New Yang City: How to transform NYC into a UBI paradise. By Matthew Yglesias

New Yang City: How to transform NYC into a UBI paradise. By Matthew Yglesias

4 hr ago

December 30, 2020

Hey folks, happy Wednesday. Going to talk about something a bit off the beaten path today.

Andrew Yang has filed paperwork to run for mayor of New York City, and through the weird happenstance of our times, it seems likely that he’s going to emerge as the Great Moderate Hope in a sea of progressive contenders. That includes hiring Bradley Tusk*, one of Michael Bloomberg’s campaign managers, to consult for him.

I think we probably know what a neo-Bloombergian campaign looks like, and it probably doesn’t involve advocacy for a municipal-level universal basic income. And that, in turn, is probably for the best since I think Yang’s presidential campaign had a lot of appealing qualities, but his whole automation schtick is wrong.

I think UBI could be a promising theme for a mayoral campaign, though. Not because of automation, but because of the fiscal situation in New York. The city finds itself faced with a pandemic-induced budget crisis and clearly needs to rethink a thing or two; it also appears to collect far more in per person taxes (about $8,427 in 2017) than other large, heavily Democratic cities such as Los Angeles ($4,692), Chicago ($4,668), and Boston ($4,270) without offering public services that seem commensurately superior. And these other cities are not exactly low-tax jurisdictions.

The standard conservative prescription for this sort of thing is that cities should clamp down on spending (mostly at the expense of public sector workers) and reduce taxes. But especially in a city like New York, the politics of pitting billionaires against teachers, firefighters, garbagemen, and cops are not very compelling. Instead, the city could continue collecting taxes at a high level (after all, billionaires, commuters, and tourists are paying a large share of the taxes) but reduce spending to efficient levels and pay the surplus out to citizens as a kind of mini-UBI.

The big city business model

There’s a perennial cliche where some businessman type says that if you put him in charge, he could fix everything by running the government like a business. And then there’s a perennial counter-cliché where someone explains that the government is nothing like a business.

But I actually do think there’s a sense in which local government is kind of like a business.

A local government, for starters, is financially constrained — it can’t just run big open-ended deficits. And local governments need to compete with other localities for tax base. And most of all, local governments mostly spend money on the direct provision of services in a way that creates feedback to the tax base. People pay good money to live in towns with quality school systems, so an investment in better schools could “pay for itself” by boosting tax revenues. There’s an idea called Tiebout Competition, which holds that for exactly this reason, different localities will compete against each other to offer the optimal combination of tax rates and service levels. And while that’s obviously not exactly how anything works, I do think it at least approximately characterizes the functioning of America’s suburban jurisdictions.

But big cities are different.

The lucky ones, like New York, are heirs to industry clusters that create value. Others, like Miami, benefit from good weather and proximity to beaches. Los Angeles has both. Essentially all cities attract commuters and people who visit for the nightlife and entertainment amenities without actually living there. To an extent, all those transients increase costs (they use the transportation infrastructure, the fire department needs to deal with them, etc). But on net, they are clear contributors: they don’t send their kids to school, for starters, and police and fire needs mostly scale with land area rather than population.

Now, of course, there are also unlucky cities like Detroit or Cleveland, which have seen their one-time industrial base evaporate and are now locked in a cycle of population decline. The problems facing these cities are very serious and you can find extensive discussion of that in One Billion Americans. Suffice it to say this discussion is not about places like that.

The lucky cities, if you didn’t know anything about politics or the real world, might be expected to follow a “business model” in which they have lower tax rates than suburban jurisdictions since they can milk the surplus generated by the central business district to maintain equally good services. Of course, that’s not really what happens. Instead, big cities attract a lot of residents with left-wing political commitments who tolerate higher levels of taxation. That surplus is then spent on more generous welfare programs and public sector jobs.

The fiscal picture in New York

Up until the pandemic, the basic business model of New York was working really well.

Demand for living in the city was both high and rising, as witnessed by high and rising housing costs. New York’s population was shrinking before the pandemic, which sounds bad. But note, again, that this was not due to falling demand (which would show up in falling prices). Instead, rising demand for NYC living was bidding up prices to the point where the number of people living there was falling. From a business model standpoint, this is good. Instead of a working-class family of four occupying a two-bedroom apartment, you might have a Dual Income No Kids professional couple that both pays more in taxes (dines out more, etc.) and consumes less in public services (no school).

