From John Lindsay to Rudy Giuliani: the Decline of the Local Safety Net?
Total Page：16
File Type：pdf, Size：1020Kb
From John Lindsay to Rudy Giuliani: The Decline of the Local Safety Net? Edward L. Glaeser and Matthew E. Kahn I. INTRODUCTION whose leaders counted on significant redistribution to the The archetypal mayors of the 1990s act like city managers, less advantaged, both formally through official programs not social levelers. New York’s Rudy Giuliani, Chicago’s and informally through patronage. Local redistribution Richard M. Daley, Philadelphia’s Edward Rendell, and started long before the 1960s. James Michael Curley was just Los Angeles’ Richard Riordan emphasize their skills at as much of a redistributionary mayor as Coleman Young. providing safety and attracting business. While many of Big cities are still unusually oriented toward these leaders enact policies that are aimed at the poor, their providing services to the poor, even controlling for the level political appeal is based primarily on their ability to of poverty. Cities with more than one million inhabitants provide basic public services and to attract businesses. The spend 2.5 percent of their budget, or $88 per inhabitant, change from taking care of the poor to providing basic on local welfare expenditures. By comparison, cities with urban services is not just rhetoric. New York City’s public populations between 2,500 and 10,000 spend 0.7 percent of assistance rolls have dropped by almost 400,000 during their budget, or less than $3 per inhabitant, on local welfare Giuliani’s tenure (see Citizens Budget Commission [vari- expenditures. Cities with more than one million inhabit- ous years]). ants spend 7.4 percent of their budgets on public hous- This current phenomenon would not be unusual ing and public health. Small towns spend 3.6 percent of if it were not for the mayors that these men replaced. their budget on these categories. Thus, despite the massive In the 1960s, 1970s, and even as late as the 1980s, big-city decline in big-city redistribution over the past decade, big government often defined itself by its attempts at redis- cities are still unusual in their tendency to allocate expen- tribution. Mayors such as John Lindsay, Coleman Young, ditures to the poor. and Marion Barry were supported by electoral coalitions These expenditure differences result in real differ- ences over space in the amount of income received from the government by the poor. Poorer residents of big cities Edward L. Glaeser is a professor of economics at Harvard University; Matthew are more likely to receive public housing and receive E. Kahn is a professor of economics and international affairs at Columbia larger amounts of public assistance (despite supposedly University. The views expressed are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal uniform statewide policies). We believe that the greater Reserve System. abundance of transfers in cities (relative to suburbs and FRBNY ECONOMIC POLICY REVIEW / SEPTEMBER 1999 117 small towns) contributes to the segregation of the poor ences were small. It was really under Lindsay that New into large cities, which we believe is a policy issue of first York City developed a redistribution system that separated magnitude. it from all other cities. The last decade has seen a striking We consider two puzzles about the local safety net increase, followed by a decrease, in the amount of redis- and New York City. First, why do big cities, and particularly tribution within the city. New York, engage in so much more redistribution than The final two sections attempt to formally explain small towns? The broad question (the connection between why New York City is different from other cities and why cities and redistribution) is the topic of the companion its redistribution levels have changed over time. Using paper to this one (Glaeser, Kahn, and Rappaport 1999). Our regression estimates from a nationwide city-level data set, second puzzle is to understand why the level of redistribu- we present a decomposition analysis of underlying city tion in New York City (and to a certain extent elsewhere) attributes to explain the gap between New York and other has declined so substantially over the past three decades. cities or between New York in 1970 and New York in We use results from our companion paper to explain the 1990. We find that no one variable explains the greater level and the trend of New York City’s redistribution tendency of New York City to redistribute income relative policies. We need to understand why New York City pro- to other large cities. It is, in fact, not an outlier once you vides local redistribution to seriously evaluate whether this control for its tremendous population, but that would be redistribution will continue to be a feature of New York close to assuming the conclusion. We find that perhaps City life. one-quarter of the difference can be explained by low rates Changes in local generosity have both positive and of home ownership in New York. Close to 40 percent of the negative aspects. Obviously, we may find it undesirable for difference can be explained with variables meant to capture the poor to receive less from local government. Such trends the relatively immobile New York tax base. The remainder might exacerbate income inequality. However, differences of the New York redistribution can be attributed to greater in the availability of transfers over space create spatial dis- proximity between rich and poor in the city and perhaps tortions that encourage the poor to disproportionately live higher levels of attention to the needs of the poor because in big cities. Our goal here is not to evaluate the effects of of that proximity. the local safety net, but rather to understand its causes and There are four effects that together explain more particularly the causes of its decline in New York City. than 85 percent of the change in New York’s level of This paper has five primary sections. In the first redistribution relative to other cities over time. Increased section, we present an overview of the ways in which local- home ownership rates and increased population mobility ities actually redistribute to the poor. In the next section, explain a large fraction of the reduction in New York’s we discuss the determinants of the costs of redistribution relative generosity between 1970 and 1990. Reduced and the benefits of redistribution. Benefits include cash manufacturing employment rates explain part of the transfers for voters who are themselves poor or who care decline in New York’s redistribution efforts, but they do altruistically about the poor. Costs include tax payments not explain the decline relative to other cities. There has and (depending on the tax instrument used) reduced labor been a general decline in the relationship between land demand and housing prices. area and redistribution. In 1970, cities with more land Section III presents a brief overview of the his- area tended to redistribute more income. We interpret this tory of redistribution in New York City. New York’s change as relating to the general decline in the market exceptionalism really started during the New Deal under power of large cities. Increased employer and household LaGuardia. During the 1950s and early 1960s, New York mobility and the existence of edge cities mean that large remained distinct from other large cities, but the differ- cities no longer have the monopoly power that they once 118 FRBNY ECONOMIC POLICY REVIEW / SEPTEMBER 1999 had. As these cities’ monopoly power declines, so does While welfare spending is not the primary form of redis- their ability to redistribute. tribution for most cities, it is the clearest form of redis- tribution enacted at the city level. There are forms of pure 3 II. HOW LOCALITIES REDISTRIBUTE redistribution other than AFDC payments. These extra In the long run, economic theory predicts that localities programs give the city flexibility in expanding or contract- cannot redistribute (Feldstein and Vaillant 1998). Mobility ing welfare rolls that extend beyond the choices made by ensures that utility levels are constant for all income groups the federal government concerning eligibility. across space. In practice, cities can and do redistribute. Even The second major form of local redistribution is if utility levels are ex ante identical across cities, there are building public housing. While there is often a sizable almost always quasi-rents created by moving costs, and local component of public housing spending, much of redistributionary city leaders can exploit these quasi-rents. public housing spending is primarily decided by the In other words, even if a firm will in equilibrium be Department of Housing and Urban Development (HUD) indifferent between all possible localities ex ante, ex post at the national level. As shown elsewhere (Glaeser, Kahn, the firm will have sunk down roots and the city can redis- and Rappaport 1999), these federal housing payments are tribute by taxing the firm. Of course, the firm will have particularly targeted toward larger cities, and these transfers expected this ex ante and firms will receive up-front reflect the single largest reason why transfer to the poor payments or tax abatements from the city to compensate rises with city size. The discretion of localities over the for higher expected taxes. nature of public spending is certainly limited, but the There are many mechanisms that cities use to locality naturally has control over many details of both the redistribute income from their richer residents and firms to construction and operation of public housing.4 the poor, who are better endowed with votes than they are The third form of public spending on redistribu- with income. The most obvious form of spending on local tion is public hospitals.