total. Responsibility for the remainder of the increase is shared in substantially equal measure by general government, education, regulation, and canal maintenance, each of which contributed approximately a tenth of the total growth. In the following sections, the current expenses of the various functions will be broken up into their constituent elements. An attempt will be made to eliminate the effects of price inflation and to calculate the real growth in operating costs as measured in terms of a stable monetary unit. The factors which contributed to the real as contrasted with the nominal growth will then be considered with a view to passing judgment upon their legitimacy. CHARITIES, HOSPITALS AND CORRECTION In 1923, the current cost of administering, operating and maintaining the state's prisons, hospitals and charitable institutions amounted to $19,498,200, which represented an increase of $7,316,500, or 60 per cent over the comparable costs for 1917. The proportion of this increase attributable to the advance in prices and wages can only be estimated approximately. As was explained in an earlier part of this study, in constructing index numbers of unit prices applicable to the various commodities consumed by the state, it was not feasible in all cases to compute these indices on the basis of actual state purchases. For certain commodities, such as food, clothing, fuel and furniture, the wholesale price index numbers of the United States Bureau of Labor Statistics were used. It is impossible on the basis of this data to calculate with precision just what the 1923 expenses of state institutions would have amounted to had the 1917 price level been in effect. Table XXVI, however, furnishes a rough estimate arrived at through the use of the index numbers given in Table XII. According to Table XXVI, about 65 per cent of the total growth of the current expenses of state prisons, hospitals and charitable institutions was. due to price inflation. In other words, in terms of 1917 prices the 1923 expenses of state institutions were only $2,532,500, or 21 per cent greater than those in 86 POST-WAR EXPANSION OF STATE EXPENDITURES 1917. This estimate of the real growth of institutional expense is probably somewhat exaggerated. In arriving at the above result, it has been assumed that prices applicable to miscellaneous expenditures followed the same trend as the general wholesale commodity price index of the United States Bureau of Labor, the average level of which showed a difference of only 2 per cent between the fiscal years 1917 and 1923. It is probable, however, that unit costs applicable to certain of the items classified as miscellaneous, such as medical and surgical expense and the operating costs of farms and gardens, increased more than 2 per cent during the period under review. It is likely that further understatement of the increase due to price influences arises from the fact that in equating the 1923 expenditures to a 1917 price basis, index numbers have been used which represent averages of the monthly index numbers obtaining during the year. It has already been pointed out that this procedure assumes that the state does not contract in advance for the commodities which it consumes and that the prices which it pays are those of the period in which the resulting expenditures are reported in the accounts of the comptroller. It also assumes that the state distributes its purchases evenly throughout the fiscal year. As previously indicated, it is immaterial as regards the fiscal year 1923 whether or not the above assumptions correspond to the actual facts, since prices showed very little variation throughout 1922 and 1923. During 1916 and 1917, however, prices were advancing rapidly and to the extent that the 1917 expenditures represent payments for items contracted for in advance or purchased mainly at the beginning of the fiscal year, the index numbers used in the present estimate do not reflect the full amount of increase attributable to price influences. The effect of monetary inflation can be computed more accurately as regards expenditures for personal service than as regards any other classification of expense, since more reliable and pertinent data are available. It is significant, therefore, that the real increase in personal service costs, after reducing them to the 1917 salary level, is only 10 per cent. It may consequently be concluded that over and above the increase due to price inflation, there was a real growth in the running expenses of state institutions during the period under review, and although the exact TABLE XXVI ANALYSIS OF CURRENT EXPENSES FOR CHARITIES, HOSPITALS AND CORRECTION, FISCAL YEARS 1917 AND 1923 Estimated Ratio Estimated Real Increase Per Cent 0 Classification Expenditures, Expenditures, 1917 to Expenditures, in Expendi- Increase(+) 1917 19923 1923 1923 in Terms tures, 1923 Decrease(-) Prices of 1917 Prices Over 1917 Personal service.......... $5,290,900 $9,111,100 64.0 $5,829,200 +$538,300 +10.2 M Food................... 3,490,000 4,020,700 100. 9 4,057,000 + 567,000 +16.2 Fuel, light and power..... 935,700 2,003,400 65.7 1,316,200 + 380,500 +40.6 Clothing.................. 542,400 717,600 77.6 556,800 + 14,400 + 2.7 Furniture and furnishings. 463,700 966,600 62.3 602,200 + 138,500 +29.9 m Traveling expense....... 152,800 229,700 56.7 130,200 - 22,500 -14.8 Repairs and alterations... 178,800 529,700 66.0 349,600 -+ 170,800 +95.5 Miscellaneous............ 1,127,400 1,919,400 97.6 1,873,300 + 745,900 +66.2 Total................ $12,181,700 $19,498,200.... $14,736,200 +$2,532,800 +20.8 88 POST-WAR EXPANSION OF STATE EXPENDITURES percentage of growth cannot be stated, it may safely be placed at somewhere between 10 and 20 per cent. Growth in Number of Inmates of State Institutions The main justification for the real as opposed to the nominal increase in institutional expense is found in the growth of the inmate population supported, the facts of which are set forth in Table XXVII. TABLE XXVII AVERAGE NUMBER OF INMATES OF STATE INSTITUTIONS, FISCAL YEARS 1917 AND 1923 Average Number of Inmates * 1917 1923 Per Per Per Cent 100,000 100,000 Increase(--) Increase(-) Number of Popu- Number of Popu- and and lation lation Decrease(-) Decrease(-) Prisons........ 6,468 64.9 6,172 57.1 -704 -10.9 Hospitals lor the insane.... Charitable insti 34,208 343.2 37,898 350.8 +3,690 +10.8 tut; ions...... 10,288 103.2 Total.... 50,964 511.3 11,855 109.7 55,925 517.6 +1,567 +4,961 +15.2 + 9.7 * Obtained from annual requests for appropriations as filed with legislative budget committee. It will be noted that not only was there an absolute increase of 10 per cent in the number of state dependents as between 1917 and 1923, but that the number of dependents per hundred thousand of population also increased. In 1923 there were 518 state dependents to every hundred thousand inhabitants as compared with 511 dependents per hundred thousand in 1917. By far the most numerous class of unfortunates supported by the state are the inmates of the various state hospitals for the insane. On June 30, 1923, there were 43,941 patients in institutions for the insane in New York State, of whom about 90 per cent were cared for in state hospitals. The records of the state hospital commission show a marked growth in the number of insanity cases during the past three decades. In 1890 there were 266 recorded cases to every hundred thousand inhabitants of the state. By the end of 1923 this ratio had risen to 408 per hundred thousand, an increase of 55 per cent.' SThirty-fifth Annual Report of State Hospital Commission, 1923, p. 145. CURRENT EXPENSES 89 On the basis of the data so far given, it cannot be stated definitely that the real growth of institutional costs as between 1917 and 1923 was entirely due to the increase in the number of state dependents. Probably a small part of this growth is attributable to the enforced reduction of expenditures in 1917, due to the difficulty of maintaining adequate working forces and making needed repairs and renewals in consequence of the war conditions then prevailing. Moreover, in view of the fact that the real growth in expense is estimated to have been somewhere between 10 and 20 per cent, whereas the increase in the number of inmates was only 10 per cent, the possibility of some falling off in operating efficiency is not precluded. Economy of Operation Were the various state institutions operated as economically in 1923 as they were in 1917? Such statistical evidence as can be obtained from official records suggests an affirmative answer to this question. Nearly half of the running expenses of state institutions consist of payments for salaries and wages. There is no indication of any padding of payrolls during the period under review. In 1917 the ratio of the average number of officers and employees to the average inmate population was one employee to every 5.73 inmates. In 1923 the ratio was one employee to every 5.67 inmates.1 In this connection, however, it must be borne in mind that owing to war conditions and the difficulty of filling positions at the low salary schedule then in force, state institutions were seriously undermanned in 1917,2 a condition which has since been only slightly improved. In 1917 the average annual maintenance cost for patients at state hospitals for the insane was $219 per capita. By 1923 maintenance costs had advanced to $328 per capita, an increase of about 50 per cent.3 During the same period the cost of living as measured by the index of the United States Bureau of Labor Statistics increased by about 42 per cent.4 The greater percentage increase in per capita maintenance costs, however, appears to be due not to lack of economy but to the circum1 rom annual requests for appropriations as filed with the legislative budget committee. 3 Twenty-Ninth Annual Report, 1918, State Hospital Commission, p. 74. 3Per capita maintenance costs obtained from annual reports of state hospital commission. 