The Streets Were Paved with Gold (23 page)

But did Professor Moynihan? As he sipped his fourth Guinness stout and awaited the arrival of his pea soup, I asked him to explain why his “deficit” figure changed as often as Abe Beame’s. What was the real gap? “The first thing to say,” he surprisingly admitted, “is
that it’s not certain how significant this all is.” The Professor had spoken.

Then Senator Moynihan took over, reminding me that the gap was real and important. But he came to it, I countered, by making two contradictory assumptions. First, he assumed that
none
of the $14.3 billion of interest on the national debt and foreign aid payments should be credited to New York. Second, he assumed that
all
of the $6.8 billion paid by New York in corporate taxes should be credited to the state. Both assumptions rest on weak legs. An analysis for the Lehrman Institute by Columbia University’s Dr. Charles Brecher and Kurt Katzmar suggests that 15 percent of the interest on the national debt is probably spent here—meaning a roughly $2 billion benefit to New York. And a good part of the corporate taxes paid by New York are collected from national corporations that merely funnel their tax payments through New York.

Professor Moynihan looked up from his plate of sliced British beef and admitted, “Maybe, if we evened it out, the number would be $4 or $4.5 billion, but that’s still a lot.” It is, but it’s incomplete. The “deficit” shrinks further when you consider commuters who pay New York taxes but live in other states; count not just the primary federal contracts won by other states but also the subcontracts won by New York; make allowances for New York’s disproportionate number of not-for-profit institutions (which attract federal aid). And Moynihan’s “deficit” calculation fails to measure what he calls the “hidden policies of government”—regulations, tariffs, imported oil policies, paperwork—which entail costs but defy easy quantification. Printed in the
Federal Register
, for instance, are 60,000 pages of government regulations which
Business Week
has estimated tax national consumers $60 to $130 billion annually.

Trying to pin down a “balance of payments gap” is like trying to catch eels with your hands. It is also illusory. It attacks the progressive income tax, which presupposes that the rich are to pay more than the poor—and New York is considered a rich state, or at least its median income is high. “The logical fallacy of Moynihan’s argument,” Senator Proxmire says, “is that if you want the states to get the same back from the federal government that they send to Washington, why have an expensive federal government?”

But doesn’t the federal government murder New York by shortchanging the city on federal aid? Professor Moynihan has been careful not to make that accusation. “This is indeed an old established
New York charge,” he says. “The trouble is that in the main it is false.” How false is documented in the Brecher/Katzmar analysis. The best measure of federal assistance, they explain, is to use two criteria: tax collections and need. New York City, for instance, in 1977 had 3.6 percent of the nation’s population, collected 4.4 percent of all federal revenues, and accounted for 4.3 percent of the nation’s poor; yet the city received 5.4 percent of all federal outlays. The state, the Treasury reported, ranked 1st in federal dollar aid, 1st in the growth of aid, and 6th in per capita aid.

One could make the argument that Washington should do more, but that’s different from arguing that New York does not receive its fair share of federal grants. Lester Thurow, a very good and very liberal M.I.T. economist, has written that in 1975 New York City’s per capita federal aid totaled $314, compared to a national average of $228. “While the average city,” he wrote, “gets 36 percent of its revenue from state and federal grants, New York gets 43 percent of its revenue from the same source.” The Temporary Commission’s conclusion: the federal government treats New York “comparatively well” and “reasonably equitably.”

President Carter may not be the friend candidate Carter promised to be, but he—and Gerald Ford—helped New York nonetheless. Assistant Secretary of the Treasury Roger Altman reminded the Association for a Better New York on December 1, 1977: “During this city fiscal year, total grants to New York will total $3.67 billion, a 33 percent increase over the $2.75 billion provided during fiscal 1976, the last full year of the Ford Administration.” Making allowance for some puffing on Altman’s part, Beame administration officials conceded that Carter, relying heavily on Ford’s last budget, increased aid by $500 million. In early 1977, the Brookings Institution released a government-sponsored study warning that if federal aid formulas were not changed by 1980, the chief beneficiaries would not be the older cities of the north but small towns, suburbs, and Western and Southern cities. But their projections showed New York to be an exception. Even under the old formulas, New York would receive more than its fair share. Within months, and after skillful coaxing from Senator Moynihan, among others, these formulas were amended to tilt toward older cities. New York was a big winner. Federal monies to New York State increased by $7.7 billion in fiscal 1977, the largest gain made by any of the fifty states. Mr. Moynihan made this announcement in July 1978, presumably to
show how effective Senator Moynihan had been. By releasing these numbers, however, he was inadvertently undermining his “gap” argument.

