Gotham Gazette

The Place for New York Policy and politics


State Campaign Finance Reports

Summertime is always a challenge for political candidates in New York. They walk up and down Fifth Avenue in one parade after another, spend countless hours attending meetings and hearings and worship services, go to lots of ball games, shake hands with lots of out-of-state tourists. It's a shame that almost no one is paying attention.

Between Memorial Day and Labor Day, there is an understanding that while candidates will continue to campaign, their focus must be on gathering resources for the crucial weeks leading up to Primary Day and Election Day.

In other words, they are raising money.

A lot of money. A statewide race in a state the size of New York is expensive. Rick Lazio spent about $40 million trying unsuccessfully to defeat Hillary Clinton to be United States Senator from New York. This year's race for governor may not be in the same ballpark, but it is still a costly game.

Under New York state law, statewide candidates have to file reports throughout the campaign disclosing how much money they raise and spend. The most recent filing reveals that the sitting governor, George Pataki, has raised about $12.7 million in contributions over the past six months. The two Democratic candidates did not come close to that figure, but both have raised significant amounts: state comptroller H. Carl McCall raised about $2 million and former HUD Secretary Andrew Cuomo raised $3.1 million.

Campaign finance filings are always highly anticipated, as much for what they conceal as for what they reveal. All three candidates were quick to point out perceived errors, apparent discrepancies, and the appearance of impropriety in one another's reports.

Some of this is just political maneuvering; a published report of your opponent's finances is bound to have something to pick on, and crying foul is one way to deflect questions about your own numbers, particularly if they are lower (receipts) or higher (expenditures) than you would have liked.

These reports can be complicated, and often require an advanced knowledge of accounting procedures to understand. Public weariness of accounting scandals notwithstanding, campaign finances is always a controversial subject. How much money is raised, who it is coming from, who it is going to, how it is being spent, and most of all, how much is left; all of these are legitimate questions for voters to ask.

So what do these reports really tell us? In New York state, campaign funds are generated by private contributions. Unlike New York City's new campaign finance laws, the state law does not set spending limits or supply public funds. These reports are a measurement of a campaign's progress, promise, propriety, and prospects.

How good of a measurement? And how does that measurement compare to the system we have in New York City? In particular, there are four ways in which the state campaign finance reports can prove useful.

Descriptive. On the surface, the numbers are fairly straightforward. One candidate, Pataki, raised a whole lot more money that the others. The other two candidates both raised millions of dollars apiece, enough to fund an entire campaign in many states, but still far less than the sitting governor. This contrasts sharply to campaigns with publicly financed candidates, who will spend money in similar amounts.

Deductive. Knowing what we do about how candidates raise money, and how much they raise, can give us some reasonable conclusions about the candidates themselves. We can see where a candidate's money is coming from, and map out patterns of giving, and possible conflicts of interest. We can safely guess that a candidate who is having success in reaching contributors is having similar success in gathering supporters as well. We can deduce that a campaign that is raising lots of money is well managed and efficient.

Conversely, we can speculate that a campaign that has failed to reach its fundraising goals may be experiencing other difficulties. Of course all of this is just speculation, but it can be useful. Public financing under city law does require that certain thresholds are met, and knowing that a candidate has qualified for the financing does give us some information. But above that, it provides us with little in the way of additional evidence, positive or negative.

Preventative. Presumably, knowing that financial disclosure will take place is one way to prevent candidates and campaigns from engaging in illegal or unethical conduct in its financial dealings. Sadly, current events in the business world would serve to illustrate the exception to this rule, but on the whole, disclosure does tend to have a cleansing effect. Most campaigns take very seriously their duty to report financial information accurately and on time. While mistakes are made, they are, on the whole, genuine oversights and not deliberate attempts to deceive.

This is true for public financing as well; mandatory financial disclosure is still the best method for keeping campaign politics on the straight and narrow.

Predictive. Campaign finance reports contain lots of numbers, but at the end of the day, only one number really matters for predicting the future success of the campaign: Cash on Hand. This is sometimes described as the candidates' warchest, the money they have managed to hold onto, the money they have left.

Knowing that one candidate has two or even three times more cash on hand than his or her opponents is a valuable piece of information. It would not be accurate to simply say the candidate with the most money will win, but it would be accurate to say the candidate with the most money usually does. There are a number of reasons for this; candidates with more money are typically candidates with a broad base of support and a strong message and a good organization.

But having a lot more money than your opponents, and even more than that, knowing you have a lot more money than your opponents, gives a candidate the ability to reach out to multiple voting blocs with varying messages in every possible medium. Basically, it means instead of having to put all your money in one place, and hope that place is the right place, you can reach out to multiple voting blocks with varying messages in every possible medium. It greatly increases the odds that come Election Day, you will have picked the right combination of message, media, and market.

In last year's mayoral race, the publicly financed candidates all had a similar amount of cash on hand, but one candidate had a warchest that allowed him to reach voters with unprecedented levels of frequency. Mike Bloomberg's victory was unprecedented in many ways, and hardly could be called predictable, but his campaign remains a powerful illustration of the value of knowing what a candidate has left. And of course, no one did know. Public financing doesn't give restrictions to what a candidate can spend of his own money, and doesn't require advance commitments of spending limits.

The race for governor gives voters a chance to evaluate the merits of a campaign finance system very different from the one the city now enforces. In both cases, there are reasons to wish there was a better way.

Susan Reefer is a Republican pollster and media strategist. She is based in New York City.


Hollywood East?

Over the past months, while many industries have struggled, television and film production in New York has flourished. The recent TriBeCa Film Festival celebrated that neighborhood's independent film scene, shows like "The Sopranos" and "Sex and the City" have continued to fuel a television production boom in Queens; and plans to build soundstages in the Brooklyn Navy Yard and a major film complex on Staten Island have gotten underway. The film and television renaissance began during the mid-1990s, when the number of New York-based productions climbed to levels not seen since the 1920s; there are now on average 200 films shot here each year, and 106 television shows call the city home. Traditional media production contributes $5 billion to the local economy and creates more than 70,000 jobs; factoring in pre-production; post-production, and studio work, the total economic impact doubles. And yet New York's film and television growth has not kept pace with growth abroad, and new economic and security concerns are stretching the resources of the city. Will an overtaxed police force, for example, be able to provide the red-carpet treatment for location shoots? With a drastically reduced city budget, will New York be able to compete with cities that provide direct economic incentives to producers? With such concerns, what is the long-term outlook for Hollywood East?

Like many regions, New York actively markets itself to producers. The Mayor's Office of Film, Theatre & Broadcasting was created in 1966 as both an economic development agency and an advocate for the industry. It promotes the city through financial incentives and advertising, and by sending representatives to trade shows and meetings with Hollywood producers. (After 9/11, the office sent representatives to California to reassure studios that the city was open for business.) It also makes it much easier for the productions to get the necessary permits, permission and insurance, and even provides field representatives for shoots.