4 See note marked by asterisk under table vil. 90 POST-WAR EXPANSION OF STATE EXPENDITURES stance that the new price and wage level was somewhat tardy in exercising its effect upon institutional expenses. Between 1915 and 1917 the general cost of living increased by 17 per cent. The per capita cost of maintaining the inmates of state institutions, on the other hand, increased only 4 per cent. If the year 1915 instead of 1917 is taken as a base for comparison with 1923, it will be found that whereas the general cost of living experienced a rise of 64 per cent between the two years in question, the per capita expense of maintaining patients at state hospitals advanced only 56 per cent. The figures cited offer no support for the supposition that any part of the increase in the running expenses of state institutions was due to waste and extravagance. HIGHWAY MAINTENANCE During the fiscal year 1923, the state had under its care a system of state and county highways comprising 8,500 miles. Expenditures for the current maintenance, repair and reconstruction of this system aggregated $8,399,000, which represents an advance of $3,862,000, or 85 per cent, over the highway maintenance costs of 1917. 'The only available information as to the trend of maintenance costs is too incomplete and unsatisfactory to enable an estimate to be made of the extent to which this increase was the result of the higher cost of labor and materials. The index numbers given in Table XI apply only to the direct expenditures of the state highway department. A large amount of reconstruction work, however, is not performed directly by the department but is let out to contract. In 1923 the cost of contract work amounted to about a third of the total expenditures for highway maintenance and these costs are not covered by the index numbers given in Table XI. Moreover, the index numbers in question refer to average prices obtaining during the calendar year, whereas the expenditures to be investigated apply to the fiscal year ending June 30. This discrepancy makes a considerable difference, since the index numbers developed in Table XI show an increase of 26 per cent between the calendar years 1916 and 1917. If the state's 1923 highway maintenance expenditures are equated to the price level prevailing during the calendar year 1916, they are reduced to $6,493,200, which represents a growth of $1,957,000, or 43 per cent, over the expenditures CURRENT EXPENSES 91 for the fiscal year ended June 30, 1917. If, on the other hand, the 1923 disbursements are equated to the price basis of the calendar year 1917, they are reduced to $8,065,000, which represents an increase of $3,531,000, or 78 per cent, over the expenditures made during the year ending June 30, 1917. In order to be conservative, the latter procedure was followed in estimating the combined effect of price inflation upon governmental costs, but the first method leads to a result which is probably nearer the truth. Though it is extremely improbable that the actual volume of highway maintenance work performed in 1923 was 78 per cent greater than in 1917, nevertheless it will appear that an increase of this magnitude, large as it may seem, would not have been unjustified in view of the great expansion of the state's requirements. While there is no single criterion which will serve to measure the amount of repair and reconstruction work necessary on a given highway system, it is clear that such requirements are largely dependent upon five factors: (1) number of miles of highway to be maintained; (2) character of highway to be maintained, i.e., whether of durable or relatively short lived type; (3) proportion of total mileage which has reached or is approaching the end of its economic life; (4) number, weight and speed of vehicles using highways; and (5) previous maintenance policy. As regards New York State, all of these factors, with the exception of the second, underwent changes during the period under review which pointed to a large and legitimate increase in the volume of highway maintenance work to be done. Growth of Highway Mileage On April 1, 1917, there were 6,400 miles' of improved state and county highways outside of the corporate limits of cities which had been accepted by the state for maintenance. By January 1, 1923, the number of miles to be maintained had increased to 8,495,' which represents a growth of 33 per cent. This increase did not of course require a corresponding increase in maintenance costs. The amount of repair work on new highways is comparatively small. Moreover, in the present instance the cost of maintaining the additional mileage was somewhat reduced by 1 Report of State Commissioner of Highways, 1917, p. 57. 2 Report of State Commissioner of Highways, 1922, p. 36. 92 POST-WAR EXPANSION OF STATE EXPENDITURES virtue of the fact that over half of the highways built after 1917 consisted of concrete or brick roads which are relatively durable types. Brick and concrete roads comprised only 10 per cent of the total mileage of highways constructed prior to 1917.1 Increase in Average Age of Highways Probably the most important reason for the growth of highway maintenance expenditures as between 1917 and 1923 was the large increase in the number of miles of highway which were approaching or had approached the end of their economic life. Even when properly maintained, the volume of repair work TABLE XXVIII MILES OF NEW CONSTRUCTION CONTRACTS CLASSIFIED ACCORDING TO YEAR OF AWARD * Year Miles Year Miles Year il'iles Year Miles 1898.. 11.96 1904.. 206.96 1910.. 479.66 1916.. 654.13 1899.. 12.78 1905........ 1911.. 926.70 1917.. 93.25 1900.. 28.26 1906.. 658.77 1912.. 1,308.75 1918...61 1901.. 115.41 1907.. 448.23 1913.. 93.33 1919.. 259.56 1902.. 184.13 1908.. 471.89 1914.. 1,061.04 1920.. 98.06 1903.. 130.57 1909.. 13.59 1915.. 1,048.13 1921.. 594.26 1922.. 496.99 * Report of State Commissioner of Highways, 1922, p. 14. required on a given highway grows larger as the age of the highway increases. Finally a point is reached where it becomes more profitable to build a new pavement than to attempt to maintain the old one. It is obvious, therefore, that the average age of a highway system, or the proportion of the total mileage which is approaching or has reached its limit of economic life, has an important bearing, not only upon requirements for reconstruction and resurfacing but also upon the volume of current repairs. That the state's requirements for highway repairs and reconstruction were vastly greater in 1923 than in 1917 is brought out by Table XXVIII, which gives the mileage of new highway construction contracted for in each successive year since 1898. About 80 per cent of the state's highway mileage consists of waterbound-macadam and bituminous-macadam roads.2 The reasonable life of such roads varies from six to fifteen years, depending upon the volume and nature of the traffic to which 1 Ii., p. 14. Report of Stte Commissioner of Highways, 1922, p. 14. CURRENT EXPENSES 93 they are subjected.' On the above basis, most of the highways initially contracted for during the years from 1901 to 1910, inclusive, had reached or were approaching their limit of economic life by 1917. It will be seen from Table XXVIII that the highways falling within this group totaled some 2,700 miles. By the year 1923 the highways contracted for during the period from 1907 to 1916, inclusive, had reached or were approaching the point where reconstruction was called for, and these highways comprised about 6,500 miles. It is thus apparent that the mileage of highways which had reached or were approaching their limit of economic life was considerably more than twice as great in 1923 as in 1917. Increase in Volume of Traffic That the cost of maintaining highways increases with the number, weight and speed of the vehicles passing over them is a fact which scarcely requires demonstration. Statistics kept in relation to selected New York State highways during the years from 1918 to 1922, inclusive, show an average annual maintenance cost of $543 per mile for sections of road where the number of vehicles passing a given point was less than 500 per day. For sections where the number of vehicles passing exceeded 2,000 per day, the average annual maintenance cost was $595 per mile.2 The tremendous growth between 1917 and 1923 in the volume of traffic passing over the state highways is indicated by the increase in the number of motor vehicle registrations. In 1917 there were 411,567 such registrations." By 1923 this figure had expanded to 1,237,627.4 In other words, during the six year period in question the number of motor vehicles in the state increased by over 200 per cent. Moreover, the number of motor trucks and buses, which because of their weight cause more damage to the roads than any other type of vehicle, experienced a growth of 262 per cent. Deferred Maintenance The final factor which must be borne in mind in comparing the state's 1923 highway maintenance costs with those of 1917 is 1 Harger, Rural Highway Parements. MJainlenancc and lRecoislruiH ion.l New York, 1924, p. 414. 2 Harger, op. cit., p. 403. a Report of the Commissioner of Hi-ghways, 1922, p. 46. 4Report of State Tax Commissioner, 1923, p. 36. 94 POST-WAR EXPANSION OF STATE EXPENDITURES the comparative neglect of the highways during the war. Owing to the difficulty of procuring labor and materials in consequence of the disorganized conditions then prevailing, the state highways were not adequately maintained in 1917 nor for several years thereafter. During some of the war years even the necessary amount of oil to protect the old waterbound macadam roads was unobtainable, and as a consequence there had been a progressive deterioration.' A rough indication of the extent of the under-maintenance prevailing during and immediately after the war is furnished by Table XXIX, which shows the number of miles of highway given light surface treatment for the calendar years 1915 to 1922, inclusive. TABLE XXIX MILES OF HIGHWAY GIVEN SURFACE TREATMENT * Number of Miles Per Cent Year Treated of 1915 1915.................. 2,086 100.0 1916.................. 1,869 89.6 1917.................... 1,187 56.9 1918.................... 1,147 55.0 1919.................. 1,029 49.3 1920.................... 776 37.2 1921.................. 1,938 92.9 1922.................... 