The Decline of NY and the Death of the New Deal

By Fred Siegel

Even before November 7, New York, in effect, already lost the election.

I'm referring not to the State Senate's changing hands or the fate of the ballot proposal to add to New York's debt -- already three times the national average -- with a new transportation bond issue. Rather I'm referring to our relationship with the federal government.

New York was on the winning side of every presidential election from 1900 -- when there were seven congressional districts south of 14th Street -- to 1968 with the exception of elections when New York governors (Charles Evans Hughes in 1916 and Thomas Dewey in 1948) were heading the ticket.

New York was once decisive. Today we're a demographically declining marginal state. In 1940, New York State was 10.2 percent of the national vote and New York City 6.7 percent. Today, New York State is 6 percent and New York City is 2 percent. In 1944, New York City cast more votes for president than all the South Atlantic states from Virginia on south combined. In 1950 New York State had 43 House members, that's now down to 31 and will probably drop to 29 after the next reapportionment.

This sense of decline is felt most palpably upstate where the relative poverty of the Western Tier stands in contrast to the relative prosperity of the rest of the Great Lakes Rust Belt. It is there that the most important issue of this year's Senate campaign was joined. Both Hillary Clinton and Rick Lazio picked up retiring Senator Daniel Moynihan's baton and talked about New York State's $15 billion deficit with the federal government. In other words, New York sends $15 billion more in taxes to the federal government than we get back from all kinds of federal spending.

For the fourth straight year, New York ranked 41st in this balance of payments. We get little from the feds that builds an economy. New York ranks 48th in the share of federal defense spending it receives and 42d in non-defense discretionary spending. We do well only in social spending for Medicaid and other low-income programs, which accounted for 75.1 percent of our federal dollars, the highest such rate in the country. The national average was 57.6 percent.

Almost everywhere you look, New York gets the short end of the federal stick. Leave aside military spending where federal dollars have driven high-tech economic growth in areas like San Diego and Austin. Non-military federal procurement dollars represented only 1 percent of New York's state product compared to the U.S. average of 2.33 percent.

New York's per capita share of $178.3 billion in federal procurement -- an often overlooked category of federal spending -- was roughly 50 percent of the national average of $678 per person. Federal purchases of everything from office space to computer training to candy bars slipped sharply in New York State over the last decade. Although federal procurement represents only 12.6 percent of federal funds going to the states, it can be an engine for economic growth because federal agencies buy goods and services primarily from the private sector.

New York accounts for 33 percent of the country's mass transportation, but only gets 18 percent of the subsidy, and this 18 percent is an increase that came from the power Moynihan exerted as chair on the Finance Committee. Neither of his possible successors could have anything resembling his clout. New York's share of population, employment and income all declined between 1978 and 1998 but its share of the federal income tax burden stayed steady at above 8 percent as of 1998. On a per capita basis, New York's federal income tax burden was roughly equal to the national average in 1978. By 1998 it was 23 percent above average.

To deal with this, Senator Charles Schumer has called for changes in the way federal taxes are assessed to reflect the cost of living in different states. "The way to change [the system] is to tax people based on how they live and not just on how much they earn. . . . If you make $25,000 here in New York, you're doing OK, but you're not at the top," he said. "But if you make $25,000 in Mississippi, you're doing great. Yet when we tax people, we tax at the same rate across the country."

Schumer acknowledges it may take "decades" for such a change to occur. But he says he is already in contact with representatives from other Northeast states, the Northwest states and California to begin addressing the inequities.

Good luck in introducing taxation based on regional differences on the cost of living. After all, as old quip has it: "The Senate is the South's eternal revenge for Gettysburg".

But it's not just the South; it's the empty states of the West as well. The fact that the Dakotas, where the total population is less than that of Brooklyn, have four Senate seats to New York's two didn't mean so much when New York State was the powerhouse of American economy, the West was underdeveloped and the South was in Franklin D. Roosevelt's words "our Number 1 problem." Today it matters a great deal.

When you're in a hole, stop digging. At current distribution ratios, every dollar added in federal spending costs New York State $1.16 in taxes.

The more the federal government spends the worse it is for New York. When policy is made in Washington, it cannot, by the very nature of power in the national government, turn to New York's advantage. The world of the New Deal, when Washington worked to New York's advantage, no longer exists. But we're still mesmerized by it. New York believes in Washington more than Washington believes in itself. That always puts us in a bad position.

Fred Siegel, a Professor at the Cooper Union for Science & Art, is the author of The Future Once Happened Here: New York, D.C., L.A. and the F ate of America's Big Cities. The article is based on a talk he gave at the Baruch College School of Public Policy forum


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