A Budget for the Truly Disadvantaged and the Inner City

Neither a majority in Congress nor the Administration has proposed a budget that is focused on replicating what works to scale for the truly disadvantaged and the inner city.

Table 1 is such a budget, proposed by the Eisenhower Foundation. The total cost is $56B for the first year. We project that this level of funding, above and beyond existing funding, will be needed for a decade if we are to begin to replicate what works for the truly disadvantaged and the inner city at a scale equal to the dimensions of the problem.

The sections that follow are devoted to:

Table 1
Summary of Federal Investments Proposed (in billion dollars)

Investment Federal Cost Per Year

Replication of Head Start preschool for all eligible poor children. $ 7B
Creation of a Safe Passage Corporation to replicate the Comer School development plan, full-service community schools, and related models of success in urban public school systems $ 15B
Creation of a Corporation for Youth Investment to replicate after-school safe-haven prevention models, Quantum Opportunities high school drop out prevention models, and related successes. $ 1B
Reform of the Workforce Investment Act to replicate training models like Argus, Job Corps and Youth Build USA. $ 4.5B
Creation of 1,000,000 private sector jobs for the inner city through better targeting of existing economic development grants on poverty and inequality reduction and through creation of a National Community Development Bank modeled after the South Shore Bank. $ 1B
Generation of 250,000 public construction and rehabilitation jobs for the inner city that are targeted on housing and urban infrastructure development. $ 5B
Generation of 1,000,000 public service jobs for the inner city that are targeted on public service employment in day care, transportation services, urban school staff support, nonprofit community organization support, and reform of "welfare reform" $ 20B
Implementation of presidential commissions on affirmative action, sentencing, racial bias in the criminal justice system, and concrete corporate ceilings; replication of the St. Louis, Gatreaux and other models of school and housing integration; replication of community equity policing models, community and treatment-oriented drug courts, and Delancey Street-type offender reintegration models* $ 2.5B
*This budget line item assumes substantial additional resources through a shift in priorities in America's "war on drugs" -- from 70% law enforcement and 30% prevention/treatment to 30% law enforcement and 70% prevention/treatment (or at least a 50/50 split).

Explaining the Budget

The Table 1 budget plan is based on reforms in education, training, jobs, racial justice and criminal justice. Details can be found in National Policy Based on What Works and The Millennium Breach. What follows below is a summary of the Table 1 budget line items.

The $7 billion per year for Head Start in Table 1 is the estimated cost for expanding the existing Head Start program to most eligible poor children. The $15 billion per year for replication of successful public inner-city school reform initiatives is based on estimates by Joy Dryfoos that roughly 15,000 schools in the United States serve disadvantaged urban youth, children, and teenagers; that the average number of students per school is about 1,000; and that the average cost per student to implement reforms that work is about 1,000. The $1 billion per year for the Corporation for Youth Investment is a conservative estimate for funding, technically assisting and evaluating safe haven-type and Quantum Opportunities-type replications for a fraction of the children, youth and teenagers who could benefit from them.

The $4.5 billion per year in Table 1 for job training reform modeled after the Argus Community would allow training each year for a fraction of the two million-plus inner-city unemployed who need it. As explained in The Millennium Breach, we estimate that one million private sector inner city jobs can be created by better targeting existing federal community and economic grants from several agencies on the goal of poverty and inequality reduction (as is done, for example, in Oregon) and by creating a National Community Development Bank. The $5 billion per year for 250,000 public sector housing and urban infrastructure construction and repair jobs in Table 1 is based on estimates by the United States Conference of Mayors.1 The $20 billion per year for 1 million public service jobs is based on a minimum wage that averages out to $20,000 per year, with benefits and administrative expenses. This is somewhat higher than the average assumed in Richard McGahey in a study for the Center for Community Change.2

A fraction of the $2.5 billion per year line item in Table 1 includes funding for replication of race-specific solutions, based on conservative estimates of the cost of significantly expanding proven successes such as the St. Louis experience in school integration and the Gatreaux program for housing integration. Most of the $2.5 billion in this line item is for replication of successful criminal justice, drug prevention, and crime prevention models, based in part on estimates calculated by Joseph A. Califano, Jr.3

Many of the jobs generated by better cotargeting of community and economic development grants, creation of the National Community Development Bank and creation of public sector construction employment are designed to build and repair low income housing. The total 2.25 million jobs created for the truly disadvantaged in our plan are designed to help raise families to sufficient income levels so they can afford private housing. However, depending on the success of the job training and creation, we envision a need to begin expanding appropriations for housing the poor back towards pre 1980 levels. We have not budgeted for these appropriations in Table 1, which shows per year expenditures at the beginning of a ten year period of investment.