1,828 87.6 * Figures obtained from Report of State Commissioner of Highways, 1922, p. 39. The discussion of highway maintenance costs may be concluded with the observation that there is no evidence to indicate that any part of the increase in this item of expense was due to waste and extravagance. Even had the growth in physical volume of work performed been as high as 78 per cent, which seems unlikely, it would nevertheless have been amply justified on the basis of an increase of 33 per cent in the highway mileage maintained, a doubling of the number of miles of highway which had reached or were approaching the end of their economic life, a tripling of the volume of motor vehicle traffic and the extensive neglect of the highway system during the war and post-war period. CANAL -MAINTENANCE The classification canal maintenance comprises the expense of operating the state system of canals, including the repair, alteration and replacement of canal structures and equipment and the 1 Report of State Commissioner of Highways, 1921, p. 10. CURRENT EXPENSES 95 cost of dredging operations. It will be seen from Table XXV that this item of expense amounted to $3,330,800 in 1923, which was 102 per cent greater than the comparable figure for 1917. Had the 1917 price level remained in effect, the cost of operating the state canals in 1923 would have been approximately $2,608,100.1 The real increase in canal maintenance as between 1917 and 1923 is therefore about $963,000, or 60 per cent. The main reason for this expansion was the fact that the canal system operated in 1923 was an entirely different one from the system operated in 1917. The so-called barge canal was opened for the first time, throughout its entire length, in the spring of 1918. It comprised the improved Erie, Champlain, Oswego and Cayuga-Seneca Canals, these waterways having been enlarged and reconstructed under bond issues approved by the people in 1903, 1909 and 1915. There is no common basis of comparison between the operating costs of the old and new canal systems. The new canal is wider and deeper and has a much greater carrying capacity than the old one; it likewise involves a much greater investment. As of July 1, 1923, capitalized expenditures for barge canal construction aggregated more than $165,000,000. This sum includes the cost of expensive terminal facilities such as harbors, docks, warehouses and grain elevators, which have been provided for the various municipalities located along the route of the canal. It is natural, therefore, that the cost of operating and maintaining the barge canal should be greater than that of the old canal system. Another consideration must be borne in mind before passing judgment on the increase in expenditures for canal maintenance. The old Erie Canal was open to navigation only for about 185 to 200 days out of the year. In 1917 it was open for a period of 185 days.2 During 1923, on the other hand, the new Barge Canal was open to navigation for a period of 295 days.3 Viewed from the standpoint of the improved service offered, there can be no question as to the legitimacy of the increase in canal maintenance expenditures. From the standpoint of the utilization which has thus far been made of the improved service, however, there is room for honest doubt as to whether the 1 The derivation of this estimate is shown in appendix iv. 2 Report of Superintendent of Public Works on Canals, 1922, p. 86. 3 Legislative Manual, New York, 1924, p. 705. 96 POST-WAR EXPANSION OF STATE EXPENDITURES increased expenditures are justified. In 1923 the total movement of freight on New York State canals aggregated about 2,573,000 tons.' This was practically double the tonnage carried in 1917, but that year furnishes a poor basis for comparison, since canal traffic was then approaching its lowest ebb. The tonnage carried on the new canal system in 1923 was no greater than that carried on the old system in 1913, and it represented only about twofifths of the tonnage carried on the old system in 1880 when canal traffic was at a maximum. The barge canal project was approved by the voters in 1903, and having been constructed, there can be no difference of opinion as to the wisdom of maintaining it adequately. Whether the project itself was wisely conceived is a debatable question, but this is a subject which properly belongs to a period prior to the one now under consideration. EDUCATIONAL EXPENSE About seven-eighths of the state's total disbursements for educational purposes consist of grants to localities for the support of common schools. These grants have been fully discussed in the chapter on fixed charges and contributions. The state, however, spends large sums for education on its own account in maintaining a state department of education, a state college for teachers, ten state normal schools and various agricultural schools and colleges. As shown by Table XXV the current cost of conducting these several activities in 1923 was $5,000,000, which was 66 per cent greater than the corresponding costs of 1917. When it is recalled that as between the same two years, the expenditures for common schools experienced an increase of 170 per cent, it will be seen that the growth of the state's own educational expenses was exceedingly modest. Reduced to terms of 1917 prices, the cost of carrying on the state's direct educational activities in 1923 is estimated at $3,555,000," indicating an increase attributable to non-monetary factors of about $483,000, or 16 per cent. Little information is available as to the specific causes for this increase, but it does not seem unwarranted when it is considered that the real growth in expenditures for common schools during the period under review was 65 per cent. 1 Report of Surprintendent of Public Works on Canals, 1922, p. 174.!For derivation of this estimate see appendix v. CHAPTER XIII CURRENT EXPENSES-CONCLUDED In the preceding chapter an explanation was given of the principal causes lying back of the growth of current expenses incident to operating the various state prisons, hospitals and charitable institutions, maintaining the state highway and canal systems and carrying on the state's direct educational activities. The above functions were responsible for about 78 per cent of the total increase in the running costs of government as between 1917 and 1923. Reviewing the different circumstances which were instrumental in bringing about this portion of the increase, it will be recalled that they were for the most part unavoidable. Aside from price inflation the two principal causes of growth were the larger number of dependents to be supported at state institutions and heavier highway maintenance requirements in consequence of a greater mileage of highways to be maintained, a larger volume of traffic, and an increase in the number of miles of highway which had reached or were approaching the age where reconstruction became profitable. The growth in expenditures for canal maintenance was in a sense avoidable, since it represents the cost of a different and more expensive kind of canal service than was furnished in 1917. Nevertheless, since the barge canal had already been decided upon and was constructed prior to 1917, the increased expense incident to its maintenance was unavoidable as regards the period covered by the present study. Ordinary Departmental Expenditures If any portion of the state's increased current expenses comprised items which were unnecessary or avoidable, such items must be sought among the expenditures of the functions still to be investigated. These functions are general government, regulation, development and conservation, recreation and protection. In 1923 the combined expenditures of the above functions for current purposes amounted to $17,133,700 which was $4,204,700 [971 TABLE XXX 0 ANALYSIS OF INCREASE IN CURRENT EXPENSES PERTAINING TO FUNCTIONS OF GENERAL GOVERNMENT, REGULATION, DEVELOPMENT AND CONSERVATION, RECREATION AND PROTECTION Fiscal Year 1923 Over 1917 Ratio Estimated Real Per Cent Classification Expenditures, Expenditures, 1917 to Expenditures Increase (--) Increase(+) 1917 1923 1923 1923 in Terms or or Prices* of 1917 Prices Decrease(-) Decrease(-) Personal service........... $7,386,600 $11,322,700 82.0 $9,289,300 +$1,902,700 +25.8 0 Traveling expense.......... 496,500 941,000 56.7 533,500 + 37,000 + 7.4 Printing and advertising.... 1,296,700 809,800 85.7 694,000 - 602,700 -46.4 Communication............ 211,000 417,700 93.3 389,700 + 178,700 +84.7 Building repairs............ 106,800 212300 66.0 140,100 + 33,300 +31.2 m Fuel, light and power....... 61,800 129,400 65.7 85,000 + 23,200 +37.5 Food...................... 30,000 77,000 100.9 77,700 + 47,700 +159.0 Miscellaneous.............. 3,339,600 3,223,800 97.6 3,146,400 - 193,200 - 5.8 Total................. $12,929,000 $17,133,700 $14,355,700 +$1,426,700 +11.0 * For index numbers used in deflating expenditures to 1915 prices, see table xv. 02 CURRENT EXPENSES-CONCLUDED 99 or 33 per cent greater than the corresponding expenditures for 1917. Table XXX classifies these expenditures according to the specific commodities and services to which they apply, reduces the 1923 expenditures to terms of 1917 prices and presents an estimate of the real increase in the disbursement for each item, after making adjustment for the decline in the purchasing power of the dollar. It will be noted from Table XXX that the estimated increase in current expenditures for general government, regulation, development and conservation, recreation and protection, after eliminating the effects of price inflation is only $1,427,000, or 11 per cent. For reasons already stated this estimate, if anything, has been placed too high, but even without making allowance for possible overstatement, the increase shown furnishes little cause for alarm. The population of the state expanded by 8 per cent between 1917 and 1923 and some growth of expenditures was, therefore, to be expected.' Further information, however, is required before passing final judgment upon the legitimacy of the aggregate increase now being considered. In reality it represents a composite result in which increases have been partially offset by savings. Some of the specific increases may have been unwarranted. On the other hand the state should receive due credit for its bona fide economies. Not all of the savings, however, belong to this class. During the period under review the state was relieved of heavy items of expense, through the discontinuance of certain activities no longer necessary. At the same time new needs resulted in the creation of certain new governmental agencies. The present chapter will be devoted to a brief review of the nature and cost of the more important of these discontinued and newly created agencies, after which the state's expenditures for each of the commodities and services enumerated in Table XXX will be subjected to analysis for the purpose of determining whether or not the ordinary departments of state government have gained or lost in efficiency. Discontinued Activities The total savings realized through the discontinuance of activities carried on in 1917 amount to approximately $2,000,000. 