According to Julianne Cho of the mayor's office, the events of 9/11and threats of future terrorist attacks have had "little to no effect on the industry" and no productions have left the city since September. Due to fortuitous timing, few productions were even interrupted by 9/11; fears of an actor's and writer's strike had pushed most film projects into the first half of 2001, and many television shows happened to be on hiatus in September. The increase in the number of feature films being made this year, Cho says, "can probably be attributed more to projects that were in their preparation phase during the latter half of 2001, than to a surge in patriotism [attracting producers to the city]."

The real threat to the city's production industry, some fear, may not be from terrorists or economic downturns but from competition from the north. A March 2001 Department of Commerce report looked at the migration of film and television production from the U.S. to other countries--particularly Canada. The report concluded that about $4 billion worth of production, as well as thousands of jobs, goes to cities like Toronto, Montreal, and Vancouver each year. It's a trend that began in the 1990s, when the Canadian government created aggressive marketing and incentive programs to attract producers. From January to March 2001, production in Toronto--a city that often stands in for New York--increased 40 percent. Many studios now hire "cost consultants" to manage film and television budgets, and the cost-benefits of Canada are clear--the strong American dollar, coupled with the significant subsidies and tax breaks provided by federal, provincial, and city governments, can produce savings on average of 26 percent.

Even though New York offers some of the most extensive economic incentives to film and television producers in the country--including free permits, free police assistance, and zero sales tax on production consumables--it can't match Canada's economic advantages. Thus, if the global boom in film and television production abates, New York risks being left behind. To avoid this scenario, industry leaders in New York and elsewhere have raised questions about whether Canada's largesse violates fair trade practices. In March 2002 the Los Angeles-based Film and Television Action Committee filed a petition with the U.S. Commerce Department, asking that a duty be placed on productions made in Canada. Others have suggested that, instead of tariffs, federal and local governments should directly subsidize the movie and television industry. But would New York taxpayers be willing to pay to keep "The Sopranos" in the city, or to encourage Woody Allen to film his next project here?

As a location, New York clearly has strengths beyond the bottom line. Julianne Cho lists "a world-class talent pool, locations that cannot be duplicated anywhere else, and a simple, one-stop, expedited permit service that other domestic and international regions have only just started to imitate." Anecdotal evidence suggests that a smaller city like Toronto might not be able to sustain the high production levels it has been experiencing. (The Times quoted one Toronto resident complaining of "production fatigue," while other reports suggest that the labor pool in some Canadian cities has been overtaxed in recent years.) Many writers, directors, and actors place high value on New York's vitality--a quantity than can't be easily be reproduced, even with the latest digital technology that can edit out Toronto's trolley lines and add in New York's skyline. The city's independent film scene--which accounts for 60 percent of all films made here--might also be a source of strength, since indies tend to be driven as much by script and other creative requirements as by budget concerns.

This month, the Economic Development Corporation will review the plans for Stapleton Studios, a project now in the early stages that would build 10 soundstages, a hotel, marina, and esplanade on 36 acres of Staten Island's waterfront. It is an ambitious and seductive plan--a small, self-contained slice of Hollywood just minutes from Manhattan--and one that might help keep New York at the center of film and television production.

Martha Hostetter writes for American Theatre magazine. 

Naming for Dollars

The New York Botanical Garden features the Con Edison Pond Gallery, the Texaco Kids and the Mitsubishi Wild Wetland Trail. The new baseball stadium for the minor-league Brooklyn Cyclones is named after the local energy company, Keyspan (formerly Brooklyn Union Gas). The Children's Museum of Manhattan includes the Time-Warner Media Center. Two theaters on 42nd Street were renamed the American Airlines Theater and the Ford Center for the Performing Arts, and a third theater, the Winter Garden, former home to "Cats," current home of "Mamma Mia," is about to be renamed the Cadillac Winter Garden Theater. So when Mayor Michael Bloomberg suggested recently that the city's parks could be named after corporate sponsors as a way of helping to pay for their upkeep, it was a logical extension of a trend, begun with stadiums and now being adopted by non-profit institutions, to trade the rights to a name for corporate dollars.

In suggesting that parks be named for corporate donors, the mayor acknowledged the success of public-private partnerships in helping to fix up and maintain the city's parks over the last few decades. And he was no doubt aware of how much money the owners of stadiums and theaters and other facilities have raised by selling naming rights. While the mayor mentioned only parks, his idea could be extended to schools, libraries, subway stations, streets.

With the city facing a multibillion dollar budget shortfall and parks slated for their lowest budget in 10 years, some parks advocates welcome the private sector's involvement in parks and would not be opposed to giving naming rights to corporate donors. But other New Yorkers think such deals, no matter how much money they bring in, are a bad bargain. A letter to the mayor signed by 27 scholars and other prominent New Yorkers said, "to rename the parks for corporations would be literally to sell the city - its heart and soul - for money."


The selling of corporate naming rights, which began in earnest with sports stadiums in the late 1980s, has become something of a mania. A couple even tried to auction off the naming rights to their newborn child (there were no takers). Nearly half of the nation's major sports arenas now bear the names of corporations, and corporate names are increasingly common in minor league and even college and town playing fields. The practice has spread to convention centers, malls, airports, hospitals, theaters, and museums. The Smithsonian Institution recently named the theater in its National Air and Space Museum after the Lockheed Martin Corporation, which donated $10 million to the museum.

Renaming long has been a preoccupation in New York City. So much time is taken up at the City Council to renaming streets - according to one estimate, about two-thirds of all council bills! - that Councilmember James Oddo has proposed "taking the City Council out of the 'name change game,'" and turning it over to community boards.

But New York City has only recently begun to warm to the national trend of trading names for money.

The amounts of money involved can be substantial. The record so far is the price tag of $300 million ($10 million a year for 30 years) for adding the corporate name "Reliant" to five arenas in a Houston complex that includes the stadium for the Houston Texans. More modest is the $5 million gift for the new building of Philadelphia's Please Touch Museum, which becomes the "Please Touch Museum Presented by McDonald's."

It is clear what the corporations get out of this. Keyspan Energy Services put its name on the new stadium on Coney Island (for an undisclosed sum) to invest in an area that it serves, according to spokesman Robert Mahony. But, Mahony conceded, the company was able to justify the investment to its shareholders because of the advertising return. "It was an excellent opportunity to associate the name of the company with Brooklyn, with the New York Mets, and with bringing baseball back to Brooklyn."

And stadium deals offer a company more than just publicity and marketing value. Corporations attaching their names to stadiums typically get free tickets, luxury suites, parking privileges, and sometimes the opportunity to sell their products at the stadium.

Cities are starting to consider the idea of selling naming rights to municipal facilities, although the rewards are lower and the risk of backlash higher than for more commercial sites. There have been suggestions in various places to offer naming rights for subway stations, school buildings or highways, but Mayor Bloomberg appears to be the first to promote the idea for parks.