The entire Table 1 budget assumes substantial private sector, state and local matches -- which bring the total up to a level that approximates replication to scale.

Creating Comprehensive and Interdependent Policy

Table 1 is based on models of success proven to work. (See What Works.) These models that work interrelate. For example, problem-oriented, community-based policing, including youth safe haven-police ministations, can help secure a neighborhood. The security can help encourage community-based banking. Community-based banking can provide capital for community development corporations. Community development corporations can invest that capital in ways that generate good jobs for local residents. Inner-city youth can qualify for those jobs if they have been in job training, like that at Argus, Capital Commitment, Job Corps and YouthBuild USA. Similarly, inner-city youth can stay in high school if they have received human capital investments like the Ford Foundation's Quantum Opportunities mentoring program. They can get that far if they have been in Comer schools, full services community schools and after-school safe havens. And they can get that far if they have been in Head Start preschool. So what one sees, when one asks what works based on scientific studies and careful evaluations is multiple solutions to multiple problems.

The solutions, then, are not single, narrow and categorical. The solutions are comprehensive and interdependent.

Financing the Budget

The Eisenhower Foundation proposes that several sources finance the Table 1 budget. The first source is the budget surplus. The amount potentially available will depend in large part on the size of the tax cut that is negotiated over the long run and the amount of debt reduction.

The second source is forgone military spending. Many have proposed substantial military increases. But former Reagan Administration Assistant Secretary of Defense Lawrence Korb has argued that the military can be modernized without a budget increase. He believes that weapons like the DD-21 stealth destroyer are not necessary. He points out that the U.S. is number one in the world in defense spending but, on a per capita basis, tenth in the world in education spending and last among industrialized nations in providing health insurance to children.4

The third source is reduced spending on what doesn't work. For example, the Drug Abuse Resistance Education (D.A.R.E.) program has been shown not to work in several evaluations. Rather than revising a proven failure, as is now the plan, it makes more sense to reallocate federal and private match D.A.R.E. dollars to replicate proven drug-reducing successes, like the Quantum Opportunities program (above) and the Big Brothers/Big Sisters mentoring program.5 Beyond reallocating funds presently targeted to the poor and the inner city, we need to address the $100 billion to $200 billion per year spent on tax breaks for the rich and on corporate welfare. We have provided details on reductions in the Notes and Sources section.6 Reduction by just a fraction could finance replication of much of what works to scale for the truly disadvantaged.

However, at present there is no evidence to suggest that a majority in Congress and the Administration will agree with these priorities -- and evidence that they will expand affirmative action for the rich and corporate welfare (for example, to the coal industry and credit card companies).

One small boost might come from the Administration's proposal to extend the deduction for charitable contributions to taxpayers who do not itemize on their tax returns. A new study estimates that, if passed by Congress in its present form, the proposal could bring in an additional $14.6 billion per year in charitable contributions -- an eleven percent increase over current giving. The study estimates that, given the details of the deduction plan, three-quarters of the new givers would be low and middle income taxpayers, with incomes under $40,000. Religious groups likely would receive most of the increased giving, the study says, because seventy percent of the charitable contributions by low and middle income non-itemizers go to religious organizations. In a separate report, it has been estimated that the cost of the Administration proposal would be about $75 billion in lost tax revenue over the next ten years.7

However, it is too early to tell what the final impact may be. The Administration also has proposed to repeal the estate tax. This would mean a significant loss of income to nonprofit organizations, because many affluent people now reduce the size of their estates through charitable giving. Charles Collins, director of the Responsible Wealth Project, a group of 450 business leaders and investors who favor the estate tax, said, "Repeal would have a devastating impact on public charities ranging from higher education and health care to organizations assisting the poor and disadvantaged." The net result, say some observers is that, on balance, the nonprofit sector will lose more by repeal of the estate tax than gain through the charitable deduction plan.8 Even if there were a net increase in charitable giving, much of the money could be to institutions not focused on the truly disadvantaged and the inner city. When new giving is focused on the poor, it may not be to groups that have proven themselves successful. (There is as yet no plan for technical assistance to enhance their capacities.) When groups receiving funds for the poor are competent, they may or may not be dedicated to replicating what works to scale. If they are, their work would finance only a small part of the $50 billion to $60 billion in funding we estimate is needed to replicate what works to scale for the truly disadvantaged.