Now it turns out that to actually compare different American cities’ tax situations is very challenging because American cities differ considerably in their basic functions — Los Angeles and Chicago are inside their respective counties, while Philadelphia and Jacksonville are counties, New York encompasses five counties, and Columbus encompasses parts of three different counties.

The good news is that the Lincoln Land Institute has done the hard work of creating Fiscally Standardized Cities — i.e., you look at all the local government functions that happen inside the boundaries of the city — so that you can make meaningful comparisons. Then, you can look at tax revenue across the fifteen largest Fiscally Standardized Cities (recall these are municipalities, not metro areas) and see that New York has a lot of tax revenue.

That was the situation as of 2017, at any rate. I should be clear: about $650 of that revenue is due to New York State’s unique system of forcing local governments to contribute to the state’s Medicaid program. Still, even accounting for Medicaid, New York takes in more money per resident than any of the other biggest cities.

Today, New York is facing a huge budget hole caused by the Covid-19 pandemic. If that turns out to be because of one-off losses of tax revenue due to reduced commuting, food sales, and entertainment during 2020, then the city will clearly find a way to cope. But the risk for New York is that a year-long experiment in remote working seems likely to create a structural reduction in demand for Manhattan office space. Not that the city’s main business precincts are about to become ghost towns out of I Am Legend, it’s just that they are going to become cheaper. Some companies will decide they don’t need the expense, and landlords will need to cut prices to tempt in some new tenants who were previously priced out. This could also create a structural decline in the demand for New York housing when people who previously needed to live in NYC don’t need to anymore, now that their job is permanently partially (or fully) remote.

On a lot of levels, I think a cheaper New York will be welcome. In 2003, Berlin mayor Klaus Wowereit proclaimed his city “poor but sexy” (i.e., affordable to artists and cool people) and there’s really something to that. Coolness often emerges in urban areas as a result of a negative economic shock. When people say they want to “keep Austin weird,” they are recalling a specific moment in the city’s life associated with a Texas real estate bust. And an exodus of businesses from Montreal due to Québec’s language policies set the stage for an indie rock boom.

But in basic fiscal terms, it’s a problem.

New York has been parceling out the surplus to local government workers during the pre-pandemic boom, and that’s not sustainable if the city stops booming. Here’s an eye-opening chart from Eric Kober at the Manhattan Institute:

And that’s just wages. Teacher benefits in New York are 69 percent more costly per pupil than in Boston, the second-costliest big city, and more than double any other large school district (the way the city’s own budget data works, they record “pensions and fringe benefits” as 18 percent of city spending). That kind of thing is only sustainable if property tax revenue keeps growing faster than inflation, which it no longer is.

Pay the surplus out to people

Conservatives will look at these facts, shake their heads at the profligacy of America’s big cities, and curse the evils of public sector unions (except police unions, where left and right will switch their opinions). But by the same token, conservatives don’t live or vote in big cities like New York, so it doesn’t matter what they think. As long as the city’s economy is doing well, it’s fairly easy for unions to beat landlords and billionaires in a pitched fight for the use of the city’s fiscal resources.

And during the Bill de Blasio era, the idea that the city needed to worry about its competitiveness would’ve seemed particularly risible to the electorate.

If New York finds itself in an acute fiscal crisis, the voters may have no choice but to do what conservatives want, but it seems like a shame for a city to ricochet between profligacy and austerity without a middle ground as a city that’s generous without being wasteful.

A more durable commitment might be to say that the city wants to get spending under control, and then if revenues grow in the future, the default will be to pay the money out as UBI checks to its citizens. That doesn’t mean you can never raise spending. But it does mean that the question of higher spending — whether that’s higher salaries or a subway expansion or anything else — becomes the question of “would you rather have this thing or would you rather have more money?” That application of a cash alternative is a natural source of political discipline.

Some math:

The Census says New York has about 8.3 million residents

Yang’s presidential campaign proposed $1,000 per month for every adult citizen

About 4.9 million New Yorkers are adult US citizens

Paying them all $1,000 per month would cost about $58 billion per year

In the 2017 Lincoln numbers, New York collected about $71 billion in taxes (there’s also a bunch of state and federal grant money in the mix for all cities).

Obviously, that’s pretty unaffordable as is. Just tacking a UBI onto the city’s existing spending would require a huge expansion in the budget.

That said, if New York managed to cut its revenue needs down to median Fiscally Standardized City, it would free up $45 billion per year in extra money! That’s not enough for Yang’s $12,000 a year UBI, but it would be enough to give every adult US citizen in New York $9,242 per year.