There are many successful examples of other types of business support for parks. The National Park Foundation has five major corporate "partners" that have made "multi-million dollar, multi-year contributions" to the national parks, according to foundation spokesman Mike Bento. Detailed guidelines, issued by the parks service, limit how donors can be recognized. For example, permanent signage and naming are not allowed. "What's been proven is that you can get corporations involved without sacrificing the very special nature of the parks," Bento said.

Corporations also sponsor events and programs at municipal parks all over the country. For example, Pathmark and M&M covered the cost of the Easter Eggstravaganza held recently in Central Park. Typically, the identification of the corporate donor is low-key, and sponsors often have a logical tie-in to the event or program.

The city parks commissioner, Adrian Benepe, has said he would like to take existing corporate partnerships a step further by offering naming rights in exchange for the construction and maintenance of a facility. Although the proposal has not gone farther than the concept stage, said department spokeswoman Jane Rudolph, "the goal is not to make Central Park change its name. The goal is to take specific facilities or a special garden like the Heather Garden in Fort Tryon Park and possibly give it a sponsorship."

Another facility that has been mentioned for corporate support is the track and field complex being built on Randalls Island.

The most concrete plan put forth by the Bloomberg administration is to sell advertising space within city recreation facilities. For example, a corporation may pay to have its billboard displayed on the walls of an indoor basketball court.

Any corporate identification would be tasteful and low-key, said Rudolph. "Nobody at parks is going to turn any facility into a corporate name with huge flashing signs," she said.


Whether handled tactfully or otherwise, the idea of selling the naming rights to parks raises a number of questions.

A major pitfall of corporate naming for public spaces like parks is that it tends to erode the government's obligation to fund what are traditionally public services, according to Jerold Kayden, associate professor of urban planning at Harvard Graduate School of Design. "It decreases the necessity of public funding in ways that can have an ultimately corrosive effect on lots of public activities," he said. "It leads us to abandon, step by step by step, down a slippery slope, a commitment of public tax dollars to certain things that are not deemed high priorities."

Yet the public and the government have little control over how long the private support will continue, as the cultural institutions in Houston so painfully learned when a bankrupt Enron couldn't come through with promised donations. If the private sector pulls out, it can be a struggle to get the city to restore former levels of funding.

Also, would corporate donations help the parks that are most in need -- small parks in poor neighborhoods in the outer boroughs? The parks department could try to direct corporate gifts to those areas or earmark a percentage of the donation to the entire system, but the project would ultimately depend on what a corporation is interested in funding, and corporations would probably be interested in high-profile, popular spots.

In New York City, private funds may have already contributed to the decline of public funding for parks. A concerted effort by private donors and volunteers helped turn around Central Park, and then other parks in the city. Yet even when the city's budget was flush during the 1990s, New York continued to trim the parks department budget and encourage the department to raise a greater share from private donors and concessions.


Many buildings and public spaces - hospitals, theaters, plazas, gardens - are named for philanthropists who donated money for their construction or renovation: in Central Park, for example, there are the Delacorte Theater and the Wollman Rink. How is this different from naming a public space after a donor that happens to be a business?

Critics see many differences. These public places have been named for individuals being honored for their generosity, public service, or importance to history - not as a quid-pro-quo with profit-making companies.

"It's the sale of New York's great heritage to some corporate donor, which is sad and unfortunate," said Gary Ruskin, the executive director of Commercial Alert, a non-profit organization founded by Ralph Nader to oppose commercialism. "Across the country, a wave of sponsorships is turning municipalities into marketing agents," he said, arguing that it is not the proper role of cities to promote corporations that pollute, sell unhealthy products, or exploit low-earning workers overseas.

Cigarette and liquor companies, as well as businesses involved in disputes or selling controversial products, would probably be off limits. But to Ruskin the concept of putting any corporate name on parks in particular poses problems. "These parks exist to give people a respite from the aggressive hawking of products and huckstering that we are all subject to on a minute-to-minute basis in our society," he said. "Naming rights defeats that worthy purpose."

Similar concerns led the people of Boston to block a plan to sell the naming rights to four of the busiest stations in their subway system. As one reader wrote in The Boston Globe, "Post a bond or raise taxes, but please do not make us say the names of corporations when we describe where we go."

But maybe corporations should keep out of this name game simply for their own good. Several commentators have detected a "naming rights curse." A number of firms that placed their names on stadiums soon saw their stock drop or even went bankrupt. (A web site tracks the stock prices of companies that purchased naming rights to sports arenas). The list of bankrupt sponsors includes PSINet, TWA, Pro Player and, most notoriously, Enron. Earlier this year, after Enron fell into disgrace, the Houston Astros bought back the naming rights, and changed Enron Field back to Astro Field - until the team can find another corporation willing to spend millions of dollars a year to put its name on the ballpark.





From Home To Community (Board). Dot NYC. Increased Cost of Pay Phones,

Community Boards and The Internet

Two-thirds of all New Yorkers are said to be online. But many of them can only access the Internet from work, a library, a school, or a community technology center. Many technology experts believe that the efforts to cross the digital divide should include getting more computers in private homes.

Perhaps it is ironic that if this happens, -- if more New Yorkers can stay at home and still get online -- more will become active participants in their communities.

That, anyway, is the hope of the members of New York's community planning boards, and they are preparing for it. About ten out of 59 community boards have web sites, and one group is reaching out to the rest. It is called the Prototype Community Board Website Development Project, and its aim is to improve the ability of under-funded and short-staffed community boards to communicate with each other and with their communities. The program is currently supported by new Department of Information Technology and Telecommunications (DoITT) Commissioner Gino Menchini.

The Battle for .NYC
Community Board leaders are trying to build support for the .NYC (pronounced dot NYC) Campaign, an effort to secure the top-level domain name .nyc for New York City. In April 2001, Community Board 3 in Queens passed an Internet Empowerment Resolution that has recently gotten the support of Queens Congressman Joseph Crowley. Now, the challenge is to convince the three NYC Congressmen that serve on the House Commerce Committee -- Representatives Ed Towns (10th), Eliot Engel (17th) and Vito Fossella (13th)--of the importance of the .NYC Campaign.

Currently, organizations in New York City use generic domain names like .com, .edu, .gov and .org to identify their presence on the Web. However, .nyc would allow citizens to find local organizations more easily on the Internet and bring local control to the communications network. For example, if managed by city government, the .nyc domain name would raise much needed revenue for the city by registering domain names categories such as,, or The domain could also be managed by a local private sector or third-party organization. In addition, the .nyc domain name could help to build a powerful brand on the Internet for the New York. Currently, Los Angeles has secured the .la domain name that was originally issued to the country Laos.

The international domain name system is managed by the Internet Corporation for Assigned Names and Numbers (ICANN), a non-profit, private-sector corporation. Recently, ICANN has been criticized for being slow and inefficient and lacking transparency and is currently trying to reform. Thus, the organization has issued far fewer domain names than expected this year. New York City can assert its influence in the organization primarily through the United States Department of Commerce. Therefore, if community boards are serious about the battle for .nyc, they will need to raise awareness among communities and congressmen in the 10th, 17th and 13th districts.