1 Annual Report of Comptroller, 1923, p. 248. 100 POST-WAR EXPANSION OF STATE EXPENDITURES Of this sum over $1,000,000 applies to the protective function and results from a reduction in the cost of maintaining the national guard. In 1917 the country was at war and the state expended approximately $1,175,000 in connection with the mobilization, encampment and field exercises of its state troops. In 1923 owing both to the return of peace time conditions and to the fact that the national guard had become federalized,' expenditures for mobilization, encampment and field exercises were practically negligible. Expenditures for general government were reduced by some $534,000 through the abolition of the state excise department and the office of superintendent of elections. With the advent of prohibition the excise department became superfluous and it was abolished in April, 1921.2 The office of superintendent of elections was discontinued in July of the same year.3 In 1917, these two departments had together about 280 employees. The only other abandoned activity of any importance is represented by the transfer to the federal government of the quarantine station which the state formerly maintained at the port of New York. In 1917 the operation of this station required about 170 employees and entailed an expenditure of approximately $183,000 which was charged to the regulative function. The state legislature had as early as 1916 created a commission to arrange for this transfer but it was not finally consummated until six years later.4 Coincident with the assumption of control by the federal government, the office of health officer of the port of New York was abolished. New Governmental Agencies The savings enumerated in the preceding section were to a large extent absorbed by the cost of new governmental agencies. The most costly of these was the department of state police. This department was established in April, 1917,5 but the resulting expense was not reflected in the state accounts until the following fiscal year. In 1923 the new department had 380 employees and its total expenditures were in excess of one million 1 Ch. 644, laws of 1917. SCh. 155, laws of 1921. 3 Ch. 715, laws of 1921. Ch. 342, laws cof 1916, and ch. 956, laws of 1920. r Ch. 101, laws of 1917. CURRENT EXPENSES-CONCLUDED 101 dollars per annum. The department of state police is classified as a protective function and it will be noted from Table XXV that the expenditures of this function experienced a decline between 1917 and 1923 despite the addition of a new activity. This decrease was made possible through the large reduction in the cost of maintaining the national guard. The income tax bureau organized to administer the personal income tax law enacted in 1919,1 represents another agency created subsequent to 1917. As at the close of 1923 this bureau had 392 employees and its total expenses for the year amounted to $777,000,2 which is charged to the function of general government on Table XXV. In this connection, however, it should be borne in mind that in 1923 the income tax bureau collected nearly $38,000,000 in personal income taxes. The only other new unit of any consequence added between 1917 and 1923 is the motion picture commission which was established in 1921.3 During the fiscal year 1923 the expenditures of this commission aggregated $84,000 which is included as an expense of the regulative function on Table XXV. Administrative Efficiency It is now proposed to consider in turn the state's expenditures for each of the commodities and services enumerated in Table XXX for the purpose of ascertaining the underlying reasons for the various increases and decreases and of determining whether the ordinary departments of state government are as efficiently administered as heretofore. Personal Service Salaries and wages comprise about two-thirds of the total expenditures of the above departments. It will be seen from Table XXX that after making allowance for the increase in salary ratings, the real growth in personal service expenditures as between 1917 and 1923 is $1,902,700, or 26 per cent. In order to arrive at a proper conclusion relative to the validity of this increase, it is essential to know how many new employees were added to the state payrolls during the years under investigation and whether or not these new employees were necessary. 1 Ch. 627, laws of 1919. 2 P Report of State Tax Commission, 1923, p. 42. 3 Ch. 715, laws of 1921. 102 POST-WAR EXPANSION OF STATE EXPENDITURES The only comprehensive information concerning the increase in the state's working force is supplied by the number of positions listed in general budget appropriations. As between 1917 and 1923 some 970 new positions were added to the budget in respect to the departments now under review. The net increase ascribable to the establishment of new governmental agencies after subtracting the number of positions abolished through the discontinuance of activities is about 340, leaving an increase of 630 positions to be accounted for on the basis of the expansion of old departments. Table XXXI shows how this latter increase was distributed among various activities. Growth of Tax Department It will be noted that the bulk of the new positions was confined to two activities, administration and health. The expansion of the administrative arm is due almost entirely to the additional number of employees required by the tax department. In 1917 the activities now carried on by this unit were divided among several offices. In July, 1921, however, the tax department was reorganized and all tax activities were consolidated under its jurisdiction.' Aside from the new income tax bureau, the number of tax department positions provided by the appropriations currently in force in 1923 was about 585 which represented a gain of about 310 over the number of employees provided to carry on the corresponding activities in 1917. All of this increase was legitimate and may readily be accounted for. There was an apparent growth of about 150 employees in the transfer tax bureau. This incirease arose from the fact that prior to July, 1921, the remuneration of surrogates, appraisers and their assistants in connection with the administration of the inheritance tax was not paid out of funds appropriated by the legislature, but was simply withheld by the comptroller out of inheritance tax collections. Beginning with the date mentioned, however, the positions in question were provided for in the budget in the same manner as other state positions.2 The motor vehicle bureau of the tax department added about 105 employees, which represents a doubling of the force required in 1917. In this connection, however, it must be remembered Ch. 90, laws of 1920. Ch. -147, laws of 1921. CURRENT EXPENSES-CONCLUDED 103 that the output of this bureau as measured by the number of automobile registrations more than tripled between 1917 and 1923. The combined increase for all other bureaus of the tax department was about 50 employees, a growth of 35 per cent over 1917. There can be no doubt as to the reasonableness of this increase in view of the fact that a new tax on business corporations TABLE XXXI ANALYSIS OF INCREASE, 1923 OVER 1917, IN NUMBER OF REGULAR POSITIONS PERTAINING TO FUNCTIONS OF GENERAL GOVERNMENT, REGULATION, DEVELOPMENT AND CONSERVATION, RECREATION AND PROTECTION * (Excluding Employees of New or Discontinued Units) Increase(+) Activity 1917 1923 Decrease(-) General government Executive..................... 27 26 - 1 Legislative.................... 448 452 + 4 Judicial....................... 219 225 + 6 Administrative.................. 977 1,321 +344 Regulation Health...................... 229 440 +211 Labor...................... 660 591 - 69 Public utilities.................. 150 236 + 86 Banks and insurance companies.. 241 281 + 40 Miscellaneous.................. 16 32 + 16 Development and conservation...... 662 561 -101 Protection of life and property...... 98 114 + 16 Recreation......................... 101 178 + 77 Total...................... 3,828 4,457 +629 SBased on data supplied by secretary of legislative budget commnittee concerning number of positions provided for in general budget appropriations. became effective in the fiscal year 1918 necessitating the auditing of thousands of additional corporation returns.- Moreover, between 1917 and 1923, tax receipts of the state, the bulk of which are collected by the tax department, increased by over 100 per cent. Expansion of Health Activities As shown by Table XXXI, the number of employees engaged in public health activities practically doubled during the period under review. The justification for this growth was an expansion both in the variety and volume of health services rendered. Of 1 Ch. 720, laws of 1917. 104 POST-WAR EXPANSION OF STATE EXPENDITURES the 211 new positions created between 1917 and 1923, about 160 pertained to the division of laboratories and research of the health department and to the state institute for the study of malignant disease. The growth in the staff of the state laboratories was 145 per cent but this was more than matched by an increase of output as is indicated by the expansion of one of the most important of laboratory activities, diagnostic examinations. Nearly four times as many diagnostic examinations were made in 1923 as were made in 1917.1 Much of the above increase was the result of a campaign to suppress venereal disease, inaugurated shortly after this country entered the war. In furtherance of this campaign the legislature in 1918 provided for the creation of a bureau of venereal diseases. Some idea of the present service rendered by the state laboratories in the fight against social disease may be gained from the fact that during the last quarter of the fiscal year 1923, they made 42,500 diagnostic examinations of specimens, besides producing and distributing large quantities of chemical preparations. The health department proper, exclusive of the division of laboratories and research added about fifty employees during the period under review. An undue allotment of space would have to be given to health department activities were it attempted to enumerate all of the new services which accompanied the above increase. A large proportion of them were furnished by the new division of maternity, infancy and child hygiene, created by the Davenport-Moore Act in 1922.3 This division absorbed the functions of the former division of child hygiene and has for its object the lowering of the mortality and morbidity rates of mothers and children. Its activities include publicity and education on the pre-natal care of children, examination of prospective mothers and consultant nursing service at child hygiene stations. Miscellaneous Increases in NuYmber of State Employees As regards changes in the number of employees engaged in the other activities enumerated on Table XXXI there is no 1 Based on statistics for last three months of fiscal years 1917 and 1923, respectively, as reportedh in Health Mote. Monthly Bulletin of the New York State Department of Health, July and August, 1917, and August, 1923. 