Grow the surplus

Of course, this is all a bit fanciful. But as a way of thinking about urban policy, I think it could be constructive. For example, while it’s basically impossible to get directly comparable data on mass transit spending, obviously New York City is maintaining a giant transit system that other places don’t have. If you combine state and local money, New York State spends $1,121 per person per year on transit, which is way more than Massachusetts, the third-highest state, with its $505 per person per year. But in this case, you really are getting a more robust transit network.

But as I detailed in “Fixing The Mass Transit Crisis,” it’s not like all this money is going to super useful services — they use two-person crews to operate subway trains and multiple conductors on commuter rail. Basically nowhere in the world does the former, and none of the high-performing regional rail systems in Europe or Asia do the latter. The MTA is also paying 30 percent more than Boston’s MBTA per passenger mile of bus service. For that matter, there’s also the question of fares. Right now, fares are a source of revenue, but they’re not set at a revenue-maximizing level. That’s in part because extra revenue gets captured by the workforce and in part because it’s seen as a social service benefit to low-income people. If you’re living in the UBI city, you try to maximize the efficiency of your labor arrangements and maximize the farebox revenue, and then the surplus kicks out to the public and that’s what protects low-income people.

My obsession, obviously, is with housing.

New York could easily generate more market-rate construction by rezoning. Even with prices falling due to the pandemic shock to demand, New York remains more expensive than the average American city, and the price of housing is above replacement costs. Right now, market-rate construction doesn’t make a big fiscal contribution to the city because builders get the 421-a tax exemption. But that, in turn, is tied up with parking requirements, the city’s effort to get in-kind payments in the form of affordable housing, rules discouraging the use of cranes (this creates extra jobs but raises costs), and other regulations. It’s such an ouroboros of rent-seeking that it’s not really in the interests of a typical New York voter to try to unlock the potential economic surplus here. If you untangle one bit, it’ll just flow to someone else.

But in the UBI City, you scrap the tax exemption and take a hard look at regulatory barriers to building. More buildings —> more property tax revenue (and when the residents move in, more sales and income tax revenue, too) —> more UBI money for you.

UBI City everywhere?

I don’t think this necessarily works as a general formula for urban governance. The whole point here is that New York is collecting an unusually large amount of tax revenue. But it is worth saying that San Francisco — the New York of the West — collects even more revenue per capita, seems to me to have worse public services, is also facing a potentially large post-pandemic shock to its tax base, and is better supplied than NYC with tech industry UBI enthusiasts.

But if a big UBI-centric push for economic government did take off in those two cultural flagship cities, that could help encourage the Seattles and Bostons and DCs of the world to take a harder look at their own business model.

Most American cities, unfortunately, are not lucky enough to have the problems of New York or San Francisco.

Sunbelt cities are actively competing with each other to try and grow, and we have lots of Rust Belt cities fighting, often unsuccessfully, to stave off decline. New York looms so large in our media consciousness that NYC problems sometimes get mistaken for “city problems” in a way that doesn’t make sense. Philadelphia is going to be suffering some kind of negative hit to demand for Center City office space, and it’s going to need to navigate that without the fiscal buffers that New York and San Francisco enjoy.

So don’t take any of this too seriously. But I do think that everyone knows urban governance is broken in the United States, and the same-old-same-old isn’t going to fix it. I’m not a particular UBI enthusiast in general, but it’s an interesting framework for thinking about these problems and possibly creating a new path forward.

* Full disclosure: I was Tusk’s intern 20 years ago when he was Chuck Schumer’s communications director — we have not spoken about Yang or this race.

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Lance Hunter3 hr ago

Welp, we can go ahead and get ready for Yang's campaign trying super-hard to make "New Yang City" a meme...

 4Reply

1 reply by Matthew Yglesias

Jason Settle2 hr ago

This post is in the same vein as your very first one (Make Blue America Great Again) https://www.slowboring.com/p/make-blue-america-great-again

which captured my imagination. Rather than spend 95% of political energy on national politics, why aren't we progressives using say half the energy on state and local matters, using our giant advantages in state legislatures and in municipal councils to actually get progressive programs in place?

We need a big crop of state and local candidates running on a platform of "make government more efficient so that we can have more stuff". Why hasn't this happened?

Lack of the liberal equivalent of "the conservative gentry"? (which is small business owner -types who know how to get things done and supply the money and candidates for most Republican-held offices)

Lack of attention by liberals on state/local politics?

Deep systemic issues that prevent easy reform of local governments? Combined with a huge fear of unions?

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