Pay Phone Update
On March 11th, Verizon raised pay phone rates to 50 cents for an unlimited local call up from 25 cents for a three-minute call. This is the first rate increase since 1984 and New York was the last state to increase prices. In 1996, most states increased pay phone prices to 35 cents as a result of deregulation in the phone industry and recently all have adopted the 50-cent rate. Verizon cites competition from new communications technology such as cell phones as the primary reason for increasing the price of calls on its 110,000 pay phones. While Verizon is committed to keeping pay phones in communities where they are needed, the 50-cent rate may prevent the poor from using the phones. An additional 50 cents will be charged for directory assistance from pay phones.

Cable TV Update
Cable television subscriptions are up three percent as a result of the destruction of the antenna on the north tower of the WTC. Currently, about 21 percent of households get television over the airwaves rather than through cable. As a result, over the next five years New York City will pocket $51 million in franchise fees from cable companies. This will help aiding in the city's recovery from the budget crisis. For every $10 per month a cable customer pays, 50 cents goes to the city in franchise fees.

Cable Internet Access Update
The FCC recently exempted cable companies from having to allow Internet service providers (ISPs) access to their lines. According to the Federal Communications Commission, this step was necessary to promote investment and growth in high-speed Internet access. However, this move contradicts the FTC conditions of the AOL Time Warner merger that required the company to open its lines to other ISPs in order to increase competition in the cable market. This highlights an important difference between the telecommunications and cable markets. Historically, telecom has been widely regulated while cable has not. This may mean less choice of ISPs for consumers in New York.

Laura Forlano is a doctoral student studying communication technology policy at Columbia University.

New York's Secret Tax

Residents in New York City's one million rent-stabilized apartments complained bitterly about the rent increases that the Rent Guidelines Board voted for last June. "I can't afford this increase," said Cita Karan, an adjunct professor at CUNY who earns less than $25,000 a year and pays $1,200 a month rent. "Students I teach quit school because they can't afford housing."

It may be the most famous fact about the city that many New Yorkers struggle to pay rent and find affordable housing. But instead of placing all blame on the Rent Guidelines Board, renters would be well advised to look at a payment most do not even realize they make, one that is certainly larger than the latest rent increase-- their property tax. Yes, renters are paying property taxes. And the burden on renters is disproportionately high compared to what is paid by owners of condos, co-ops and especially houses.

Out of the rent Cita Karan pays each month, $132 of that is estimated to go to property taxes. By contrast, someone who owns a house worth the same amount as Karan's apartment would pay an estimated $30 in taxes.

Not only is this inequality dazzling, but it is very close to a complete secret. Renters might complain, if they knew about it. But nobody -- neither landlord, tax officials, nor elected officials -- tells them about the substantial share they must pay of their building's property taxes.

To its many supporters, including almost all elected officials, the city's property tax system is just fine, helping to promote home ownership, and providing, as it always has, the single largest source of revenue for the city government. Critics, on the other hand, charge that the system is unnecessarily complex, inequitable, and inefficient.

For renters, who represent two-thirds of all New Yorkers, the property tax is simply a mystery.


How did we get such a difference in tax burdens? State and city officials responsible for property tax laws have consistently catered to owners rather than renters. But renters in New York City, in spite of their numbers and clear economic interest, have never really raised a fuss. The city's property tax law is incredibly complicated.

Most renters fail even to see themselves as property taxpayers since the building's owners pay the tax directly, and then of course pass the cost onto their tenants in the rent. Estimates vary, but in 1993, economist Howard Chernick estimated 75 percent of the cost is passed on to the renter.

The last comprehensive study of the city's property taxes was done in 1993, a joint project of the City Council and then-Mayor David Dinkins. It found the system "inordinately complex ... poorly understood by taxpayers," and marked by a wide disparity in tax burdens.


In the early days of New Amsterdam, Peter Stuyvesant's government made money by taxing liquor. It was only when the city went into debt that it tried to raise the money with a property tax. But angry citizens rose up and stopped the tax.

The city developed the first comprehensive system for assessing and collecting property taxes in 1859, and as late as the 1950's, property taxes still accounted for 70 percent of the city's revenue. But other taxes have been added one by one -- the first sales tax was instituted in 1934, local income tax in 1966 -- and now property taxes provide just about a third of the city's revenue, though that still represents the largest single source of funds.

The system of property taxes as we know it comes from a 1981 state law. The law was supposed to make the property tax system more rational and equitable. The political intent, however, was to protect homeowners.


First, all property was divided into four broad classes:

  • Class 1: one-family to three-family houses.
  • Class 2: all other residential properties, broken further into three subgroups; coops, condos, and rentals.
  • Class 3: utilities.
  • Class 4: all other properties, including commercial property and vacant land.

Under our current system, Class 1 buildings have the best property tax deal. Class 2 coops and condos have good deals, but not as good as the owners of houses. Class 2 rentals, and Class 4 commercial properties get the largest share of the tax burden.

For city house owners, the estimated tax rate averaged 0.55 percent, according to the Independent Budget Office. That means the annual taxes on a $300,000 house in New York City would average $1,650. This is less than a thir d of the average tax rates in surrounding areas: Long Island, for example, had an effective rate of 1.90 percent, or, for a house again costing $300,000, average taxes of $5,700.

The argument of elected officials who support the current property tax structure is that unlike any other city, New York City has over 20 other taxes. Other residents in the state, for example, pay no local income tax. So, as a study by the Independent Budget Office showed, if we add the local personal income tax burden to the property tax burden, then the average New York City homeowner actually winds up paying slightly more than the average homeowner in the rest of the state.

But if the system was designed in part to fix inequities between homeowners in New York City and homeowners in the rest of the state, the inequities between New York City homeowners and New York City renters were ignored. The poorer New Yorkers wind up paying the most tax. The average New York renter earns $33,000 a year, compared to an average of $60,000 for house owners and $177,000 for coop/condo owners, according to the Independent Budget Office.

One simple alternative to the present system would have been to treat all property the same, assessing them all at market value. Then, depending on how much the city wanted to spend any year, it could determine one property tax rate for all owners.

Another simple alternative would have been to have two classes -- residential and commercial.


In 1996, the City Council gave a tax break to coop and condo owners, trying to lower the imbalance between coop and condo owners and house owners. It has not worked exactly the way they planned. The Independent Budget Office has shown that now, some coop and condo owners in the city's most expensive neighborhoods, like 5th Ave. and Central Park West, actually have a lower tax rate than house owners.

And coop and condo owners in different boroughs now pay different amounts. Coop and condo owners in the Bronx and Queens have much higher rates (1.99 and 1.63 percent respectively) than those in Manhattan (0.95 percent).

The City Council's efforts were certainly well intentioned, and not useless. It did help move coop and condo tax rates closer to the rates of house owners. But the rates are still uneven, and no one is talking about changing the tax rates for the renters.

There is only one property tax issue on the political table today -- to further lower the property tax burden on coop and condo owners to equal the level currently enjoyed by house owners.