2 Chi. 342, laws of 1918. a Ch. 403, laws of 1922. CURRENT EXPENSES-CONCLUDED 105 indication that any of the increases listed were unwarranted. Thus, there was an increase of 57 per cent in the number of positions pertaining to the public service commission, but the number of formal cases disposed of by that body in 1923 was over five times as great as the number disposed of in 1917.1 There was an increase of 77 in the number of employees attached to state parks. This increase was confined in its entirety to Palisades Interstate Park and the Niagara State Reservation and consisted of additional patrolmen and watchmen required to take care of the great increase in motor tourists visiting those places. In concluding the discussion of personal service expenditures, attention should be called to the reduction in the number of positions pertaining to the state department of labor and the conservation commission. The large decrease in the personnel of the conservation, commission was made possible through the transfer of some of its duties to the new department of state police. Traveling Expense As indicated by Table XXX the increase in traveling expense between 1917 and 1923, after allowing for price advances, was $37,000, or 7 per cent. In order to understand the significance of this increase, it must be remembered that the new department of state police augmented the state's 1923 traveling expenses by $332,000, which was equivalent to approximately $188,000 in terms of 1917 prices. On the other hand, the state was relieved of some $50,000 of traveling expense through the abolition of the excise department. The net increase in traveling expense as the result of new activities was, therefore, about $138,000 and since the combined increase for all of the ordinary state departments was only $37,000, it is apparent that the old departments effected some saving during the period under review. Printing and Advertising The most striking economy realized by the state applies to printing and advertising. It will be seen from Table XXX that when the state's 1923 printing and advertising costs are reduced 1 Report of Public Service Commission, 1923, vol. I, p. 9; and 1917, vol. 1, p. viii. 106 POST-WAR EXPANSION OF STATE EXPENDITURES to 1917 prices, the decrease in expenditures between 1917 and 1923 amounts to more than $600,000. This reduction is the result of a series of reforms in the method of handling state printing. A new printing law which went into effect May 28, 1917, reduced the quantities of many department reports, authorized uniform standards for blanks and other office stationery and conferred greater powers on the state printing board.' In 1921 an even more radical change was made in the printing law. The printing board was abolished and its powers were vested in the board of estimate and control. This board was empowered to determine the number of reports to be printed and issued by each state officer, department, commission, institution and board, the nature and amount of materials to be incorporated in such reports, the manner of distributing the same, and the form, contents and frequency of every publication, except judicial and legislative printing. Another law enacted in 1921, eliminated the publication of session laws in newspapers.3 This act became effective December 1, 1921, and resulted in a saving to the state of several hundred thousands of dollars per annum. Communication In terms of 1917 prices the ordinary state departments expended about $400,000 for communication in 1923, which was $179,000 more than the amount expended in 1917. This growth was due mainly to the increase in postage requirements, resulting from the introduction of the personal income tax, the tax on business corporations and the increase of 200 per cent in the number of licenses to be issued to motor vehicle owners. Other Items of Current Expense The increases in the remaining items of current expense are too small to warrant discussion. It may, however, be said in passing that the increase of 159 per cent in expenditures for food is entirely attributable to the establishment of the department of state police. The decrease in miscellaneous expenditures was due to the reduction in the cost of maintaining the national guard, to which reference has already been made. 1Ch. 667, laws of 1917. 2 Ch. 337, laws of 1921. S Ch. 407, laws of 1921. CURRENT EXPENSES-CONCLUDED 107 Summary The increase between 1917 and 1923 in the current expenses of the ordinary state departments, that is, those comprehended under the functions of general government, regulation, development and conservation, recreation and protection was $4,204,700 or 33 per cent. The real increase obtained after making adjustment for the influence of price and wage changes was only $1,427,000 or 11 per cent. In view of the smallness of this growth, it may appear that a disproportionate amount of space has been devoted to explaining it. The increase in question, however, possesses unusual significance in that it is the only one of the many considered in which waste and extravagance might have played an important part. It is clear from the evidence furnished in the present chapter that the state was not less efficient in 1923 than it was in 1917, and that in certain respects it was perhaps more efficient. The real causes for the increase in the current expenses of the ordinary state departments were the creation of new governmental agencies and expansion in the variety and volume of the services rendered by already existing agencies. CHAPTER XIV GENERAL SUMMARY AND CONCLUSION The analysis which has been completed reveals the essential absurdity, at least as regards New York State, of some of the explanations commonly current concerning the recent rise of governmental costs. It is clear that the post-war expansion of expenditures was not due to waste and extravagance. This, however, should not be taken to imply that the state government has attained a maximum degree of efficiency but merely that it is no less efficient than it was before the war. It may be stated with equal certainty that the post-war rise in the cost of government in New York State was in no way connected with the too-liberal issuance of tax-free bonds. During the entire six-year period from 1918 to 1923, inclusive, the state sold only one issue of bonds amounting to $31,800,000, which represented less than a quarter of the amount of bonds sold during the four years from 1914 to 1917. Unwise and ill-considered construction projects were likewise not factors in bringing about the increase. It will be recalled that in no year subsequent to 1917 did the actual physical volume of public construction ever equal or exceed that of any of the eight years from 1909 to 1916, inclusive. Finally, there is no reasonable basis for attaching particular significance to the expansion of the state's regulatory activities. The cost of these activities in 1923 amounted to less than 4 per cent of the total cost of government for that year. Moreover, regulatory activities absorbed a smaller proportion of the taxpayer's dollar in '1923 than was the case in 1917. What, then, were the real influences behind the advance of governmental costs between 1917 and 1923? As an aid to the answering of this question, a summary is presented in Table XXXII of the principal items of increase brought to light in the course of the investigation. Generally speaking, these increases fall into three main groups. [108] GENERAL SUMMARY AND CONCLUSION 109 1. Nominal additions to the state's expenditures, that is additions which did not involve any real increase in the commodities and services which the state consumed. 2. Compulsory additions, that is elements of added cost which were imposed upon the state by developments and conditions over which it had no control and in respect of which there was little room for choice. TABLE XXXII SUMMARY OF PRINCIPAL INCREASES IN STATE EXPENDITURES, FISCAL YEAR 1923 OVER 1917 Increase attributable to price inflation..................... $31,295,000 Increases due to non-price factors * Fixed charges and contributions: Increased grants to localities: Support of common schools........... $16,212,000 Highway subsidies................... 1,473,000 Indemnities for tubercular cattle......... 3,025,000 Relief of war veterans................... 964,000 Reduction in judgments, damages, etc.... -1,144,000 N et increase...................................... 20,530,000 Capital outlays: Due to the financing from revenues of projects formerly financed from bonds................................ 9,240,000 Debt service: Due to increase in volume of public debt for canals, highways, and forest preserve....................... 540,000 Current expenses: State institutions...................... $2,533,000 Highway maintenance.................. 3,531,000 Canal maintenance..................... 963,000 Educational expense................... 483,000 Ordinary state departments............. 1,427,000 Total.......................................... 8,937,000 Total increase in expenditures for general purposes........ $70,542,000 * Equated to 1917 price level. 