UBI for Alameda?

When we read in The Atlantic online a few weeks ago about the latest “progressive” idea sweeping the country – “universal basic income” – we immediately wondered how long it would take our local pretenders to the throne of wokeness to make it their own.

Not very long, it turned out.

At the March 16 Council meeting, in the midst of what was supposed to be a discussion about the recommendations made by the police-reform steering committee, Councilman John Knox White veered off the item on the agenda.

In addition to police reform, he declared, Council also should be “talking about” universal basic income.  “We know,” he began, in a sure sign that a pronunciamento was about to be handed down, that “the cause of violence” is “income inequality.”  And he suggested UBI as a solution.  “I would like us to look at [not only] supporting some kind of regional program,” he said, “but also what our city could possibly do” along those lines.

No sooner had Mr. Knox White finished than Mayor Marilyn Ezzy Ashcraft jumped on board.  “I did a little internal high five when you mentioned universal basic income,” she said, “because that’s one of the things I would like to see, too.”  At the very end of the meeting, she reiterated, “I really want to see a robust discussion of universal basic income, come back.”  (Obviously, the Mayor misspoke: she undoubtedly intended to suggest a “robust conversation” rather than a “robust discussion.”)

As usual, Councilwoman Malia Vella chimed in her concurrence with Mr. Knox White, and Council ultimately directed staff to put UBI on the list of topics on which it wanted a report from staff in addition to the 11 police reforms recommended by the steering committee.

None of the three Council members ever explained exactly what they meant by “universal basic income.”  Presumably, everyone on the dais and in the audience was supposed to know the term already.  But for the uninitiated, we’ll define UBI as a program whereby every citizen receives a flat monthly payment from the government (or its private “partner”), regardless of whether they’re working and earning an income or not, with no strings attached as to how they’ll spend it.  (The details, as we shall see, differ.)

Our readers may remember that Andrew Yang made a proposal for UBI the centerpiece of his campaign for the Democratic presidential nomination in 2020 – he called it a “Freedom Dividend” – but the idea isn’t a new one.  Indeed, one of its most prominent prior proponents was a politician who’s seldom given a place in the pantheon of “progressivism”:  Richard Nixon.  In 1969, Nixon gave a nationally televised speech in which he asked Congress to establish a program guaranteeing every family of four in America an income of $1,600 per year.  The subsequent legislation passed the House but died in the Democrat-controlled Senate.

(We’ll offer a special prize to anyone who asks Mr. Knox White or Ms. Ashcraft, in his or her next “town hall,” about their support for the “Nixon plan,” using those words.)

Now that UBI is back on the “progressive” agenda, our Council members will have some catching up to do if they want to move the City of Alameda – and themselves – to the head of the pack.

In California, the City of Stockton already has beaten them to the punch, and two Bay Area jurisdictions are not far behind.

In February 2019, at the urging of its “progressive” mayor, Michael Tubbs (who was defeated for reelection last November), Stockton rolled out what was called the “Stockton Economic Development Program,” in which 125 residents got a $500 debit card every month for 18 months to spend however they chose.

The program was targeted at lower-income residents – specifically, those who lived in census tracts with a median household income below the citywide median.  The city sent out letters to 4,200 randomly selected individuals in those tracts, and from the respondents, it selected the 125 recipients, “taking into account the city’s gender, age, and racial diversity.”

The money didn’t come from the municipal coffers.  Rather, private donors, primarily a non-profit organization called the Economic Security Project, funded the program for 18 months, and then Carol Tolan, a private philanthropist, put up enough cash to keep it going for another six months.

Thus far, the SEEDS program has received positive reviews.  According to two academic researchers who studied the program’s impact on recipients during its first year, the monthly checks, among other things, “reduced the month-to-month income fluctuations that households face, increased recipients’ full-time employment by 12 percentage points and decreased their measurable feelings of anxiety and depression, compared with their control-group.”  (The professors’ study of the second year is expected to be released in September.)

Barely a week after Mr. Knox White brought up the subject during the Council meeting, Oakland Mayor Libby Schaaf announced that city’s own UBI program, which will provide $500 per month for at least 18 months to 600 families to spend however they want.

Like the Stockton program, the Oakland program is targeted at low-income residents (in Oakland’s case, families earning less than 50% of area median income – about $59,000 per year for a family of three; with half of the spots reserved for families earning below 138% of the federal poverty level – about $30,000 per year for a family of three).