But meanwhile legislators are silent on the other issues. No one questions why property tax revenues have actually declined between 1993 and 2000, while the city has had one of the biggest real estate deals in history.

Property taxes -- the one major tax whose rate is under the city's control -- represented 45 percent of all city tax revenues in 1993; in 2000 it was 35 percent.

Few people talk of simplifying the system, addressing the inequities within classes and across boroughs, or telling renters what they are actually paying in real estate taxes. These questions await another property tax reform commission, or a fiscal crisis, or an economic slump, or political action by tenants who finally wake up to what they are paying.

Glenn Pasanen, associate director of City Project, a City budget watchdog group, writes Gotham Gazette's Finance topic page

Budget Shenanigans

The final budget from the Giuliani administration was passed after the usual alterations and "enhancements" by the City Council. For the cultural community, those alterations resulted in a restoration of the Mayor's propose d cut of $20.1 million to the Department of Cultural Affairs in the expense budget and an allocation of over $200 million for capital for the cultural groups. For the first time, the amount allocated to cultural groups not in city owned buildings appears to equal, if not slightly exceed, the funds for the 34 in city owned buildings.

The restoration is welcomed by the cultural community, which has come to regard the City Council as saviors in the annual budget ritual. In fact, there may be no other constituency in the city looking forward to term limits with both unrelieved relief and deep anxiety. Few, if any, regret the loss of a mayor who consistently sought to severely decrease their funding. None, however, look forward to thirty-five new council members, whose knowledge of the arts and cultural field is likely to be limited at best.

This latest budget was complicated by an unwanted and unnecessary 25 percent increase by the mayor for energy for the 34 cultural groups in city owned buildings. This appears to be a budgetary maneuver. Once allocated as energy, these funds are not transferrable to other operational aspects of a cultural institution's budget, so the $5 million has the effect of appearing to increase cultural spending. In reality, this appears to be a way for the Mayor's Office of Management and the Budget to increase the energy aspect of the city budget, which if unused -- as it most certainly will be for cultural groups -- can then be transferred by the administration to other areas of spending, including non-energy needs.

While the Council was aware of this situation, either they were unable to pry loose from OMB just how much money was squirreled away in this manner, or other aspects of the budget negotiations took priority. What is clear from OMB testimony, is that any citywide process of the kind described, if as oddly skewed as the cultural projections, has millions diverted to energy increases which will be unnecessary. That may be welcome news for the next mayor if the economy continues to drag along. It is not welcome news to the cultural groups, who would have preferred to see an accurate projection so those funds could have been allocated to the increases they so badly needed.

In the last eight years, the cultural groups have received only one general increase in funding and that was a modest amount from the Council last year. Efforts to achieve an increase this year failed due in part to the tax cut package, which limited the funds available to the Council, and to the preference by the Council for individual enhancements to specific arts and cultural groups.

Once called "add-ons", the Council allocated $8.7 million to 198 groups, ranging from $650,000 to Lincoln Center, as well as $506,700 for Jazz at Lincoln Center, and various amounts totaling $637,000 for American Museum of Natural History. Wave Hill in the Bronx got only $2500, but the Brooklyn Botanical Garden is mostly likely happy with their $165,000 and the Bronx Zoo at $400,000 is probably not complaining. Most groups received far less, sometimes as little as $1000. However, in the last three years, the Council has moved from an add-on list totaling $5 million to one at $8.7 million -- a 74% increase!

The cultural groups welcome the "add-ons" but rarely see the total picture. The same process of designating expanding funds to particular groups outside of an agency evaluation process is also increasingly evident at the state level. This process of "add-ons" and "member items" threatens the very heart of what most arts and cultural groups believe is essential -- public support for the use of tax dollars to fund the arts.

Public support for arts funding is based on the assumption that such funding is provided fairly and through some kind of evaluative process, and it is that evaluative process that the cultural community has used to defend itself against efforts at censorship.

Many in the cultural community feel they have no choice but to seek "add-ons" and "member items" since increases through the Department of Cultural Affairs and the State Council on the Arts have been either nonexistent or minimal. However, political clout or the ability to hire a well connected lobbyist is not a guarantee of artistic quality, nor of service to a community.

Elected officials mean well, but both they and the cultural groups may be inadvertently damaging the public perception of how tax dollars are used in the arts when they bypass the evaluative process. In doing so, the short term benefits may have serious long term costs. In the meantime, it is safe to predict that only the short term will matter. Political and cultural leadership to look at the broader picture are lacking even in the city that likes to call itself the cultural capital of the world. So, as the Giuliani administration draws to a close, it leaves the cultural community financially worse off than when it entered office, and perhaps weakened in a significant way. The legacy of the City Council is at least one of real concern about the fiscal impact of cutting funds to the arts and cultural community.

Norma Munn is Chair of the New York City Arts Coalition, founder and President of the Artists Community Federal Credit Union, and former Chair of The City Club of New York. 

Summer Jobs Threatened

Last summer, Habibah Tucker got her first job ever, and it changed her life.

"It gave me a sense of independence," says Tucker, an 11th grader at the Peace Academy in Crown Heights, who participated in the Summer Youth Employment Program as a maintenance worker in Fort Greene.

"If I didn't have the job, I probably would've just stayed home. I don't know how I would have earned money. My mom's already struggling."

This summer, thanks to a new federal law, she may have to stay home.

Federally-funded summer jobs for needy teenagers have long been one of the country's most popular programs and an original part of the Great Society legislative agenda of the Lyndon Johnson administration.

Since the 1964 passing of the Economic Opportunity Act, needy city teens have been offered the safety belt of a summer job during the bumpy months of school vacation. The theory was that lower-income teenagers could gain job skills, earn money for themselves and their families, and stay out of trouble while providing community organizations and municipal agencies with staff.

In recent years, New York City received about $50 million in federal funding for close to 50,000 summer workers. Low-income youths from the five boroughs were signed up to staff camps and day care centers, maintain parks and recreational facilities, clean school buildings and public housing projects and tutor children.

But the program was dissolved last year when the package of welfare reforms signed by President Bill Clinton was put in place after two years of hammering. Titled the Workforce Investment Act, its framers intended to transform the current system of "fragmented and duplicative" welfare programs into a coordinated "workforce development and literacy system."

Under the legislation's framework, the Summer Youth Employment Program was "duplicative" of the new government services provided the rest of the year. As such, the summer jobs program - and its funding - is now just one ingredient in a full menu of year-round youth programs.

Some youth labor experts said that the summer work experience is best served as a cherry on top of a school year of internships or part-time jobs, and classroom instruction in vocational skills. David Brown, deputy director of the National Youth Employment Coalition, a Washington, D.C.-based network of youth employment and development organizations, said, "The focus is now on much more comprehensive programs and follow-up, plus more expectations and requirements for the young people."

But the bad news, he continued, is that while the act does not end government-supported summer youth activities, there is no additional money, and thus local programs will have little choice but to serve fewer youths.

