Quenching Poor’s Thirst Unlikely Once You Turn Off Federal Spigot

The president and the speaker of the House of Representatives appear to agree that a national urban policy designed to alleviate poverty in central cities must be rooted in traditional values: hard work, family and responsibility. The problems of so many inner-city neighborhoods will be solved only through individuals, families and communities determined to help themselves.

Both sides recognize that healthy, viable cities are essential to economic growth. Empirical studies support this shared assumption. According to Harvard University scholar Michael Porter, metropolitan regions need economically vital central cities to thrive. Despite the increasing trend toward decentralization of many types of businesses and employment, concentrations of high-skilled labor and value-added firms are still critical to knowledge-based producer services, such as market and financial analysis, strategic planners, lawyers, marketing specialists, high-level accountants and computer systems designers.

Metropolitan economies increasingly depend upon these clusters of economic activity if they are to thrive in the new economy. This is one of the important competitive advantages that central cities must exploit. In New York, research has shown that 53% of the actuarial accounting services and 71% of their legal services are provided by central city firms.

Both parties also agree that incentives should be provided to business owners who hire low-income individuals, particularly to those on some form of public assistance. There also appears to be agreement that self-help and self-empowerment are necessary ingredients toward both reducing the size of the impoverished population and lessening dependence on public support.

One wonders, however, if the GOP approach has benefited from the lessons of history.

As reported recently by The Times, the GOP strategy involves the creation of 100 economic opportunity zones in distressed urban areas. It entails replacing the earned-income tax credit with direct cash assistance for working poor families and provides new tax incentives for private organizations to take over social programs.

Entrepreneurs who create businesses in these zones would receive tax incentives for starting businesses and hiring welfare recipients. Capital would be made available by targeting funds from such existing sources as small-business loans and community development block grants. A five-year moratorium on the minimum wage is also proposed, the rationale being that a minimum wage limits the number of poor who might be offered employment.

The GOP also proposes that families in poor communities be provided vouchers to send their children to private schools. Government-sponsored job-training programs would be replaced with programs developed by local charities and churches. Volunteers would staff these new programs and funding would be provided through private donations.

A key emphasis of the GOP anti-poverty agenda is to shift primary responsibility for revitalizing poor communities from federal and state government to grass-roots organizations and individuals who live in poor neighborhoods.

GOP policymakers acknowledge that the new programs are not likely to receive large sums of federal funds, but they expressed confidence that their leadership will find smaller amounts of money for projects that appear promising.

The speaker’s approach calls for a rapid decrease in federal expenditures for publicly supported programs. Under this proposal, it is assumed that new incentives for the private sector, not-for-profit organizations and charitable groups will be sufficient to allow them to gear up rapidly to both replace federally funded services and create jobs.

The California experience with Proposition 13 should raise major questions regarding this strategy. Many argue that infrastructure decay, declines in educational quality and decreased access to a decreased pool of mental health, public health and hospital care followed the trickle-down theories of Proposition 13.

Here in California, we learned that once the revenue source is turned off, it is extremely difficult to generate and sustain program efforts in anywhere near the quantity needed to address the problems at hand. Inevitably, states and local governments will have to generate new revenue sources to replace federally funded programs and/or bear the consequences of a significant increase in the number of homeless, unemployed or underemployed. Furthermore, evidence from New Hampshire suggests that when government support to social programs is reduced, charitable giving designed to make up the gap has not been forthcoming.

Drastically reducing the level of existing government programs before putting into place an adequate replacement system--no matter how funded--seems very shortsighted. Given many of California’s prior experiences with similar initiatives, it is not likely that implementation of Speaker Newt Gingrich’s proposal will bode well for the nations’s cities--particularly those with large low-income populations.