3. Optional increases, that is new expenditures which were not, strictly speaking, necessary and in respect of which the state might have exercised some option. Nominal Expansion Two of the largest items listed in Table XXXII may be classed as merely nominal. They are the increases attributable respectively to price inflation and to the more extensive reliance upon current revenues for the financing of capital improvements. 110 POST-WAR EXPANSION OF STATE EXPENDITURES On the basis of an estimate which probably understates the actual facts, it has been calculated that $31,295,000, or 44 per cent, of the aggregate growth of expenditures between 1917 and 1923 was due to the advance of prices and wages. This element of increase does not represent any real growth in the volume of commodities and services consumed by the state, but simply reflects the shrinkage of the monetary unit in terms of which such commodities and services are measured. The increase ascribable to the more extensive reliance upon current revenues for the financing of capital outlays has been estimated at approximately $9,240,000. Since the physical volume of capital projects was smaller in 1923 than in 1917, this item simply measures the extent to which the state has shifted from a credit to a cash basis in the matter of paying for its public improvements. If there has been anything abnormal about the post-war increase in the cost of state government in New York, it is fully explained by the purely nominal increases which have just been discussed. Together they account for 57 per cent of the total growth of expenditure between 1917 and 1923. It has already been pointed out that, if allowance be made for the reduction in the purchasing power of the dollar, the increase in expenditures between 1915 and 1923 merely continues the normal rate of growth which characterized the three decades preceding the World War. If allowance be further made for the larger proportion of capital outlays financed from current revenues, it will appear that the actual rate of growth since 1915 has been considerably less than the pre-war normal. Compulsory Expenditures During the period under review the population of the state increased by 8 per cent. There was a growth of 20 per cent in average daily school attendance; the inmate population of state prisons, hospitals and charitable institutions increased by 10 per cent. The number of motor vehicles registered in the state approximately tripled. There was a substantial increase in the mileage of highways which had reached or were approaching their limit of economic life. An abnormal situation existed as a result of the war. Sick and disabled veterans were not GENERAL SUMMARY AND CONCLUSION ill adequately provided for by the federal government and the state had to come to their aid. Moreover, there had been a partial suspension of construction and maintenance activities during the war years and with the return of more normal conditions the resulting deficiencies had to be made up. Finally, new revenues were needed to meet the rapid rise of expenditures; the collection of these new revenues entailed additional expense. The developments enumerated above called for greater expenditures which the state could not have avoided without lowering its standards of service. It is difficult to estimate the aggregate amount of compulsory increases, since they are not always separable from increases in respect to which the state might have exercised some option. Moreover, some of the increases listed in Table XXXII are net results in which increases have been partially offset by savings. Nevertheless, it is probably conservative to say that at least $16,000,000, or 22 per cent, of the total advance in state disbursements between 1917 and 1923 was the product of conditions over which the state had no control. In this sum has been included approximately $10,000,000 of the increase in state aid for local education, which may be taken to represent the state's share of the additional costs resulting from the growth of school attendance and the necessity of making up for the falling off in school construction during the war. There also has been included the increase of $964,000, representing relief payments to disabled veterans; the advance of $2,533,000 in the operating expenses of state institutions; about $2,000,000 of the aggregate growth in highway maintenance costs; and $500,000 of the total increase in the current expenses of the ordinary state's departments. This latter item reflects the cost at 1917 prices of the enlarged activities of the tax department. Optional Increases The total amount of additional expenditure in respect of which the state might have exercised some option is estimated roughly at $14,000,000. About $6,000,000 of this sum represents the estimated share assumed by the state in the cost of a more expensive kind of common school education. The cost of more adequate highway facilities, including more liberal grants to localities, has 112 POST-WAR EXPANSION OF STATE EXPENDITURES been placed at $3,000,000. Other items which have been classified as optional are the cost of indemnities for tubercular cattle, the increase of $970,000 in the cost of canal maintenance and the sum of $700,000 representing the estimated cost at 1917 prices of the new department of state police. It thus appears that the only additions to the budget concerning which there was room for choice were in the main confined to five activities, education, highways, health, canals and protection. Public Expenditure and Taxable Capacity Before passing final judgment on the increases which have just been analyzed, it is pertinent to inquire whether the state is economically able to support the additional fiscal burden which these increases entail. In a democracy it is for the citizenship to decide what collective wants the state shall satisfy and how much shall be spent in the satisfaction of such wants. Nevertheless, just as an individual must adjust his scale of living to the size of his income, so too the citizens of a state must keep their collective wants within the bounds set by the limits of taxable capacity. That there are limits to taxable capacity is forcibly illustrated by the experience of the allied powers in attempting to collect the original German indemnity. One limit may be said to have been reached when taxes become so onerous as to slow down the rate of industrial progress. The fear is sometimes expressed that this point has been reached in New York State. Should such actually be the case, it would of course be irrelevant to reply that the sums raised by taxation are being legitimately spent for worthy and useful purposes. The situation would none the less call for a general reduction of expenditure. The test of whether the present burden of taxes is in fact acting as a check upon the economic development of the state is furnished by statistics of the rate of growth of private income. The 1926 report of the New York State Joint Legislative Committee on Taxation and Retrenchment contains estimates of the aggregate private income of the inhabitants of the state covering selected years from 1850 to 1923, inclusive. Figures have also been compiled showing the average annual rates of growth of per capita income measured in terms of 1913 purchasing power. GENERAL SUMMARY AND CONCLUSION 113 These figures show that despite the high level of taxes prevailing during the four years from 1919 to 1923, inclusive, there was nevertheless no falling off in the rate of growth of per capita income during this period. In fact, barring the decade between 1880 and 1890, private income grew at a faster rate during those four years than at any previous time in the history of the state.' In this connection it is worth noting that the estimated private income of the people of the state of New York, in terms of 1917 dollars, increased by over $700,000,000 as between 1917 and 1923. By comparison, the aggregate optional increase in state expenditures, which during the same period amounted to less than $15,000,000, does not seem excessive. In view of the foregoing facts, it may safely be concluded that there is no occasion for viewing the post-war expansion of expenditures with alarm. Most of the increase was necessary in the sense that it could not have been avoided without lowering pre-existing standards of service. The optional portion of the increase does not seem extravagant when considered in relation to the growth of private income. Finally, regardless of the causes of increased expenditures, the resulting addition to the burden of taxation is apparently well within the limits of the state's taxable capacity. 1 Report of Special Joint Committee on Taxation and Retrenchment, State Expenditures, Taxz Burden and Wealth, New York State leg. doc. no. 68, 1926, ch. v. APPENDIX I GOVERNMENTAL EXPENDITURES, 1903-1922, NATIONAL GOVERNMENT, 146 SELECTED MUNICIPALITIES, 48 STATES AND NEW YORK STATE 146 Selected Year National * Municipalities ** 48 States t New York State t 1903.... $517,006,127 $514,189,206 $185,764,202 $22,409,019 1904.... 583,659,900 1905.... 567,278,914 561,772,857 1906.... 570,202,278 1907.... 579,128,842 691,071,411 1908.... 659,196,320 1909.... 693,743,885 761,562,037 1910.... 693,617,065 1911.... 691,201,512 863,996,528 1912.... 689,881,334 1913.... 724,511,963 912,390,262 382,551,199 67,280,410 1914.... 735,081,431 1915.... 760,586,802 996,061,502 494,907,084 81,497,929 1916.... 741,996,727 510,134,299 81,461,640 1917.... 2,086,042,104 1,007,290,346 517,503,220 77,284,938 1918.... 13,791,907,895 565,485,937 84,951,071 1919.... 18,952,141,180 1,113,599,879 640,403,134 90,377,362 1920.... 6,141,745,240 1921.... 4,468,713,469 1922.... 3,195,684,847 1,984,322,234 1,280,319,931. 