But the Oakland program differs significantly from Stockton’s in its other eligibility requirements.  Only families with at least one child under 18 qualify for a monthly check.  Moreover, the program is available only to BIPOC families.  (Query whether a family that includes both a BIPOC person and a white person passes the test.)  The city intends to use a “multilingual online form” to screen for eligibility.  According to the San Francisco Chronicle, it “will begin with East Oakland residents before opening applications to other parts of the city.”  After the applications are in, “families are randomly selected to receive the cash payments.”

(Needless to say, restricting the recipients to BIPOC families already has proven controversial.  Generally speaking, a law that distributes benefits – or imposes burdens – on the basis of race violates the equal protection clause of the Fourteenth Amendment to the U.S. Constitution unless the government can show a “compelling” justification for the distinction.  From what we’ve read, it appears that Oakland’s attorneys may seek to characterize the UBI payments as a means of remedying past discrimination by the city.  More broadly, an L.A. Times columnist, Erika D. Smith, argues that the program is a form of “financial reparations for slavery.”)

Finally, as in Stockton, the money for Oakland’s UBI program will not come out of the city’s General Fund.  Rather, it is being funded with private donations from Blue Meridian Partners, a philanthropic organization described by the Chronicle as being “focused on poverty.”  So far, according to the Chronicle, the group has “raised more than $6.7 million and about 80% of those funds are going into the hands of residents.”

The same day as Mayor Schaaf’s announcement, the Marin County Board of Supervisors voted to contribute County funds to a Marin UBI program, which will provide $1,000 per month for 24 months to 125 women of color to spend however they want.

Like the other two UBI programs, the Marin program contains an income qualification:  earnings below the county’s “self-sufficiency standard” as calculated by the Insight Center for Economic Development, an Oakland nonprofit.  (Under this standard, a household with two adults, one pre-school child, and one school-age child would make the cut if it earned less than $129,000 per year.)  But eligibility is even more restrictive than for the Stockton or Oakland program:  only “women of color” with at least one child younger than 17 will qualify.  Recipients will be selected at random from among 4,600 people who have already received direct cash aid from the Marin Community Foundation.

The Foundation is the main source of funding for the program, providing a $3 million grant.  The Supervisors agreed to kick in $400,000 in County funds.

Facts like these about how a UBI program actually operates may not matter much to certain of our local politicians:  if right-thinking “progressives” support UBI, so do they.  But it would be a mistake to assume that all public-policy experts are sold on the concept.  Indeed, in a 2019 report, the Aspen Institute, a non-profit, non-partisan think tank, described UBI as a “sub-optimal, and possibly harmful, policy response” to problems like income inequality.  Rather than UBI, the Institute argued, governments should “focus spending on targeted benefits and policies dedicated to human capital development,” which are “likely to produce a much greater social return than a UBI.”

In any event, designing a UBI program for the City of Alameda would require answers to at least three related questions:  Who should be eligible?  How much should each recipient get?  And how will the City pay for it?  We’ll sketch out a few of the relevant considerations.

First, the name “Universal” is a misnomer, since, except for plans like Andrew Yang’s, UBI usually isn’t available to every citizen.  Most often, eligibility depends on income, with the UBI payments going to “low-income” residents (as in Oakland) or residents who are not “self-sufficient” (as in Marin County).  But where and how to draw the line gets tricky.

Let’s run some numbers for the City of Alameda:  As defined by HUD, “low-income” refers to households earning 80 percent or less of the area median income.  For 2020, the “low-income” threshold for a four-person household in Alameda County was $104,400.  According to the American Community Survey, 14,663 households in the City of Alameda earned less than $100,000 in 2019.  (Unfortunately, the ACS categories do not match the HUD categories exactly.)

Should all of them qualify for a monthly UBI check?  Suppose the potential recipients were limited to “very-low-income” households (i.e., those earning 50 per cent of AMI – $65,250 for 2020 in Alameda County).  According to ACS, 7,292 households in the City of Alameda earned less than $50,000 in 2019.  If UBI payments were restricted to this group, the number of eligible recipients would be cut in half.

But what about using poverty levels instead?  According to the poverty guidelines published by the federal Department of Health and Human Services, the poverty level for a four-person household in 2021 is $26,500.  The ACS data shows that 3,566 Alameda households earned less than $25,000 in 2019.  So a UBI program using this criterion would cut the number of potential recipients in half yet again.

(Academics would argue that the federal poverty level, which is determined on a nationwide basis, should not be used in areas with a high cost of living, like the Bay Area.  What should replace it is a subject of debate.)

Income isn’t the only eligibility criterion to consider.  Both the Oakland program and the Marin County program direct UBI payments to families (Oakland) or women (Marin) with at least one child.  We’re not quite sure why adults without younger children are left out – an elderly widow may need the cash as much as her daughter and grandchildren do – but the focus on children follows a current trend.  For example, the recent federal stimulus bill allows parents to claim a refundable tax credit of up to $3,000 per child ages 6 to 17 years old and up to $3,600 per child under 6.  Not only was this provision politically popular (even Marco Rubio was for it), but some commentators praised it as a first step toward a national UBI.