"It's a dilemma," Brown said. "Is it better to provide a narrow service to a whole bunch of kids, or focus on a fuller range of services to fewer kids?"

The dilemma doesn't need to be a Catch-22, said Theresa Greenberg, assistant executive director of the Forest Hills Community House. "Both programs help kids," she said. "It's not a matter of one or the other. The year-round component is really important for a small number, but we have 50,000 kids who can and want to work during the summer. And during the school year, they need to concentrate on school and part-time jobs."

But the $87 million in federal money awarded the state, of which almost three-quarters go to the city, is a block grant meant only for teens enrolled in Workforce Investment Act services. Many youth historically entitled to federally funded summer jobs are not longer eligible under the Workforce Investment Act.

Over and above being economically disadvantaged and between 14- and 21-years-old, young people must also demonstrate at least one additional "barrier to employment," such as being an offender or dropout, pregnant or parenting, homeless or in foster care. The city Department of Employment estimates 12,600 youth are involved in year-round programming as opposed to the more than 50,000 teens who want summer jobs.

In response to the drop of participating teens, this spring, the state and city cobbled together about $25,000 in emergency funding to save the separate summer jobs program. According to May Chin, a spokesperson for the city Department of Employment, officials are also looking to tap into another $25,000 in discretionary Temporary Assistance for Needs Family funds. Without this money, thousands of teens who aren't part of year-round Workforce Investment Act programming would perhaps still be searching for summer work.

While summer program advocates applauded the stopgap money as a step in the right direction, they insist that what New York should really be doing is create its own summer jobs program.

The Campaign for Summer Jobs, a coalition of community-based organizations, has successfully mobilized the fight for money to save the program, including rallies on the steps of City Hall and floods of petitions to the City Council. In addition, legislation is before the New York State Assembly and Senate to create a permanent summer job program. Passage of these bills will "eliminate the uncertainty that has surrounded the summer jobs program in 2000 and 2001," said Assemblyman William Scarborough of Queens, a sponsor of one of the bills.

Taci Flint of United Neighborhood Houses, a leader of the Campaign for Summer Jobs, said summer jobs have many other purposes. "Not only are they working and earning their own money, but they're also contributing to the community. Our community organizations have grown to really count on these workers."

Some of the organizations that have historically depended on the new summer blood include the Henry Street Settlement in Manhattan, Mosholu Montefiore Community Center in the Bronx, the Chinese American Planning Council in Brooklyn, and the Forest Hills Community House. Mary Halloway, executive director of the Association for a Better New York, a business advocacy organization, said it would be "catastrophic" if the summer jobs program was eliminated. "The summer job experience is vital for New York's teens and the future of the city's workforce."

Politicians say they want a skilled workforce, said Viola Fusco, a 16-year-old student at the Satellite Academy in the South Bronx who now works at Old Navy in Harlem earning $6.50 an hour. "Hello. We're young. We need to get the experience first."


National Survey on Child Poverty

Children in New York are better off financially than they were two years ago, according to a national survey released in early November by the Urban Institute and Child Trends of Washington, D.C.

Fewer children live below the federal poverty line, fewer families report having trouble putting food on the table, and fewer children live in single parent homes.

However, New York families still lag behind the rest of the nation in obtaining economic stability, and there is still a large segment of New York State children living in extreme poverty. Furthermore, children as a group are still poorer than other Americans.

"Although we found reductions in the gap between low income children and the rest, there still is an alarming gap," said Sharon Vandivere, of Child Trends, and one of the authors of the study.

The survey of 42,000 households across the country produced state-specific results for New York as well as national results, making it possible to compare the economic well-being of New York families to that of families nationally.

Among the findings:

  • The child poverty rate declined in New York, but a large portion of children remain very poor. The percent of children living in poverty slipped from 25 percent in 1997 to 22 percent in 1999. Children in poverty live in families that have less than the amount the federal government identifies as the minimum annual income needed to avoid shortages of basic necessities ($13,133 for a family of three). Nationwide, the rate of child poverty dropped from 21 to 18 percent over the two years.
  • The poverty rate is much higher for children than adults. In New York 13 percent of adults New Yorkers live below the poverty line. Nationally, 11 percent of adults do.
  • Nearly half of New York children, 44 percent, reside in low income families. These are families with annual incomes of less than 200 percent of the federal poverty threshold. There was no change in the size of this group in New York from 1997 to 1999. Nationally, the percent of children living in low-income families dropped from 43 to 40 percent.
  • New York single parents made large gains in employment from 1997 to 1999. The employment rate for poor single parents in New York jumped from 50 percent in 1997 to 62 percent in 1999, an increase that dwarfed employment gains made by parents in other states and in other income categories.
  • Low income families found it easier to afford food in 1999 than in 1997. 57 percent of low income families ran out or nearly ran out of food at least once during 1997, compared to 50 percent in 1999.
  • The proportion of low income youngsters living in single family homes dropped from 1997 to 1999. In New York, the percentage fell from 51 percent to 47 percent, and nationally, from 44 percent to 42 percent.

The Urban Institute and Child Trends teamed up to conduct this survey in an effort to measure the impact of welfare reform on family well-being. The team did an earlier survey in 1997 and a third round is planned for 2002.

Child Trend's Vandivere said the survey does not show whether children are being harmed or helped by welfare reform. "Family structure and poverty rates are targets of welfare reform but we cannot assume a causal connection between reforms and reductions in poverty or the other things," she said. "Changes in these things could also be due to the fact that this is the longest economic expansion in the country's history."

Peggy J. Farber is freelance journalist specializing in children's issues. Her reporting on conditions of NYC children has appeared in City Limits Magazine as well as on National Public Radio.

Election Special-The Real Tech Issues, from Privacy to Copyright to Sales Tax

Hillary Clinton and Rick Lazio were rudely ushered into the Information Age, when the moderator during their second debate asked them their position on federal bill 602p, which she explained was pending legislation that would allow the U.S. Postal Service to charge five cents tax on every e-mail sent. This would make up for all the lost revenue from people who have been e-mailing to each other instead of mailing letters.

Lazio was downright emotional. "I am absolutely opposed to this," he said. "We need to keep the government's hands off the Internet." Clinton was also opposed. "Well, based on your description, I wouldn't vote for that bill," she said. "It sounds burdensome and not justifiable to me."

There was just one problem. There is no such bill. There never has been; "602p" is not even a valid name for a congressional bill. The question was sent into moderator Marcia Kramer of WCBS News from a New York voter and Internet user, who obviously had picked up word of the bill from the Internet itself. It is just one of the many false, dopey rumors that spread quickly in cyberspace and live a vibrant virtual life completely resistant to three-dimensional reality.

The incident says just about everything about where we are as a Tech Nation. Politicians and journalists are no further along on this stuff than the average Internet user.

But rather than see this as disappointing or even scary, think of it as an opportunity, a time for informed citizens to organize into a movement that Stanford Law Professor Lawrence Lessig likens to a kind of "environmentalism for information policy." Just as Rachel Carson's Silent Spring kicked off the environmental movement in 1962, we are now at the beginning of a new journey in building public awareness for the digital age.

