The Battle of the Bulg... ing Budget Or "There's nothing fundamentally wrong with John V. Lindsay that another billion dollar

(The author, a Harvard senior, was not an editor of the CRIMSON. He was the co-author of Mayor Lindsay's position paper on revenue-sharing this summer and is presently leading the Urban Fiscal Crisis Study Group at the Institute of Politics. )

THE BATTLE of the Bulge, according to Webster's New World Dictionary, was "the last major German counteroffensive of World War II, an unsuccessful attempt..." The Battle of the Bulging Budget, currently being fought in New York City, will most likely be analogously defined: "the last major Lindsay counteroffensive of the Urban Fiscal Crisis, an unsuccessful attempt..."

It is unclear how soon this definition might be confirmed. The Mayor's victory on Tuesday may only prove that he has won the battle to save himself, but is continuing to lose the war to save New York City. Many would say, as John Kenneth Galbraith suggests, that it is a war of fiscal survival. This is oversimplifying the situation to some degree, but perhaps not very much.

Most urban mayors would agree that while "the best things in life are free." it costs a hell of a lot just to stay alive. What worries most of them is the belief that the cities, particularly the central cities, are dying from fiscal starvation in front of an affluent but indifferent Federal government.

Just how bad is the fiscal situation in New York City? The problem is quite complex and no attempt is made here to offer more than a few suggestive thoughts. However, the discussion will point out, even at this level, just how hopeless the situation appears.

Imagine the following scenario: With his wrists handcuffed behind his back, his legs bound tightly, his eyes blindfolded and his mouth gagged, John V. Lindsay is told he must rescue a drowning New York City (from the polluted Hudson no less). This comes close to describing the present situation. A more modern version of trial by fire cannot be found.

That Lindsay won a second term is a tribute to the resiliency of the man, but not a sign that New York City has been (or will be) saved.

A CENTRAL theme runs throughout the numerous fiscal ills one could catalogue for New York City. Assuming that the Mayor knows what is optima! in an economic sense (and which therefore minimizes or even solves some fiscal problem), it is usually not optimal in a social sense.

Even if it is both economically and socially desirable, it is often legally prohibited, or more accurately, not sanctioned (New York City, as a legal entity, exists and functions only at the mercy of the State). And even if it is economically and socially desirable as well as legally permissible, it invariably runs into pressure group and ethnic politics rendering it politically untenable. Yet the question remains whether the Mayor can know what is economically and socially optimal.

At the present time there is one program planner in the City's Bureau of the Budget exploring the possibility of an "economic and social report of the Mayor" that would be comparable to the President's annual economic report. The difficulty of such a task is immensely complicated by the lack of a sophisticated understanding of the urban economy and social structure. In New York City, this lack of sophistication reflects a lack of data rather than brainpower.

Lindsay probably has as bright a group of advisers, assistants, and program planners as exists in any federal, state, or local bureaucracy today. What is lacking in New York, but to a much lesser extent in Washington, is meaningfully organized economic and social data to begin knowing what optimal policy is and how to implement it, even if it can't yet be achieved because of other institutional constraints.

Even while acknowledging the difficulty of determining optimal urban policy, some skeptical critics downplay the so-called urban fiscal "crisis." They contend that a disproportionate amount of the nation's wealth is concentrated in metropolitan areas, and add that this is particularly true for the New York area.

Data from the 1960 Census validates their point. At that time, average per capita income in SMSA's (Standard Metropolitan Statistical Areas) was 52 per cent higher than in non-SMSA's. And the New York metropolitan area had an average per capita income 15 per cent higher than the average SMSA. Since 1960 these relationships have remained approximately the same. It is not unreasonable then to ask why the cities, particularly New York City, are complaining about not having enough money.

The Budget Director of New York City might well respond to this question, depending on how frank he was willing to be, that a crisis atmosphere around budget time is good politics-it tends to get more money out of a recalcitrant state legislature.