If Alameda were to adopt a UBI program with a child-based eligibility test, the ACS survey shows that 8,810 Alameda households with at least one child under 18 in 2019 would qualify.

Then there is the touchy topic of race.  Both the Oakland program and the Marin program are restricted to families or women of color.  Whether this distinction makes sense – a separate question from whether it is legal – depends on what one sees as the purpose of a UBI program.  If the goal is to reduce poverty, the race of the recipients shouldn’t matter.  But if the goal is to redress income inequality, it should.  Suffice it to say that those who promote race-based UBI programs tend toward the latter view.  The press release introducing Oakland’s program quoted Mayor Schaaf as describing UBI as “one of the most promising tools for systems change, racial equity, and economic mobility we’ve seen in decades,” and expressing pride in “build[ing] a new system that can help undo centuries of economic and racial injustice, and point us all toward a more just society.”

The ACS survey for 2019 classifies 38,452 Alamedans as other than “white,” but it’s not clear, at least to us, that all these people would count as “persons of color” eligible for a UBI program limited to BIPOC residents.  For example, we’ve been reading articles recently about whether Asian-Americans should be deemed part of the “BIPOC” group, and, if so, whether they should receive the same “restorative justice” as Blacks.  We know better than to express an opinion about those questions, but if the City did adopt a race-based UBI program, it would have to resolve this issue and then be prepared to defend its decision in court.

The second issue in designing a UBI system is the amount of the monthly payment.

There are at least two ways to derive this number.  One could start by determining the total amount the City (or a private philanthropist) is able and willing to pay.  Or one could start by determining the total amount it would take to achieve a specific goal – e.g., lifting all (or most) residents above the federal poverty line.  Divide either amount first by 12, then by the number of eligible recipients and you’ve got the amount of the monthly payment.

None of the existing UBI programs we’ve come across has taken either approach.  Rather, they’ve just picked a flat number for everyone – $500 for Stockton and Oakland, $1,000 for Marin – and stayed within funding constraints by randomly selecting recipients from the larger pool of qualifying applicants.  Inevitably, this method means that some who may not need the money as much as others will get it anyway and some who need it the most won’t get anything.  But tailoring a UBI program based on individualized need would create a logistical nightmare.

The final issue is:  if the City of Alameda adopts a UBI program, how should it pay for it?

Note that all three of the UBI programs in California we’ve discussed are financed by donations from private non-profit organizations.  Indeed, except for the $400,000 contributed by the Marin County supervisors, none of the money consists of public funds.  Is there a similar organization able and willing to do the same for Alameda?

In a prior column, we suggested that one of the options for spending the $28 million COVID-19 relief grant the City is expecting to receive from the federal government would be to distribute the money to low-income residents.  But the grant is a one-time event (isn’t it?), and a UBI program lasts more than a year.  So where would the money to maintain an ongoing project come from?

Andrew Yang proposed paying for his Freedom Dividend program primarily by imposing new taxes (in particular, a Value Added Tax and a carbon tax).  But our Council might be reluctant to put yet another tax-increase measure on the ballot, and, if it did, voters might not cooperate.

Without new revenue, the funds for an Alameda UBI program would have to come out of the existing General Fund balance, which amounted to $38.6 million at the end of fiscal year 2019-2020.  Under current policy, a large chunk of this balance already is committed:  the City maintains a “reserve” equal to 25 percent of operating expenses and annually contributes 50 percent of the “surplus” above that amount to pay down pension and OPEB liabilities.  But these commitments are not set in stone, and, in theory, the funds could be re-directed to UBI.  It’s just a matter of priorities.

Unfortunately, even if the existing policies were rescinded, the General Fund isn’t forecast to stay as healthy as it is now for very long.  Indeed, the last round of financial projections shows that the City will begin incurring operating losses this fiscal year, and the situation will get worse as time goes on.  These deficits will need to be covered out of the General Fund balance, and there may not be much left over for a new program like UBI.

Of course, there is also always the option of cutting the operating budget to free up additional funds, but that is not something elected officials ordinarily like to do.  The obvious candidate for a budget cut – because it takes up 38 percent of total expenditures – is the fire department, but no Council member who depends on the firefighters’ union for campaign funds would ever consider touching it.  The police department budget is another matter.  A “progressive” politician could kill the proverbial two birds with one stone:  adopt a UBI program for “underserved” Alamedans and pay for it by “defunding” the police!

