Gov. Mario M. Cuomo's $800 million jobs bond act relies on statistical data that raise doubts about New York's prediction that the measure would generate at least 78,677 permanent private-sector jobs by the end of the century, several researchers say.
At issue, according to four researchers and bond act opponents, is the statistical analysis surrounding the claim by the Cuomo administration that for every dollar of government spending on infrastructure, businesses will ultimately invest $2.70 in the state's economy.
This position, published in information brochures and publicly stated by bond act supporters, is the cornerstone of the administration's job-creation claims for the bond issue, which goes before the state's voters today.
But foes of the bond act as well as the researchers have criticized the statistical significance and other data concerning the state's projections for private-sector investment and job growth.
In a series of interviews, these analysts said the statistical data presented by the Cuomo administration does not conclusively support its prediction, and its statements about the economic gains the bond issue would provide is misleading voters.
The issue is not simply jobs. Not even the bond act's most vocal opponents, such as state Comptroller Edward V. Regan, argue that the proposal will not increase employment. The construction of sewers, roads, and bridges across the state will no doubt provide jobs for workers practicing several different construction trades, these analysts say.
What concerns critics is the Cuomo administration's ironclad prediction that the proposal will produce a certain level of employment and produce revenues that will more than outweigh the bond act's debt service.
The administration, for example, says state tax revenues derived from the increase in employment and economic activity will range between $114 million and $155 million, while average annual debt service will amount to $65 million.
"There is no doubt that temporary jobs will be created, but I have doubts about the creation of [such a high level of] permanent jobs," said Michael Brooks, a senior municipal analyst at Sanford C. Bernstein & Co. and the former director of the Bureau of fiscal and Economic Analysis in the state comptroller's office. "And if the permanent jobs are not created, the bond act is not self-supporting. It will then add to the state's debt burden."
The private-investment prediction by the Cuomo administration is based on a statistical measurement conducted by the state Department of Economic Development, known as a regression analysis. In general terms, researchers use a regression analysis to study relationships among variables. Researchers then use other statistical tests to determine the likelihood that these relationships might occur in reality.
In this case, the state examined the relationship between public spending to build infrastructure projects and private investment. The bond act, if approved, would give the state authority to issue $800 million in general obligation bonds to fund the construction of 387 infrastructure projects across the state.
The state plans on selling 20-year and 30-year bonds in several installments during the next eight years to fund this public works effort, economic development officials said. The funding is leveraged by a contribution from each municipality or county that receives money from the bond act, producing a total public investment of close to $2 billion state officials said.
The Cuomo administration claims infrastructure projects will result in the immediate creation of as many as 35,000 construction jobs and bolster the state's struggling construction industry. The increased activity will filter through the rest of the economy, providing a much needed jolt to a state economy now struggling under 9% unemployment.
But the proposal's long-term impact on the state's business climate depends on a healthy does of private investment, which will create permanent jobs throughout the state, state officials said.
Officials in the Cuomo administration said they are relying in large part on a statistical analysis of public spending and private investment to make their case of job creation to the state's voters.
One state official, who works as a research specialist in the state Department of Economic Development's Division of Policy and Research, said the state can accurately predict the private investment level and the creation of at least 78,000 jobs because its statistical data fall within what is known as "the 80% confidence level."
In other words, the official said, speaking on the condition of anonymity, the statistical analysis conducted by the department shows a large probability that the state's claim will become reality.
"Anything over 50% [probability] is pretty good," the official said. "Obviously, we would like something higher, but history shows that our relationship will hold with the 80% confidence level."
But the researchers and opponents of the bond act said that, as a general rule, mainstream statistical analysis demands a confidence level of at least 90%.
"You should not say something is true if you say there's an 80%" confidence level, said Edward L. Melnick, a professor of statistics at New York University's Stern School of Business. Melnick said confidence levels of 95% and above are so "imbedded in the culture" of statistical analysis that legal, medical, and even presidential polling information are based on these higher numbers.
