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Summer 1991
City Journal Summer 1991.
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  N ew York Views

Unbearable Obligations
The Editors
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Felix Rohatyn made the point about as pithily as possible months ago: “A city with a budget of $29 billion, a payroll of $15 billion, a municipal workforce of over 300,000 people, and a capital program of $5 billion per year is not exactly without resources.

The city counts a bit differently than Mr. Rohatyn, but the essential point holds true: New York City raises and spends an enormous amount of money. Even after the drastic budget cuts now planned, it will remain by far the most free-spending large city in the nation. Add in state spending within the city’s borders, then compare the total with per capita state and local spending for other large American cities (the only really fair comparison, since who pays for what varies so much from state to state), and New York is simply off the map. The tax burden required to support such spending is twice the national average.

Yet at this writing we are being told that we cannot afford the most routine municipal services: clean streets, parks, bridge and road maintenance, or fully funded schools. Clever folk wink and nod and say, “It is the old Washington Monument ploy”: The politicians are deliberately chopping the services we care about most, cutting bone before fat, to scare more money out of the taxpayers, or the unions, or the Feds, or the state, or MAC, or whomever.

There is some truth in this, but less than one might hope. The most unsettling thing about the current budget debate is how sincere the Dinkins administration is when it says it cannot see how to balance the budget except by cutting the basics.

Under New York’s prevailing political assumptions and institutional commitments, cutting the basics will be the only possible answer whenever an economic downturn slows revenue growth. The city has lost control over most of its spending, except on those basic services. In New York, the Washington Monument ploy is not a political dodge; it is very nearly a constitutional obligation.

Both the budget gap and the city’s loss of fiscal control stem from three overarching and overlapping commitments: to spending that is legally mandated (usually by the state); to a costly menu of services, mostly in social welfare, not provided by most cities; and to serving the interests of its own vast government institutions before those of its citizens.

About the first of these, mandated spending, there is little the city can do without help from the State Legislature. As Edwin Rubenstein makes clear elsewhere in this issue, it is difficult to assess accurately how much of local government spending in New York is mandated by state or federal law. But a quick glance at the city’s $29 billion budget for fiscal 1992 gives the rough dimensions of the problem. Categorical aid from the federal and state governments, which is targeted to specific programs and over which the city has little control, accounts for more than $8.5 billion. Mandates and other legal obligations leave the city only modest discretion over another $8 billion it spends on debt service, pensions, welfare, corrections, and health services including Medicaid.

That leaves about $12 billion, or just a bit more than 40 percent of the budget. Much of that is devoted to the basics: police, fire, education, parks, sanitation, etc. But even within these areas mandates loom large, leeching money away from basic educational services to meet exotic requirements, or diverting police funds into job-training programs under the fiction that they form part of a coherent anticrime campaign. All in all, New York City is in firm control of less than half its budget and may control as little as 25 percent. The city’s power to control its own spending has been so circumscribed that when budget crunches come, only basic services can be cut.

The second obligation—to an unusual menu of services—overlaps the first. In most other states Medicaid and welfare are essentially federal-state partnerships. But by state mandate, New York City is responsible for about one-quarter of the money spent on those programs, more than any other major city in the country. In a recent report, the Citizens Budget Commission rightly identified this unusual local obligation as one of the most powerful causes of the city’s recurrent “structural” deficits.

These mandated programs, however, are only the beginning. New York is the only major American city, for example, that builds, rehabilitates, and subsidizes a significant portion of its own housing stock, a commitment that costs more than $1 billion a year. And speaking of the Washington Monument, New York spends nearly all of its roughly $200 million in Federal Community Development Block Grant funds—money used by most cities for parks and playgrounds—on its housing bureaucracy. The housing programs themselves appear necessary only because the city previously took on another unusual obligation: the intense, detailed, and destructive regulation of the housing market. The city’s rent regulation system drove private landlords and builders out of the unsubsidized market in low- or moderate-income neighborhoods, and without even significantly reducing average rents.