Notes and Sources

  1. United States Conference of Mayors. Ready To Go: New Lists of Transportation and Community Development Projects (Washington, DC: United States Conference of Mayors, February 18, 1993).
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  3. Richard McGahey, Estimating the Economic Impact of Public Jobs Programs (Washington, DC: Center for Community Change, 1997).
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  5. Joseph A. Califano, "Crime and Punishment - And Treatment, Too," Washington Post, February 8, 1998, p. C7.
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  7. Richard W. Stevenson, "The High Stakes Politics of Surplus Spending," New York Times, January 7, 2001; Glenn Kessler, "Clinton Urges Eliminating Debt," Washington Post, December 29, 2000, p. A2; Lawrence J. Korb, "Reigning in Defense," Washington Post, December 29, 2000, p. A33; Lawrence J. Korb, "Sink the Stealth Ship - Before Its Built," New York Times, January 15, 2001, p. A19; Steven Lee Myers, "Bush Candidate for Defense See Immediate Bid to Raise Spending," New York Times, January 12, 2001, p. A1; Ken Grossman, "Star War Boosters," Nation, January 29, 2001, p.6; and New York Times, "Are the Democrats Ready for Taxes?" New York Times, February 8, 2001, p. A30.
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  9. Kendra Wright, "D.A.R.E. To Rethink Drug Prevention," TomPaine.commonsense; Andrew Hahn, "Quantum Opportunities Program" (Waltham, Massachusetts: Brandeis University, Heller Graduate School, September, 1995), Cynthia L. Sipe; Mentoring (Philadelphia: Public/Private Ventures, 1996).
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  11. As Jerry Jones, Director of Employment Policy Initiatives at the Center for Community Change has concluded, Congress has crafted corporate subsidies that appear more rigorous in justification than application. Corporations are expected to develop applications for these subsidies that promote generic activities -- like exporting or undertaking technology research. Yet the grant applications have few specifications for what actually should be exported or researched. And Congress has made the regulations vague in terms of who gets the new jobs that might result from federal investments.

    This has resulted in many federal grants that would appear to underwrite activities that companies probably would pursue on their own, even in the absence of a subsidy. For example, in a recent year, the Walt Disney Company received a $300,000 grant from the Department of Energy to develop better fireworks displays in theme parks.

    High paid corporate lobbyists justify these federal subsidies on the grounds of job creation and economic growth. Yet there is little evidence to suggest that new jobs actually result from these federal subsidies. When it comes to the poor, Jerry Jones observes, "In virtually no instance are corporate subsidies targeted to specific communities or areas for the explicit purpose of creating jobs for the unemployed."(Jerry Jones, Federal Revenue Policies that Work, Washington, DC: Center for Community Change, 1997.)

    Yet corporate subsidies are only a small part of corporate welfare. Substantially more corporate welfare comes in the form of corporate tax breaks. Unlike corporate subsidies that require grant applications and therefore include at least some screening for worthiness, corporate tax breaks are not targeted to specific corporations. Sometimes they are not even targeted to specific industries.

    As a result, the corporate tax breaks are much more difficult to monitor than the corporate subsidies. The opportunities for abuse are all the greater.

    Just how much do taxpayers pay each year for corporate subsidies and tax breaks? Estimates by national nonprofit organizations and independent authors run to over $150B per year if a broad definition of corporate welfare is used and if special breaks to individual investors and the rich are added in. Estimates by national nonprofit organizations that use a more narrow definition that focuses only on corporations per se are that about $51B per year is given out in corporate subsidies and about $53B per year is given out in corporate tax breaks, for a total of about $104B per year. Estimates made by the Congressional Budget Office are that about $30B per year is given out in corporate subsidies and about $32B per year is given out in corporate tax breaks, for a total of about $62B per year.