141,871,167 * The expenditures here reported are so-called " ordinary expenditures " as compiled by the Treasury Department on the basis of warrants issued. See Treasury Annual Report, 1923, table k, p. 526. ** Expenditures for 146 selected municipalities represent governmental cost payments as reported by the United States Bureau of the Census, in Financial Statistics of Cities, year 1922, p. 35. t Expenditures for 48 states and New York State represent governmental cost payments as reported by the United States Bureau of the Census. Figures for 1903 and 1913 have been obtained from the Census Bureau's report, Wealth, Debt and Taxation, 1913, pp. 40 and 42, subsequent figures from Financial Statistics of States, 1922, p. 54. [114] APPENDIX II ANALYSIS OF EXPENDITURES AND CORRESPONDING INDEX NUMBERS AS SET FORTH IN TABLE XII Canal and Tunnel Construction This classification includes all disbursements made during the fiscal year 1923 in connection with the construction of the New York-New Jersey Vehicular Tunnel, and all disbursements from the canal construction fund with the exception of damages assessed against the state in barge canal cases. A portion of canal maintenance expenditure, representing the cost of canal repairs, has also been included. The index of general construction costs used to measure the trend of prices in relation to the above mentioned expenditures is that of the Engineering News-Record. This index is based on the prices of four items weighted as follows: steel 37.5 per cent, cement 7.4 per cent, lumber 17.1 per cent, and common labor 38 per cent. Building and Building Repairs An index of building costs compiled by the National Industrial Conference Board has been selected as representative of the trend of unit prices applicable to the expenditures in this classification. In effect this index is a combination of an index of average hourly wage rates in the building industry as compiled by the National Industrial Conference Board and the index of building material prices compiled by the United States Bureau of Labor Statistics. Wages and materials are given equal weight in the construction of the combined index. Food, Clothing, Fuel, Light and Power, Furniture and Furnishings These expenditures represent principally the cost of maintaining the inmates of state prisons, hospitals and charitable institutions. The index numbers chosen to represent the trend of unit prices applicable to the above costs are the respective wholesale price indices of the United States Bureau of Labor Statistics for food, cloths and clothing, fuel and light, and house furnishing goods. Averages of the monthly index numbers have been computed for each fiscal year and these fiscal year averages have been expressed on a 1923 base. Traveling Expense Inasmuch as no ready-made index of traveling expenses exists, it was necessary to develop one for the special purpose in view. An analysis of traveling expense in regard to the fiscal year ended June 30, 1917, shows that 57.5 per cent of the expenditures grouped under this classifica[115] 116 POST-WAR EXPANSION OF STATE EXPENDITURES tion consists of transportation charges and that 42.5 per cent represents hotel expenditures.1 Transportation charges were assumed to have followed the trend of the average revenue per passenger per mile on the New York Central Railroad. For hotel expenses an index of hotel rates compiled by the National Bureau of Economic Research was used.2 The average revenues per passenger mile were thrown into the form of index numbers on a 1917 base and the index of hotel rates was also recast to a 1917 base. The two indices were then given weightings of 57.5 per cent and 42.5 per cent respectively and combined to form the weighted index of traveling expenses shown in Table XII. Printing So far as is known no index numbers of printing costs have ever been made public. Those shown in Table XII represent only a rough estimate, the derivation of which is shown in the accompanying Table A. TABLE A INDEX NUMBERS OF COST OF JOB PRINTING Per Cent of TolWl Cos/ Expense Item of I'loducl Index Numbers 1923 1915 1916 1917 1918 1919 1920 1921 1922 1923 Factory wages 33.87 44.8 45.3 46.9 52.1 64.3 85.1 96.0 94.8 100.0 Paper........ 24.06 47.6 77.1 89.3 94.2 97.6 158.1 99.1 83.5 100.0 All other...... 42.07 65.6 82.5 114.9 126.0 133.8 146.8 95.5 96.8 100.0 Total.... 100.00 54.2 68.4 85.7 93.3 101.6 128.6 96.5 92.9 100.0 In compiling the above table, information as to the relative importance of the various expense elements was obtained from cost statistics published by the United Typothetae of America.3 The index numbers of factory wages are simple averages of relative numbers expressing the average hourly union rates of wages of compositors, machine operators, press assistants and feeders, cylinder pressmen and platen pressmen. The relative numbers of average hourly unioj wage rates were those of the United States Bureau of Labor Statistics.4 The index numbers of paper costs are based on quotations for grade S. & S. C. book paper as published in the Paper Trade Journal. It has been assumed that the classification "all other items " followed the trend of the general wholesale commodity price index of the United States Bureau of Labor Statistics. Communication About 63 per cent of all expenditures included in this classification in 1923 represented the cost of postage. Telephone charges comprised about 1 Based on data found in " Governor's Compilation of Desired Appropriations for 1918-19." a Publications of the National Bureau of Economic Research, No. 2, Income in the United States, Its Amount and Distribution, New York, 1922, p. 29. 3 Compositc ftatios of Printing Costs, Analysis of 1922 Composite Statement, prepared by Accounting Bureau, Department of Research, United Typothetae of America. 4 See Monthly Labor Review, Iecember, 1924, p. 46. APPENDIX II 117 21 per cent and telegraph tolls about 5 per cent of the total.1 On the basis of the above distribution, weighted index numbers of communication costs have been developed as set forth in Table B. TABLE B INDEX NUMBERS OF COMMUNICATION COSTS Relative ImporItem tance Index Numbers 1923 1915 1916 1917 1918 1919 1920 1921 1922 19S5 Postage.... 71.0 100.0 100.0 100.0 150.0 150.0 100.0 100.0 100.0 100 Telephone charges. 23.6 79.4 79.4 79.4 80.2 87.3 93.7 99.2 99.2 100 Telegraph tolls..... 5.4 83.3 83.3 83.3 83.3 91.7 100.0 100.0 100.0 100 Total.. 100.0 93.3 93.3 93.3 126.6 129.1 98.2 99.6 99.8 100 The index numbers for postage given in this table are based on domestic letter rates. The index numbers of telephone charges reflect the course of Bell System exchange rates.2 The index numbers of telegraph tolls have been computed on the basis of information to the effect that there has been no change in telegraph rates during the period under review, with the exception of a 20 per cent increase in April, 1919.3 Miscellaneous Commodities and Services The exact nature of a large portion of the expenditures included in this category cannot be determined from published state reports. The following, however, are some of the more important items which it is possible to identify. Equipment supplies and materials................... $898,600 R ent......................................... 433,900 Farm and garden (state institutions)................ 356,300 Medical and surgical expense (state institutions)..... 151,300 Office expense (state institutions)................... 138,600 Canal maintenance costs (other than wages and repairs)........................................ 472,900 Not identified................................... 3,300,900 Total...................................... $5,752,500 1 These percentages are based on sample data obtained from the requests for appropriations made at the 1924 session of legislature. 2Annual Report, American Telephone and Telegraph Co., 1924, p. 7. 3 Annual Report, Western Union Telegraph Co., 1920. APPENDIX III CLASSIFICATION OF EXPENDITURES BY FUNCTIONS Table XXV-A of this appendix presents a functional analysis of the increase in state expenditures between 1917 and 1923 as given in the annual reports of the state comptroller. The revised classification given in Table XXV of Chapter XII of this text has been derived from the comptroller's classification in the following manner. TABLE XXV-A INCREASE IN EXPENDITURES FOR GENERAL PURPOSES, FISCAL YEAR 1923 OVER 1917-FUNCTIONAL ANALYSIS AS REPORTED BY STATE COMPTROLLER * Expenditures Expenditures Increase(+) Per Cent of Fun-ction 1917 1923 Decrease(-) Total Increase Executive...... Administrative.. Legislative..... Judicial........ Regulative..... Educational.... Agricultural.... Defensive....... Penal.......... Curative. Charitable...... Protective.... Constructive.... General........ Canal.......... Debt service.... Total...... $133,900 S108,200 - $25,700 1,559,500 1,714,800 + 155,300 2,173,700 1,532,000 - 641,700 2,789,700 1,657,500 - 1,132,200 3,420,500 10,157,100 + 6,736,600 9,654,700 42,515,400 +32,860,700 2,530,800 6,448,300 + 3,917,500 2,106,300 1,980,600 - 125,700 1,946,700 3,065,600 + 1,118,900 8,071,300 14,440,500 + 6,369,200 3,773,100 5,109,500 + 1,336,600 1,829,000 3,105,000 + 1,276,000 6,614,800 18,613,400 +11,998,600 930,900 1,549,300 + 618,400 1,722,600 6,272,200 + 4,549,600 10,548,309 12,079,100 + 1,530,800 $59,805,629 $130,348,500 +$70,542,900 -.04 +.22 -.91 - 1.60 + 9.55 + 46.58 + 5.55 -.18 + 1.59 + 9.03 + 1.89 + 1.81 + 17.01 +.88 + 6.45 + 2.17 +100.00 - From Annual Report of Comptroller, Fiscal Year Ended June,30, 1923, p. 260. Education. Includes all expenditures classified as educational by the state comptroller and in addition disbursements incident to state agricultural schools and colleges which the comptroller classifies as agricultural. Highways. Includes all disbursements of the highway departments classified by the comptroller under the constructive arm, as well as the interest and amortization charges on highway bonds. Canals. Comprises expenditures for canal maintenance, appropriations from general revenues for canal construction and interest and amortization charges on canal bonds. [118] APPENDIX III 119 Tunnels and Bridges. Includes expenditures incident to the construction of the New York-New Jersey Vehicular Tunnel which the comptroller classifies as a regulative expense and the disbursements of the public works department, which is classified as a constructive expense by the comptroller. Charities, Hospitals and Correction. Includes all expenditures classified as penal, curative and charitable by the state comptroller. General Government. In general this classification comprises all expenditures included under the executive, administrative, legislative and judicial arms as reported by the comptroller. However, an item of $373,100, representing the cost of printing departmental reports not charged to the legislative function in 1923, has been deleted from the 1917 legislative expenditures. An item of $918,800 representing judgments in stock transfer tax cases and charged to the judicial function in 1917, has also been deleted. In addition to the expenses of the four functions enumerated above, there have been included as general government expenditures the costs of the following departments: tax