HOWEVER, there are more substantive reasons why a crisis atmosphere prevails. Accepting the skeptics' point that there is presently a disproportionate amount of wealth in metropolitan areas, one cannot overlook the dynamics of annually balancing the local budget. Things do tend to get worse over time. This is explained by the relatively simple concept of a "fiscal gap" or a "fiscal imbalance."

A "fiscal gap" is said to occur when, as metropolitan income rises, revenue from a given local tax structure (at fixed rates) grows more slowly than expenditures required for a given program structure (at fixed quality). In "economies," the elasticity of taxes with respect to income is less than the elasticity of expenditures.

Prof. Gerald Boyle of the University of New Mexico has estimated aggregate elasticities for state and local governments between 1956 and 1966. What he found would not surprise any urban mayor, particularly John Lindsay. With every one per cent increase in income, expenditures grew by 1.1 per cent while revenue grew by only 9 per cent.

What this implies is that with any constant-quality public service package and at any tax rate level (with the present mixture of state and local taxes), given sufficient time, costs will exceed tax revenue. The situation for New York, however, is even worse than the average American city.

A working paper circulating in the Mayor's office estimates that "City revenues have a natural growth... of only about 5 per cent, while City expenses are now growing at a rate of 15 per cent."

This fiscal gap substantially accounts for the "political theatre" of the "battle of the bulging budget." The tendency for costs to exceed taxes requires periodic adjustments to annually balance the local budget (as required by law), either by downgrading program quality, raising tax rates, or increasing dependence on outside aid. Usually some combination of all three types of adjustment is used, leading to cries of distress from three overlapping groups: public service recipients, City taxpayers, and State (and to a much lesser extent, Federal) taxpayers.

Mayor Lindsay, in his Policy Statement accompanying the latest Executive Budget, outlined a multiple adjustment (and received, as expected, a multiple response): "To close the ($600 million) gap has required a series of measures. First, the budget was cut ($276 million). Second, State aid to the City has been substantially increased ($220 million). Third, new and additional taxes will be necessary. Fourth, I am recommending that user charges and fees for certain services he adjusted to a full cost basis. Fifth, there are in addition numerous funding shifts."

To understand the polities of the urban fiscal crisis, it is crucial to recognize that a fiscal gap can occur regardless of the portion of wealth in the City.

IN THE "economic theatre" of the budget battle, the skeptics overlook some distinctions that are crucial to the issue. While metropolitan areas may be wealthy as a whole, this wealth is far from evenly distributed.

Again according to the 1960 Census, average personal income in the New York metropolitan region (SMSA) was $2,422. However, this hides the fact that New York City's average personal income was $2,306 while the outlying suburbs was $2,733.

Also important is the implied assumption that the wealth of the cities can be sufficiently expropriated for urban services. Again, this is not the case for New York or most other major cities. New York City can onlyuse those taxes delegated to it by the State, and then, in many cases, only up to certain rates. This applies to debt limitations as well.

Another even more important reason why Mayor Lindsay would not locally raise sufficient revenue to finance his programs goes back to the central theme of conflict between economically optimal and socially desirable policies.

The City is limited to taxes which are on the whole regressive: the poor pay proportionately more. According to unpublished research done at the National Bureau of Economic Research for fiscal year 1968-69, a family in New York City with a before-tax income under $2,000 paid 11.5 per cent in total City taxes. As family income rose, this steadily decreased to 5.7 per cent for a family with income between $10,000 and $15,000 Families making over $15,000 paid an average of 74 per cent, a slight increase but still less than for families with below poverty-level incomes.

Nearly all of the regressively in the local tax bundle is explained by property taxes, the largest single source of income for the City, For a mayor as concerned with questions of equity as Lindsay is, raising local revenue is a "damned if you do-damned if you don't" proposition.

RAISING tax rates is not the only means of increasing locally raised revenue. One could also increase the tax base, holding rates constant (or even lowering them). The most important local tax is that on property, and the Mayor might also increase the property tax base for more revenue.

This base is composed primarily of two segments, the valuation of land and the valuation of structures on that land. The former segment is the result of a complex set of market factors over which the City government has only a marginal influence in the short-run. On the other hand, the City could have a substantial impact on what is built on a given piece of land through its powers of zoning, rent control, and condemnation, and its provision of public housing.