    Table 2 illustrates the broader definition -- of subsidies and tax breaks to corporations as well as special breaks to wealthy individuals and investors. Table 2 is based on Take the Rich Off Welfare by Mark Zepezauer and Arthur Naiman. (Tucson, Arizona: Odonian Press, 1996). It includes just some of what they call "wealthfare." This amounts to about $156B per year. The Table 2 wealthfare categories and annual costs to taxpayers per year are: lower taxes on capital gains ($37B), accelerated depreciation ($37B), agribusiness subsidies ($18B), tax avoidance by transnational corporations ($12B), tax-free muni bonds ($9.1B), media industry handouts ($8B), tax loopholes for the insurance industry ($7.2B), corporate meal and entertainment deductions ($5.5B), nuclear industry subsidies ($7.1B), aviation industry subsidies ($5.5B), mining industry subsidies ($3.5B), oil and gas industry tax breaks ($2.4B), export subsidies ($2B) and "miscellaneous" ($1.6B). Under each of these headings in Table 2, we have included a quote from Take The Rich Off Welfare to illustrate what is included. These breaks and subsidies are linked to the current system of campaign finance in the U.S. and secured through high paid lobbyists for corporations and the rich. (Mark Zepezauer and Arthur Naiman, Take the Rich Off Welfare, (Tucson, Arizona: Odonian Press, 1996).

    As former Secretary of Labor Robert B. Reich concludes after reading a list of existing corporate welfare published by one middle-of-the-road nonprofit organization (Robert B. Reich, Locked in the Cabinet, New York: Alfred A. Knopf, 1997):

    The list contains all sorts of breathlessly ridiculous items, like $2B a year going to oil, gas, and mining companies for no reason whatsoever, $4B a year to pharmaceutical companies that create offices in Puerto Rico, $400M to Christmas-tree growers, windmill makers, and shipbuilders, and $500M a year to corn-based-ethanol refiners.

    Also on the list is the $2B-a-year tax break for life insurance companies, $900M for timber companies, $700M for the dairy industry, and $100M a year to companies like Sunkist, Gallo, M&M, McDonald's, and Campbell Soup to advertise abroad. On top of that are billions of dollars of special breaks for multinationals that make their products outside the United States. Some well-connected companies like Archer-Daniel-Midland (ADM, a giant Midwestern corn processor) triple-dip: ADM

    benefits from a sugar program that bars imports and sets sugar prices higher than world levels (so ADM can sell its high-cost sugar substitute), a tax break for corn-based ethanol, and the direct subsidy to ethanol refiners. Taxpayers and consumers pay dearly for the welfare flowing to this single company.

    And that's just the beginning: If TV networks had to bid for extra space on the broadcast spectrum instead of getting it free, they'd pay $4B a year. If private corporate jets had to pay landing fees at airports as commercial jets have to do, they'd pay $200M a year. If wealthy ranchers had to pay the full cost of grazing their cattle on public lands, they'd pony up $55 million a year. If corporations couldn't deduct the costs of entertaining their clients -- skyboxes at sports arenas, theater and concerts, golf resorts -- they'd pay $2B more each year in taxes.

    Imagine if even a portion of this money could be used instead for education, job training, and helping the poor and near-poor get the jobs they need.

    Similarly, in 2001, the annual Green Scissors report published by Friends of the Earth, Taxpayers for Common Sense and the U.S. Public Interest Research Group has outlined seventy four programs that, if cut, would save taxpayers $55 billion and protect the environment. (See www.GreenScissors.org.)

    It is not our intent to detail the history, politics and legislative details of these subsidies and tax breaks. Nor do we try to reconcile some of the differences in definition and scope made by nonprofit organizations and independent authors, on the one hand, and federal agencies like the Congressional Budget Office, on the other. The point is that these subsidies and breaks are enormous, wasteful, cost-ineffective and unfair.

    Well-paid lobbyists will argue that the rich and corporations need government tax breaks, grants and subsidies to assure a robust economy. But this claim is disputed by the econometric forecasts made by Richard McGahey, then at the Center for Community Change. McGahey analyzed the impact on the economy of one million jobs if their total cost were financed by reducing corporate welfare by an equal amount. Using FAIRMODEL, a widely regarded econometric model based on 131 equations that is continually updated and re-estimated, McGahey compared the current econometric forecast produced by the model five years into the future to an alternative forecast with the public service job program financed by the corporate welfare cuts. Compared to the current forecast, the forecast with the proposed change "has a higher level of real and nominal economic growth, stable private sector employment, and a lower national unemployment rate." Real wage increases and inflation are virtually the same in the two scenarios. (Jerry Jones, Federal Revenue Policies that Work, Washington, DC: Center for Community Change, 1997.)