and excise departments and office of superintendent of elections, classified by the comptroller as regulative; trustees of public buildings and department of public buildings, classified by the comptroller as protective; state engineer and surveyor and state architect, classified by the comptroller as constructive. The cost of compensation insurance, which is reported under the caption of general expenditures by the comptroller, has also been included as an expense of general government in Table XXV. Development and Conservation. This classification includes all expenditures included under the agricultural function by the comptroller with the exception of expenditures for agricultural schools. It also includes the expenditures of the conservation commission classified by the comptroller as protective, taxes paid on state forest land, classified by the comptroller as general, and interest and amortization on forest preserve bonds. Regulation. Includes all expenditures classified by the comptroller as regulative with the exception of the expenses of the excise and tax departments and the office of superintendent of elections. In addition, this classification includes the expenses of the banking and insurance departments, which are classified by the comptroller as general. Protection of Life and Property. This classification comprehends all expenditures classified as defensive by the comptroller, and in addition the expenses of the department of state police, which the comptroller groups with protective expenditures. Recreation. Comprises mainly the cost of maintaining state parks including interest and amortization charges on funded debt. Miscellaneous. Comprises judgments in stock transfer tax cases and undistributed cost of departmental reports. APPENDIX IV CANAL MAINTENANCE EXPENDITURES, FISCAL YEAR 1923 REDUCED TO TERMS OF 1917 PRICES Ratio of Expenditures 1917 to 1923 1923 Prices Classification Personal service....... Repairs............... Fuel, light and power.. Printing.............. Traveling expense..... Communication....... M iscellaneous......... T otal............. $1,589,000 1,268,900 131,400 10,700 74,400 29,800 226,600 $3,330,800 71.7 85.3 65.7 85.7 56.7 93.3 97.6 Estimated Expenditures 1928 in Terms of 1917 Prices $1,139,100 1,082,400 86,400 9,200 42,200 27,800 221,000 $2,608,100 APPENDIX V EXPENDITURES FOR ADMINISTRATION, MAINTENANCE AND OPERATION OF STATE DEPARTMENT OF EDUCATION, NORMAL AND AGRICULTURAL SCHOOLS AND COLLEGES, FISCAL YEAR 1923 REDUCED TO TERMS OF 1917 PRICES Classification Personal service....... Traveling expense..... Printing.............. Fuel, light and power.. Communication....... Repairs............... Other................. T otal............. Expenditures Ratio of 1923 1917 to 1923 Prices $3,943,000 66.9 251,100 56.7 218,500 85.7 170,000 65.7 70,600 93.3 70,000 66.0 372,300 97.6 $5,095,500 Estimated Expenditures 1923 in Terms of 1917 Prices $2,637,900 142,400 187,500 111,700 65,900 46,200 363,400 $3,555,000 [120] INDEX Abandoned activities, 99-100. Accrual basis, 10. Appropriations, requests for, 11. Barge canal, 95. Base period, 15. Beveridge, The State of the Nation, 1. Bond issues, 44. effect of increase in construction costs, 45-46. Bonds, railroad grade crossing, 81-82. soldier bonus, 81. state hospital, 81-82. tax free, 2, 66, 81, 108. Budget, legislative, 11, 26. Building and building repairs, 115. index numbers, 41, 42, 48. Canal and tunnel construction, 115. index numbers, 41, 42, 49. Canal maintenance, expenditures for, 84, 94-96, 120. Capital outlays, 65, 66, 77-80. buildings, etc., 80. canals, 80. highways, 80. index numbers, 49. parks and forest preserve, 80. physical volume of, 78, 79. vehicular tunnel, 80. Cash basis, 10. Charities, hospitals and correction, current expenses for, 84, 85-90. expenditures, 62, 63. Charitable institutions, inmate population of, 88. Clothing, index numbers, 42, 48. Commodities and services, miscellaneous, index numbers, 42, 48. Communication expenditures, 106, 116. index numbers, 42, 48, 116. Comptroller's reports, defects of, 10. Conclusion, 108-113. Construction costs, effect on volume of bond issues, 45-46. effect on debt service requirements, 45-46. Cost of living, 31-32, 51. Crandall, W. G., " Seven Years' Bidding Prices on New York Roads," 35. Current expenses, charities, hospitals, and correction, analysis by objects, 87. expenditures for, 65, 66, 83-107. functional analysis, 83-84. ordinary state departments, 97-107. Davenport-Moore Act, 104. Debt service, expenditures, 65, 66, 79-82. index numbers, 46-47, 49. Deferred construction, effect on educational costs, 72. Development and conservation, expenditures, 62, 63, 84. Diseased animals, indemnities for, 68, 69, 76. Education, deferred construction, effect on, 72. direct expenses of state, 84, 96-97, 120, expenditures for, 61, 62. improvements in, 74. index numbers, 24, 48. Lockwood-Donohue Bill, 69. new construction for, 72. new services, 73-74. price inflation, effect on, 72. rural schools, 70. school attendance, 72-73. state aid, 21, 68, 67-74. tax limits, effect of, 70. trend of costs in, 21-25. Employees, growth in number of, analysis by functions, 103. ordinary departments, 102-105. tax department, 102-103. state institutions, 89. Excise department, abolition of, 100. Expenditures, building construction, 80. canal construction, 80. capital outlays, 65, 66, 77-80. charities, hospitals, and correction, 62, 63. classification of, 10. classifications by character, 64-65. classification by objects, 19-20. current expenses, 65, 66, 83-107. debt service, 65, 66, 79-82. 121 122 Expenditures--con tinued definition of, 12. development and conservation, 62, 63. education, 61, 62. federal, 1, 114. fixed charges and contributions, 65, 66, 67-76. for general purposes, 12, 13, 62, 65. index numbers, 49. from bond proceeds, 13. from revenues and bond proceeds, 13. index numbers, 49. functional analysis, 61-62, 118. general budget, 12. general government, 62, 63. highway construction, 80. highways, 62, 63. increase due to non-price factors, 58, 59, 60. increase due to price inflation, 58-59. interest and amortization, 41. New York State, increase in, 7, 13. parks and forest preserve, 80. protection, 62. public schools, 22. recreation, 62, 64. regulation, 62, 64. trend of, 8. vehicular tunnel, 80. Extravagance, charges of, 2. Fixed charges and contributions, expenditures, 65, 66, 67-76. index numbers, 48. Food, index numbers, 41-42, 48, 115. Forest preserve, index numbers, 42, 48. Fuel, light, and power, index numbers, 41-42, 48, 115. Furniture and furnishings, 42, 48, 115. General government, current expenses of, 84. expenditures, 62, 63. Governmental cost payments, municipalities, 1, 114. New York State, 6, 114. states, 1, 114. Grants in aid, 67-68. Health department, growth of, 103 -104. High maintenance, 39, 40. expenditures for, 84, 90-94. Highways, average age, 92. bituminous macadam, 35, 37. concrete, 35, 36. deferred maintenance of, 93-94. NDEX Highways-continued expenditures for, 62, 63. growth of traffic on, 93. Lowman Act, 75. mileage contracted for, 92. mileage, growth of, 91. state aid, 40, 68, 69, 74-76. trend of costs for, 34-40. Hospital for insane, inmate population of, 88. Income tax bureau, organization of, 101. Index numbers, bituminous macadam highway, 37. building and building repairs, 41-42, 48. canal and tunnel construction, 41 -42, 49. capital outlays, 49. clothing, 42, 48. commodities and services purchased by state, 51. communication, 42, 48, 117. concrete highway, 36. cost of living, 31-32, 51. cost of state government, methods of construction, 14-19. debt service, 46-47, 49. educational costs, 24, 48. expenditures for general purposes, 49. expenditures from revenues and bond proceeds, 49. factory wages, 31-32. food, 41-42, 48. forest preserve, 42, 48. fixed charges and contributions, 48. fuel, light, and power, 41-42, 48. furniture and furnishings, 42, 48. highway maintenance, 39, 48. interest and amortization, 43-47, 49. method of construction, 14-20. milk cows, 42. miscellaneous commodities and services, 42, 48. operating expenses, 48. printing, 42, 48, 116. purchasing power, tax dollar, 53-54. wage earner's dollar, 53-54. wholesale trade dollar, 53-54. salaries office workers, 32. school houses and repairs, 24. state salaries, 31-32, 48. teachers' salaries, 24, 31-32. total cost of state government, 48. traveling expense, 42, 48. wages of common labor, 32. wholesale commodity prices, 42, 51. INDEX 123 Institutions, average maintenance cost per inmate, 89-90. inmate population of, 88. number of employees, 89. Interest and amortization charges, 65, 66, 79-82. computation of, 81. index numbers, 41-47. Interest rates, trend of, 44. Lockwood-Donohue Bill, 69. Lowman Act, 75. Motion picture commission, organization of, 101. National Industrial Conference Board, 23, 42. National Guard, federalization of, 100. New activities, 100-101. Nitti, Francois, Principes de Science des Finances, 8. Operating expenses, index numbers, 48. "Pay-as-you-go " financing, 78. Personal service, appropriations, 28. ordinary state departments, 101. trend of costs for, 26-33. Police, state department of, 100. Price inflation, effect, 58-59. on cost of public instruction, 72. on highway maintenance, 90-91. on institutional expense, 85-87. Printing and advertising, 105-106,116. Printing, index numbers, 42, 48, 116. Prisons, inmate population of, 88. Protection, expenditures, 62, 84. Purchasing power, tax dollar, 50, 53 -54. wage earner's dollar, index numbers, 53-54. Purchasing power-continued wholesale trade dollar, index numbers, 53-54. Quarantine station, transfer of, 100. Recreation, expenditures, 62, 64, 84. Refunds, 67-68. Regulatory activities, growtth of, 2. Regulation, expenditures for, 62, 64, 84. Rural schools, 70. Salaries, index numbers of, 26-33. public school teachers, 24, 31-32. Soldiers' bonus, 81. Sources of information, 10. Sowers, D. C., Financial History of New York State, 7. State aid, education, 68, 69-74. highways, 68, 69, 74-76. State employees, number of, 28. Summary, 108-113. Superintendent of elections, office abolished, 100. Tax department, growth of, 102-103. Tax limits of cities, 70-71. Taxable capacity of state, 112-113. Traveling expense, 105, 115. index numbers, 42, 48. University of the State of New York, annual reports, 21. Vehicular tunnel, 79, 80. 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