“I think there’s a solid indication that New York is being helped and not scalped by the federal government,” Senator Proxmire told me, attacking both the balance of payments argument and New York’s self-image as an orphan. That hurts, coming from the chairman of a committee which reviews most federal urban aid programs. As Professor Moynihan once declared, “It’s all very well to get a speech printed in a New York newspaper saying New York is being short-changed on this or that program. But it has absolutely no effect if the director of the Office of Management and Budget tells the President that the charge is false.”

When it comes to certain federal policies and programs, the charge is not always false. Yes, the federal government sometimes does commit, or permit, murder. Moynihan can be eloquent on the subject: “There is a fundamental bias against New York State in the way the federal government collects its taxes and distributes its revenues. Tax rates accelerate as money income goes up. Benefits accelerate as money income goes down. The Scythians could not have bred two wild horses better equipped to pull New York State apart. Incomes are higher in New York in the way they are higher in Alaska—because the cost of living is higher.” (One reason it is higher, Moynihan notes with the force of a whisper, is because local and state taxes are higher.)

By not accounting for differences in the cost of living, the same federal dollar is worth more in Texas than New York. But a word of caution is in order: cost-of-living differences among poor people—for whom most aid is earmarked—are only about 8 percent higher in New York, compared to between 16 and 25 percent for intermediate and high-income families. Therefore, if the formulas were changed, New York would receive less of a bonanza than is commonly assumed. The First Bank of Boston found, for instance, that if cost-of-living escalators were added to the revenue sharing formula, the entire Northeast’s share would have risen only $109 million in one year.

As a candidate, Jimmy Carter recognized this and other inequities. In August 1976, in a long interview aboard his campaign plane as it streaked from Seattle, Washington, to Des Moines, Iowa, Carter focused on urban concerns. Invited to the front of the 727, I slid into the wide first-class seat facing the bulkhead. Carter, in
the next seat, paid no notice, continuing to read a two-page memorandum, glancing up at aide Greg Schneiders to impart instructions, glancing again at the memo. When he finished, Schneiders lingered and briefed the candidate on the purpose of the interview, requesting forty-five minutes of his time. No, a still-seated Carter admonished him. The campaign had a strict rule: no more than thirty minutes per interview. Then Carter removed, folded, and placed his glasses in a shirt pocket. He had yet to address or even look at me. Perhaps five minutes after I took the adjoining seat, Carter turned for the first time to offer a warm greeting. My tape recorder clicked on. For the next fifty minutes the candidate’s steel-blue eyes remained fixed on the interviewer.

Did he favor federal aid formulas which took into account differences in the cost of living? “In some categories of assistance, yes,” he said softly. “Welfare would be one example.”

Q
. The Northeast is in a sort of depression, with unemployment rates 2 percent above the national average and the growth rate lagging behind the nation’s. In terms of federal aid formulas, you’ve talked about having some national criteria, such as poverty or unemployment levels, to give extra aid to areas that need it most. Would you also favor special federal aid to depressed regions, such as the federal government gave to Appalachia during the sixties?

A
. I would rather allot special federal aid to much narrower targets than the entire eleven or twelve or fifteen state regions of the country, as was the case with Appalachia. We also need, under existing federal programs regarding pollution control, housing, law enforcement, and so forth, to concentrate those allocations of funds where they are most needed, which would fall within the inner-city areas. In the past, when we passed a housing program, quite often it was the Congress’s intention that that money go to the people who needed it the most. But because of the intelligence and educational level and the political influence and good organizations, say, in the suburbs, they sapped away a great deal of the available federal assistance for housing and other programs, to the detriment of the inner cities, where the concerted grantsmanship was not so well developed. Those two forces would be what I would pursue: immediately to let existing aid go where it is needed the most; and, secondly, to have regional aid designed but focused on much narrower targets than the one you described.