There are some real technology issues facing New York and the nation, for some of which the candidates offer positions that are not just off-the-cuff.

PRIVACY AND SECURITY and other Internet companies have been changing their online agreements with their customers, in preparation for the sale of information they have gathered on them. These agreements are often written in cryptic legalese displayed in tiny type in a small box that prevents a customer from reading the whole document without scrolling down. Most consumers just click 'I Accept' without fully understanding the ramifications of what they are agreeing to. However, in an age when medical and financial information is increasingly stored online, consumers may be taking an unnecessary risk. According to a poll taken by the Internet Policy Institute, over three quarters of New Yorkers want federal laws to restrict what kinds of personal information can be collected online about them.

In June, Clinton addressed this issue at the New York State Broadcasters Association where she announced that she is a strong supporter of individual privacy rights, including the right to know if, how, when and how much personal information is being sold. Clinton pledged to give priority to medical and financial privacy, and protection against identity theft.

Lazio has said relatively little on the issue.


Government officials, industry leaders, academics and non-profit groups alike worry that rapid changes in information technology, including the introduction of broadband or high-speed Internet access technology, will make the gulf deeper between those who have access to such technology and those who don't. This is commonly called the digital divide. New Yorkers are very concerned about the gap in Internet use between higher and lower income Americans; well over three quarters believe that the government should subsidize Internet access for underserved populations, according to the Internet Policy Institute poll. To this end, the New York City Economic Development Corporation aims to capitalize on the growth of Silicon Alley by promoting high-tech economic development with its Digital NYC initiative, a program that offers affordable, Internet-ready office space in new high-tech districts.

Clinton has shown support for initiatives that help to bridge the digital divide such as increasing spending on new technology for public libraries, increasing economic and educational opportunities for minorities through tax credits and government guaranteed loans to new businesses in economically depressed areas, and increasing specialized technology training programs for teachers. In April, Clinton attended the Women of Silicon Alley Summit where she introduced a new initiative to increase funding for women-owned businesses and teach women how to take their businesses online including the establishment of Women's Business Centers to provide support for these new businesses. Clinton has three proposals in this area that will finance and deploy technology in poor urban and rural areas and help small businesses upgrade their technology. Clinton also proposes increasing funding for wireless research and development for rural areas. She supports a variety of initiatives to increase the technology skills of New York's workforce including doubling federal funding for Regional Skills Alliances (RSAs), helping to foster school-business partnerships, making the Research and Experimentation Tax Credit permanent, and increasing the number of business incubators nationwide.

Lazio does not address the "digital divide" as such. Instead, his efforts in this area focus on technological economic development initiatives that will increase educational programs and employment opportunities. As congressman, Lazio supported the expansion of the term "computer professional" to include high income Internet professionals under the Fair Labor Standards Act (FLSA) so that companies are no longer required to pay overtime to these workers, thereby boosting the economy. He also introduced the Small Business Tax Fairness Act to increase the minimum wage and give tax breaks to small businesses. The Information Technology Industry Council gave Lazio a score of 100 percent for favoring policies that promote economic development and innovation. On the education front, Lazio helped secure funds for a youth computer-training program and for the Center for Emerging Technology at the engineering school of the State University at Stony Brook. He also pushed for U.S. Department of Commerce funding for a new technology incubator, established a high-technology "Working Group" for executives and served as a member of a roundtable of high-tech chief executive officers in Long Island.


In the next few years, more and more government services will be available online. We will be able to pay our taxes, register for government programs and maybe even vote online. This year, Arizona became the first state to conduct electronic elections. Currently, the New York City Department of Information Technology is working on improving its e-government interactive services. Right now, New York is testing CityAccess, a kiosk that allow citizens to interact with city agencies and obtain information on job and housing opportunities, food and public assistance programs, adult and child services, health awareness bulletins, parking rules and regulations and senior citizen benefits and entitlements.

Neither candidate has addressed this issue publicly.


Is it legal to 'share' digital music and movies by copying files onto your computer, or are you violating copyright laws? Recently, the Napster case, in which the music industry is suing a now hugely popular site that was started by a teenager to share music with his friends, brought this issue into the public eye. Some have argued that programs like Napster actually increase music sales, and allow some artists to circulate their music to millions of new listeners. But the music industry, afraid of losing billions of dollars, is determined to enforce their copyrights. In general, American law is biased towards the protection of intellectual property and copyright laws, but denial of rights to circulate files could be also seen as an attack on free speech. Intellectual property issues are also important because technology companies compete with one another to patent as many of their inventions as possible. Conflict often arises between companies over the legitimacy of their patents and their resulting position in the market as a result of the patents that they hold.

Neither candidate has addressed this issue publicly.


Similar to mail-order catalogues, on-line purchases have not been subject to taxation unless the seller has offices in the state where the buyer resides. However, many people feel that Internet businesses have an unfair advantage against main street businesses in part because they can offer goods tax-free. The government also has lost substantial income due to the rise of e-commerce. Over half of New Yorkers feel that they shouldn't have to pay sales tax for purchases they make over the Internet, according to the Internet Policy Institute poll.

Neither candidate has addressed this issue publicly. However, we might infer from their comments on the fictional bill 602p that they would both be opposed to taxation of the Internet.

Laura Forlano is a doctoral student studying communication technology policy at Columbia University.

NYC's New Budget and Kids

New York City's new budget, which went into effect July 1st, has real goodies for kids in it, for the first time in years. Some examples:

  • $20 million to the Board of Education to put gym classes back into elementary schools for the first time in 25 years, when they were eliminated during the 1975 fiscal crisis.
  • $25 million for construction of new day care centers
  • $34 million to expand, by 15 percent, the Department of Health's Early Intervention program for at-risk infants.

    "We started in the seventh circle of hell and six or seven years later we're in a city that has a completely different view of its obligation to children and families," says Gail Nayowith, executive director of the Citizens' Committee for Children, a group that lobbies City Hall on behalf of kids. "There's still a long way to go - it's not a perfect situation, but it's significantly better than it was for children and the people who care for them."