Among other untraditional services, the municipal hospitals particularly stand out. Few major cities have even one municipally-owned hospital; New York has 16, absorbing an annual subsidy of at least $500 million. The city hospitals are also an excellent example of the city’s third and most destructive commitment: to the institutions of government rather than the interests of citizens, or perhaps more charitably, to the idea that service to citizens can be measured primarily by the funding of institutions. This commitment, now a cornerstone of the city’s political culture, makes it almost impossible to deliver essential services at a reasonable cost.

The $500 million the city spends on keeping the hospitals afloat, for instance, represents the city’s aid to the indigent uninsured sick. City hospitals are obliged to accept such people, many of whom habitually use expensive emergency room services for routine medical care and are treated by a succession of doctors who know nothing of their history. The city picks up the tab. But one reason the poor rely on emergency rooms for basic care is that family physicians are virtually unknown in many poor neighborhoods, largely because neither Medicaid nor the city makes it worth their while to treat the poor. (Medicaid reimbursements for doctors’ visits are less than $20.) Why then does the city continue to act as though the most efficient way to help the ailing poor is to send a $500 million subsidy to vast public institutions? Is there any reason to believe that the New York City government will be particularly good at running hospitals—good enough to justify spending scarce dollars meant for the care of the poor on the care of bricks and mortar, administrators and rulebooks?

Similarly, New York City spends on average more than $7,000 per student on its public schools, with unimpressive results. Current plans to close the budget gap call for teacher layoffs, but make little effort to reform a system that still has far too many administrators and bureaucrats and spends just about half of its funds on actual education. How to reform the system is no mystery. Public school choice, as successfully practiced in East Harlem’s District Four, makes the expensive and destructive command-and-control apparatus of the bureaucracy unnecessary: Schools are directly accountable to parents and students. Only the city’s devotion to vast, unfathomable, and ungovernable central institutions keeps us from having schools in which most of the dollars go to teachers and students.

This commitment to the institutions is perhaps most evident in what the Citizens Budget Commission calls the “roller coaster” pattern of city employment, under which the number of city employees varies not primarily with changes in government strategies or citizens’ needs, but with how much money is available. Thus throughout the early and mid-1980s, when the city was still recovering from the 1975 fiscal crisis, both city employment and expenditures remained moderate. The annual general-fund budget increased by just $5.3 billion between the austerity year of 1980 and 1985. (At $13.5 billion, the city’s 1980 budget was actually $400 million less than in 1976.) Almost a third of that increase came in 1985. By 1985 city government employment had come back only to its 1976 level of 212,000. And yet by then the city had visibly come back. The streets were cleaner, the police force had nearly returned to its customary staffing levels, the subways were better. In short, most of the visible manifestations of austerity had departed.

Then, with the crisis behind us and revenues clipping along, employment and spending took off. By 1990 annual general-fund spending was more than $7 billion higher than it had been in 1985, with another $6 billion in increases scheduled for just the next three years. City government added 31,000 employees. Yet it would be very difficult to argue that the quality of life, or of government services, improved significantly after 1985.

Even today neither Koch veterans nor Dinkins newcomers can give a very satisfactory account of what those new employees contributed to city life. One is left with the very powerful impression, mitigated only slightly by an examination of the details, that in the absence of any real strategy for improvement the city was simply pumping fuel to the institutions, as if the only management instruments at its disposal were an accelerator pedal and a fiscal emergency brake, both connected to a machine the operators do not quite understand.

That the most memorable policy move of the current administration is the decision to give unexpectedly large raises to city workers reflects less on David Dinkins than on the mindless, blunt instrument New York City government has become. To raise or not to raise, to lay off or not to lay off: these are the leading items on the rather short menu of decisions available to city leaders as long as the city’s three big obligations—to mandates, untraditional services, and institutions rather than citizens—dominate its politics and policies.

Now it is again time to pull the brake, and the results will be chaotic. Clearly, on the evidence of the past six years, there are at least 30,000 workers and several billion dollars sloshing around the city budget that are making little contribution to city life. Yet no one in the city government seems to know how to pick out just those workers and dollars we do not need and keep the rest.

The bowels of the bureaucracy are dark and deep, the institutions are unfathomable; but the Central Park Zoo, or the swimming pools, or teachers in the classroom, or cops on the beat are right out in the open. Unless we can shed the commitments that commit the city against its citizens, those are the things we will lose, and we will miss them more than the Washington Monument.

 

 


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