Q
. Could you define a narrower target?

A
. A city, or it might even be a particular industry, or it might be a particular age group. But let me add one thing. My own economic advisers say that if we do this targeting of job opportunities, we can reach at least one-half percent lower unemployment without increasing the inflationary pressures by targeting. If you do something nationwide, you get high inflation pressures. If you target it, the inflation pressures are much less for a given level of unemployment.

New York also suffers the accident of geography, something Carter and the federal government have chosen to ignore. The Northeast region is forced to import roughly 85 percent of its oil from foreign sources; the rest of the country relies on only 65 percent foreign oil. Thus the 1973 OPEC oil embargo was much more devastating to New York and the Northeast. According to Neal R. Peirce, a contributing editor of the
National Journal
and now a syndicated columnist who covers government, not politics, for the Washington
Post
, in 1972 the Northeast states expended $7 billion on imported fuel; by 1975, that sum tripled to $20.7 billion. This drove up New York’s costs and reduced its ability to compete economically. In 1975, for instance, the average New York resident paid $37.33 for 500 kilowatt-hours of electricity; the Boston resident, $24.86; the Chicago resident, $20.60; the Seattle resident, $6.97; the Houston resident, $15.02. Admittedly, New York’s steep utility taxes drove up these costs, but its fuel costs are still higher. As are its natural gas costs. Because of the accident of geography, the Sunbelt is blessed with ample natural gas resources. A Southern industry can rely on less expensive natural gas for 50 to 70 percent of its energy supply; an industry in the Northeast uses on the average about 20 percent natural gas—and it’s twice as expensive here.

Most federal grant programs benefit New York, but some do not. Section 5 of the Urban Mass Transportation Act, for example. Under this act, transit aid is pegged to population rather than riders. And as Senator Moynihan and others have complained, by ignoring transit ridership and transit vehicle miles covered, New York City—with over 30 percent of the nation’s mass transit riders—receives just over 10 percent of these funds. Moynihan figures federal assistance to average 3¢ per rider in New York and 20¢ in
Los Angeles, 19¢ in Houston, 12¢ in Dallas. The average aid per rider in cities of more than 1 million people is double New York’s.
^*
The New York Regional Plan Association calculated that if this formula were changed, in 1976 New York City would have received an additional $110 million in mass transit aid. New York is only one of thirteen states to receive the minimum 50 percent federal reimbursement for welfare. Poor states, like Arkansas, receive 75 percent. Yet if New York garnered the same 60 percent as Proxmire’s Wisconsin, according to the
Fiscal Observer
, an independent and respected publication, the city would save $195 million in welfare and Medicaid. New York, as another instance, has 30 percent of the nation’s known narcotics addicts, yet receives less than 1 percent of the $296 million in available federal funds.

Where New York gets murdered is in its share of “hard” federal dollars—defense expenditures, federal installations and jobs, dams, roads, public works. In 1977, a bipartisan coalition of sixteen governors and 204 members of Congress from the Northeast and Middle West released a study showing how defense dollars neglected their regions. Their sixteen states accounted for 45 percent of the country’s population and almost half its taxes, yet received 20 percent or less of all defense expenditures. The number of defense employees mushroomed 35 percent between 1950 and 1976, yet the number of defense employees declined 3 percent in their states—39 percent in New York. The military construction budget for fiscal 1978 earmarked just 9 percent to their states. Of the 761 defense facilities closed between 1961 and 1975, 43 percent were in the sixteen states—fifty-three in New York. “The decline in defense expenditures,” lamented Republican Congressman Donald J. Mitchell of Herkimer, New York, “has increased unemployment in the region, exacerbating economic problems, while the shift of expenditures to other areas has helped fuel those areas’ economic boom.” If military wages and salaries had been allocated “equally” to all states between 1940 and 1976, a study by Bernard Gifford of the Russell Sage Foundation reported, “New York State would have ‘received’ more than $21 billion (in current 1940–1976 dollars) above the amount that it actually received. And Georgia would have ‘lost’ $5 billion.”