    In other words, a shift in some resources from corporate welfare to public service jobs does not hurt the economy. It can help the economy.

    Table 2
    Examples of Current Wealthfare Subsidies and
    Tax Breaks to the Rich and Corporations

    Wealthfare Category and Illustration Annual Cost to Taxpayers
    Lower Taxes on Capital Gains
    As Citizens for Tax Justice put it, "more than any other kind of income, capital gains are concentrated at the very top of the income scale."
    Accelerated Depreciation
    On average, tax breaks from accelerated depreciation are worth more than $13,000 a year to households making over $200,000, but less than $70 a year to households earning under $50,000.
    Agribusiness Subsidies
    Tobacco, a drug that kills 48 Americans every hour, is...subsidized with a combination of price supports, import restrictions and production and marketing quotas.
    Tax Avoidance by Transnational Corporations
    Of the US-based transnationals with assets over $100M, 37% paid no US federal taxes at all [in the early 1990s] and the average tax rate for those that did pay was just 1% of gross receipts... Foreign-based transnationals did even better. 71% of them paid no US income tax on their operations in this country, and the average rate for those that did pay was just 0.6% of gross receipts.
    Tax-Free Muni Bonds
    To help attract investors to bonds issued by state and local governments -- generally called municipal bonds, muni bonds or simply munis -- the federal government has made the interest on most of them exempt from federal income tax.
    Media Handouts
    Officially, the Communications Act of 1934 declared that "the airwaves belong to the people." What it actually did was hand out portions of the airwaves free to businesses, which then made as much money off them as they could, without having to pay the government anything for the privilege.
    Insurance Loopholes
    Life insurance companies get to deduct the entire amount they set aside as a reserve each year, whether or not it exceeds the actual amount they have to pay out in claims.
    Business Meals and Entertainment
    The meals and entertainment deduction amounts to an annual subsidy... for fancy restaurants, golf courses, skyboxes at sports arenas and the like. And it's applied unequally. Factory workers can't deduct meals or sporting events at which they discuss their jobs with colleagues -- nor any taxpayer who doesn't itemize deductions... Like deduction, this one is worth more to higher-bracket taxpayers, and it particularly subject fraud abuse.
    Nuclear Subsidies
    Nuclear power still can't stand on its own two feet, but with a sugar daddy like the federal government, it doesn't need to... The feds still provide the industry with most of its fuel and waste disposal, and much of its research.
    Aviation Subsidies
    If there's an argument for governmental subsidies, it's that they help "infant industries" get on their feet. Commercial aviation is hardly an infant industry anymore, yet the airlines are exempted from the fuel tax.
    Mining Subsidies
    Since 1872, about $245B worth of minerals have been mined from public lands. And how much has our government collected in royalties? Absolutely nothing.
    Oil and Gas Tax Breaks
    The rationale for this loophole is that it encourages exploration for new oil -- presumably something no oil company would otherwise do. Oil industry executives argue that other businesses are allowed to depreciate the costs of their manufacturing investments. That's true, but they're only allowed to take off the actual cost of those assets, not deduct 15% of their gross income virtually forever.
    Export Subsidies
    [T]he US Department of Agriculture [alone] currently spends $1.1B a year helping US-based transnational corporations market their products abroad.
    For example, for agreeing to make their ships available to the U.S. military in the event of a war, commercial ship owners are given an average annual subsidy of $3.5M per ship. The Pentagon, which has more than enough ships of its own, admits this program serves no earthly purpose, but we still pay $1B a year for it. Perhaps the maritime industry's $17M in PAC contributions over the past decade have something to do with it.
    Total $155.9B
    Note: The entries under each category in Table 2 are direct quotes from the authors that illustrate the tax break or subsidy.
    Source: Mark Zepezauer and Arthur Naiman, Take The Rich Off Welfare (Tucson, Arizona:Odonian Press, 1996)

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  13. Tamar Lewin, "Report Sees Vast Benefit for Charities in a Bush Tax Proposal," New York Times, January 31, 2001, p. A16.
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  15. Molly Ivins, "Bush: Fuzzy Thinking," Washington Post, February 3, 2001, p. A21; and Elizabeth Becker, "A Bush Aide Faults Plan to Repeal Estate Tax," New York Times, February 10, 2001, p. A9.
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