One independent researcher, for example, after studying the state's data said it shows "nothing meaningful" about the relationship between public infrastructure spending and private business investment.
Gary Simon, an associate professor of statistics at the Stern School, did not question the state's use of the 80% confidence level. Instead, he said a chart showing data used in the state's regression analysis did not prove its private investment prediction.
"If someone said these numbers predicted $2.70 of private investment based on a dollar of public construction spending, I would say ~no,'" Simon said. "It's just not statistically significant."
But Mario J. Musolino, director of the Jobs Bond Act Information Office, said the state also relies on other data to support its job-creation claims. In its information brochures and other literature urging taxpayers to vote for the bond act, the state claims as many as 106,471 permanent jobs will be created if the bond act succeeds.
This estimate, Musolino said, is based on ratios of public investment to private investment developed using information from the state's Regional Economic Development Partnership Program.
Musolino said that during the past five years the program directed $18 million in the state money toward infrastructure improvements. This public investment led to $120 million "non-state" investment, he said.
However, Musolino said he could not say for certain that this non-state investment takes in only money but into the state economy from private sources and not some federal-government contribution. In addition a draft report published by the Department of economic Development says "the estimate based on the REDPP ratio may overstate the employment impact" that predicts the creation of 106,471 permanent jobs.
The report, titled "Jobs for the New, New York Bond Act Impact Estimates," says "the REDPP investment in many cases includes a substantial commitment from other state sources such as the Job Development Authority." As a result, a higher bond issue may be needed to produce 106,471 permanent jobs if the bond act is approved, the economic development official said.
In many ways, the debate over Cuomo's proposed use of public money for infrastructure improvements symbolizes a much larger national debate on the relationship between a sound infrastructure and economic expansion.
One of the leading advocates for the improvement of infrastructure to stimulate private investment and job growth is David A. Aschauer, an economics professor at Bates College in Lewiston, Maine, and formerly a senior economist at the Chicago Federal Reserve Bank.
Aschauer has published several reports relating the decline of American business productivity to the deterioration of highways, airports, and power plants.
A 1988 study by Aschauer published in the Journal of Monetary Economics concludes that government can play a significant role in economic growth and improve worker productivity by investing in "non-military structures such as highways, streets, water systems, and sewers."
"My research shows that there is a relationship" between infrastructure and productivity, Aschauer said in recent interview. "The drop-off in infrastructure spending is clearly a significant factor in our sagging productivity growth."
Others, however, say there is ample evidence to show that no direct relationship exists between the use of public money to improve the nation's infrastructure and higher private investment. In a recent Wall Street Journal opinion piece, Harvard University economics professor Robert J. Barro wrote that "investment in public infrastructure as a broad category offers reasonable, but not extraordinary, rates of return."
Barro did not return telephone calls, but other analysts also criticized the direct relationship between economic growth and public infrastructure investment cited by Aschauer and bond act proponents.
Brooks, the Bernstein analyst, says the state's claim that there is a direct cause and effect relationship between public spending on infrastructure and private-sector investment is flawed.
Brooks said private-sector investment depends on a number of factors, including access to capital, the level of economic activity, and tax rates.
"I'm all in favor of fixing the state's infrastructure," Brooks said. "But the way this [the bond act] is being sold, there is a direct causality between infrastructure investment and private-sector jobs. This is something that I question."
Bond Acts Proposed Under Gov. Cuomo
1991: Job Development Authority increased in bonding
authorizing (from $600 million to $900 million) check mark
1990: 21st Century Environmental Quality Bond Act
($1.95 billion) X
1988: Accelerated Capacity and Transportation Improvements
of the Nineties (ACTION) Bonds ($3.0 billion) check mark
1987: Job Development Authority increase in bonding
authorizing (from $300 million to $600 million) check mark
1986: Environmental Quality Bond Act of 1986
($1.45 billion) check mark
1983: Rebuild New York Through Transportation Infrastructure
Renewal Bonds ($1.25 billion) check mark
Source: New York State Division of the Budget