    New York City children can thank the robust economy. A large percentage of the $2.9 billion surplus in city coffers comes from income taxes on Wall Street bonuses. Overall, the new City expense budget, which runs from July 1, 2000 to June 30, 2001, increases City spending by $1.3 billion, to over $26 billion, according to an analysis by the Independent Budget Office, a government agency that provides non-partisan information on the City budget to the public. And a sizable portion of the budget is going to children's programs. According to figures provided by the Independent Budget Office and the Citizens' Committee for Children, nearly 20% of the increase, or about $256 million of the City's money, is earmarked for programs that directly benefit children, including tens of millions for summer school, for extended-day programs at the City's lowest performing schools, for new health initiatives and for child welfare services. This tally omits major institutions that kids use extensively but not exclusively, such as the Department of Parks and Recreation, the libraries, and the Department of Cultural Affairs. Kids also come out ahead in the City's four-year capital plan. The plan calls for $24.9 billion in investments over Fiscal Years 2001 - 2004. A whopping 22% of this budget is devoted to school construction. Only a package of environmental protection projects claims a larger share of the capital budget. For all the good news, the budget still contains major disappointments for frontline child advocates. Mike Arsham, for one, wishes the City had done something to address the huge disparity at the Administration for Children's Services between the amount spent on removing children from their homes and the amount spent on services to make removals unnecessary. The City added only $4.4 million for preventive services to a $2 billion child welfare budget. Arsham, director of the Child Welfare Organizing project, says, "Time and time again what we're saying to families is we know what you need, but all we have to offer is foster care placements." And Nayowith was happier before the New York State legislature got its hands on the City budget in late June. The City Council and Mayor Rudolph Giuliani wanted to give low-income New Yorkers a $73 million package of earned income and child care tax credits, but the legislature, which has final say on such matters, rejected the plan. "That would have been the best case scenario," Nayowith says of the budget before the legislature killed the tax package. "You would have seen strategic investment, and then you would have seen, through the tax system, some very enterprising ways of helping families. We're now in the next best scenario, where the mayor and the City Council did a very god job of thinking about the best way to take care of kids."

    Peggy J. Farber is freelance journalist specializing in children's issues. Her reporting on conditions of NYC children has appeared in City Limits Magazine as well as on National Public Radio.

A Trust Fund For America

From The Wall Street Journal, June 16, 2005

June 16, 2005; Page A16


Thomas Jefferson committed the U.S. to acquire the Louisiana Territory from France for $15 million. In so doing he doubled the size of the U.S., guaranteed navigation on the Mississippi, and opened the American West. But Jefferson, Madison, and Congress were understandably worried about the size of the commitment. After all, total revenues from import duties then were only $12,280,000. Nevertheless, Congress approved the purchase and the greatest investment in American history was completed when a British bank and a Dutch one underwrote the bonds required to pay Napoleon on schedule. In doing so, they were confirming America's creditworthiness and recognizing the huge present and future value of the assets acquired by America.

Under today's budget rules, the Louisiana Purchase would have been regarded as a budget-buster and the Congress might well have turned it down. As a result, Jefferson might have had to go to war with France to accomplish the same purpose, an alternative that was under consideration at the time. This may be an extreme example, but it illustrates a much-overlooked reality -- borrowing for investments is different from borrowing for recurring expenditure and should be treated as such. This fundamental reality is sadly missing in the current debate about deficits and economic policy.

The partisan crossfire over deficits has two poles -- the one marked out by Vice President Dick Cheney's remark that "deficits don't matter" -- and the position associated with former Treasury Secretary Robert Rubin, that current deficits are unsustainable and that drastic spending and tax changes are urgently required. Both sides are likely to remain firmly entrenched in their respective positions, despite the risk of a dollar crisis if current policies are continued over the next few years. However, regardless of which side of this debate you subscribe to, an even more fundamental crisis could grip our economy if we turn away from the investments that determine our future standard of living. We risk balancing the budget but leaving our long-term growth needs unmet.

Public investment has, by tradition, meant infrastructure: Roads, trains and bridges, public transportation, schools, etc., have provided the private sector with the complementary investments that improve business productivity and improve our standard of living. Largely the product of a federal-state-local partnership, it has been badly neglected over the years. A biannual "balance sheet" provided by the American Society of Civil Engineers, grading the categories of infrastructure from schools to sewers, indicates a need for $1.6 trillion over 5 years to bring national infrastructure up to reasonable standards; that need increases by $300 billion every two years.

In addition to traditional physical capital, an even more important component of our infrastructure is our intellectual infrastructure. In the last two years, Arnold Schwarzenegger has asked his legislature for $3 billion to finance stem-cell research and Jennifer Granholm has asked hers for authority to sell $2 billion of Michigan state bonds to finance research aimed at improving the competitiveness of its auto industry. By doing so, Govs. Schwarzenegger and Granholm are doing what the private sector does daily -- financing R&D. Corporate America does this mostly by equity; the governors, lacking the ability to issue stock, propose to do this with state debt. That is entirely appropriate. We cannot compete with China by making cheaper T-shirts or forcing them to revalue the yuan by 10%. We can only do so by fighting tooth and nail for supremacy in education, intellectual capital and R&D, and both the federal government and the States must play a role in that fight.

In 1865, when Lincoln created a system of land grant colleges (which ultimately totaled 213), he initially provided America with 75% of its engineers; when FDR proposed the GI Bill, he allowed millions of young Americans who would not have had a college degree to become the source of our technical and industrial power. Through the years, the Bill has provided $70 billion in aid to veterans. Can anyone doubt that the investment has been returned manyfold? Eisenhower continued the tradition of federal involvement in infrastructure with the Federal Aid Highway Act, which generated millions of jobs and created a suburban economy now basic to the U.S., with enormous incremental value.

Not much of this found its way onto a federal balance sheet. The budget does not recognize assets; it only recognizes expenditures and liabilities. The Louisiana Purchase would have been reflected by the debt issued to Napoleon and have resulted in a large deficit. Land grant colleges and the education of GIs were treated as simple expenses. It is bad enough to try to deal with large and growing deficits created by ongoing expenditures, but the process will produce even worse choices if important, albeit intangible, assets are carried as liabilities.

A federal capital budget would help correct this problem, but would be so fraught with political difficulties that it is not worth the attempt. Yet there is a recent development which suggests a remedy: the return of the 30-year Treasury bond. Long-term bonds should finance capital assets and their issuance should be dedicated to that purpose. Even longer maturities than 30 years can be envisaged; corporations and governments have issued up to 50-year bonds.

To help deal with our shortage of public capital investment, the Congress should authorize a trust fund of up to $100 billion, to be financed over a five-year period by special 50-year Treasury bonds created for that specific purpose. The fund should be used to co-finance high priority state and local investment programs, including physical infrastructure and projects to create intellectual property. Tight outside controls will be applied to the operations of the fund, and it should also be subject to the federal debt limit.

In addition to cutbacks on infrastructure, globalization puts pressure on domestic employment. This impacts heavily on certain industries like the auto industry, and on the states where they are concentrated. An infrastructure trust fund could be helpful in making investments on a regional basis where appropriate. Creating such a fund would also allow us to redesign programs that deliver these investments, balancing new construction with more effective life-cycle management. A special commission under the aegis of the Center for Strategic and International Studies is rethinking program delivery and should provide new directions soon. In the meantime it is counterproductive to starve long-term investment because of presently excessive recurring spending; over the long run it only makes our economic challenges worse by slowing the creation of national wealth.

Jefferson, Lincoln, FDR and Eisenhower proved that public investment could generate vast returns. The federal budget should be a tool to encourage national investment instead of writing it off. Let us adopt a different perspective of our national wealth and how to increase it.

Mr. Rohatyn is chairman of the CSIS Commission on Public Infrastructure.



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