What policy would the Mayor of New York follow if he were only concerned with maximizing the value of taxable property? One staff member in the Mayor's office explained: "The Mayor would probably find that he would have to abolish rent control to encourage new private investment in the housing market. This investment would be primarily in luxury apartments in Manhattan for affluent singles, eventually displacing many poor and moderate income families, mainly from Harlem. We are now effectively paying $50,000 an apartment in development subsidies and foregone taxes to provide public housing in parts of Manhattan. If this same land were used for luxury housing, the increased tax yield would permit a vastly enlarged public housing program in other lower-cost areas."

The aide stressed that he was not advocating this policy because of the consequences it would have on furthering racial and economic segregation. Again, the City is faced with an optimal economic policy conflicting with desirable social ends.

The Mayor can't increase property tax rates knowing that the burden falls on the poor, and he can't significantly increase the property tax base knowing that it means dislocation and increased segregation. A pluralistic city is not necessarily an economically efficient one, but many will agree with John Lindsay that the price of this efficiency is worth paying.

That the cities cannot by themselves afford the price of a viable urban community has been a recurrent theme in the Lindsay camp, both in the primary last June and in the campaign leading to Lindsay's election.

In a pre-primary policy speech, Fioravante Perrotta, Lindsay's unsuccessful running mate for Controller, put it this way: "Let me begin by stating one principle all three of us share. The solution to the fiscal crisis of our cities cannot be found within the cities themselves.... There must be real help from the Federal government." Left unstated, but taken for granted, was that State help would also be needed.

EVERY December prior to the enactment of the New York State budget, John Lindsay has trekked to Albany to bang his head on the legislative wall. This past year he pleaded for help with his expected "gap in the budget" of over $500 million. Governor Rockefeller, "although expressing sympathy for New York City's fiscal problems," said he could not help Mr. Lindsay, for he too had a gap in his budget-$700 million.

New Yorkers were worried because they were not in a mood to pay higher taxes to help close the "gaps" of their Mayor and Governor. And the Mayor and the Governor were worried about raising taxes because they were planning to run for re-election.

So they decided to "pass the buck" to their neighbor down the street who had recently moved to the White House. The New York Times reported that a plea was made to the new Administration "to set everything straight by taking over full financial responsibility for welfare, setting aside a portion of Federal tax revenues to be given to cities and states on an unrestricted basis to help them pay for schools, police and fire protection, garbage collection and other services." The story was simple: Here comes John. Here comes Nelson. See Dick run.

On paper, it would appear that the President did not run very far, and even faced up to the problem. By August he had proposed a revenue sharing plan "asking that a set amount of Federal revenues be returned annually to the states to be used as the states and their local governments see fit-without Federal strings."

In reality, the Nixon Administration "boldly" recognized the problem, turned swiftly in the right direction, made a great fanfare, and then moved an inch.

In its first full year under this program, New York State would receive $117 million out of a $1 billion pot. New York City would then receive approximately $50 million of this, amounting to less than one per cent of its present budget.

In five years Nixon's plan would increase the central pot to $5 billion, resulting in New York City receiving about $250 million. But if the City's budget grows at the same pace that it has been growing for the last decade, from $2.2 billion to $6.6 billion, this still will not amount to more than two per cent of the City's budget.

Revenue sharing is Richard Nixon's version of tossing pennies in a fountain and making a wish... that John Lindsay and his urban problems go away.

Fortunately for urban America, John V. Lindsay won't go away... at least voluntarily. Now that he has been re-elected without Republican ties, the cities are his only constituency. We can be sure that he will persist in reminding the Administration of its urban obligations. But if the Administration is unresponsive, and if New York City's fiscal problems are as acute as they seem, Lindsay's victory will only be a "thumb-in-a-bursting-dike" holding action for New York.

I have visions of John Lindsay, downtrodden and in rags, standing before the main gate of the Pentagon accosting the President as he enters and leaves: "Pardon me, Sir. Could you spare a little change... just a billion or two. My city is starving."