The foregoing are the three issues that came to mind when we considered what an Alameda UBI program would look like.  There are, undoubtedly, many others, and we’ll look forward to seeing how City Manager Eric Levitt deals with them when he presents the report Council directed him to prepare.  We just hope that he will do more than simply tell Mr. Knox White and his acolytes what they want to hear.  Placating the “progressive” politicians and at the same time proposing a practical program may not always be possible.

Sources:

The website for the Mayors for a Guaranteed Income (https://www.mayorsforagi.org/guaranteed-income) contains links to a number of articles about UBI.

In addition, we found particularly useful articles published in the Annual Review of Economics (https://gspp.berkeley.edu/assets/uploads/research/pdf/Hoynes-Rothstein-UBI-081518.pdf) and by the Aspen Institute (https://www.economicstrategygroup.org/publication/universal-basic-income-ubi-as-a-policy-response-to-current-challenges/).

About Robert Sullwold

Partner, Sullwold & Hughes Specializes in investment litigation
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8 Responses to UBI for Alameda?

  1. IAFF 689 says:

    Hands off, that’s OUR money!

  2. Hail Caesar! says:

    Ancient Rome created the “dole” in the form of free grain and corn, for its underclass in order to buy votes, and included games and circuses to entertain (control) the population. Historians have pointed out that it stifled the old Roman virtue of self-reliance, and created a permanent underclass. It was a major contributing factor to the eventual end of the empire, as it required strangling taxation, more wars, more slaves, and an expanding empire to maintain.

    See any similarities to today?

  3. dave says:

    Last year’s General Fund Budget was 98.5MM, this year is 101.6MM, so let’s call it an even 100MM for the sake of example. Most recent population figure is ~78,500 for 2019. New housing is coming on board and Alameda is still where Hipsters Go To Breed, so 80,000 is a safe assumption for this example.

    The city’s General Fund could provide a tad over $100 per month per person, and all it would cost is police, fire, park, public works, libraries and a few other sundries. (The lights would still stay on because AMP is not in the GF)

    Sounds like a great deal, let’s proceed!

    • Reality says:

      Sounds like someone 1) didn’t read the links provided, 2) is creating a false choice dichotomy to steer people away from UBI, or 3) just shoddy at math. I will go with all 3. You could fund a program for 1,000 most at-risk Alamedans for $1.2M plus administrative cost. With Alameda about to receive $29 million from President Biden, the money is there.

      I’m not for our against UBIs, but so far I’m just seeing weak arguments against it here.

      • dave says:

        Please check your dictionary for the word “universal.” It’s toward the back of the book. You’ll find that it means “of, for, affecting, or including all or the whole of something specified; not limited or restricted.”

        Then check the Stanford “study” that you linked, and take a look at page 3 where it says “Universal: It is paid to every individual and not targeted to a specific population.”

        When you get done with those two, then please take some of your valuable time to point out the errors I made in the “shoddy” math above. Go ahead, I’ll wait.

        Couldn’t find any errors? Gee, what a shame. Now you’ll have to concede that an Alameda UBI (don’t forget that the “U” means everyone) is mathematically impossible. It’s also legally and politically impossible, as no city in California has the taxing power to ever effect such a scheme.

        After you finish the above, you’ll have to face the sad reality that the scheme that you float above is more accurately labeled a “scam.” It’s an extremely expensive billboard to advertise the ersatz (though loudly proclaimed) virtues of said scam’s proponents. Doubtless you’ll make this concession silently, though you might gain a measure of respect if you did so on this page.

        The point is, and I’ll type this really slowly to help you understand it, that an “experiment” to test something that is manifestly impossible is simply a short term waste of money, to say nothing of the fact that a UBI is miles beyond the purview of any city in California. If your goal is to give money to a vulnerable group, then say so. You probably won’t change many minds, but you’ll save yourself the embarrassment of saying with a straight face that the proposed experiment is a serious exercise in public policy. It’s nothing more than very expensive political vanity, to coin a phrase.

  4. David says:

    >>A “progressive” politician could kill the proverbial two birds with one stone: adopt a UBI program for “underserved” Alamedans and pay for it by “defunding” the police!

    Except the premise for defunding police is to re-invest the money into the community in other direct services, most commonly, crisis response so that armed, uniforms, need not respond.

    Re-investing the money via UBI would be a much less connected endeavor and really stretch credulity that defunding police results in better outcomes.

    Demonstrating that re-investing police budget funds into UBI provides better outcomes wouldn’t that be easy, and would likely harm the “defund” effort, for the inability to connect the dots. Proving success with “defund” has to reinvest police budget funds in more comparable direct service delivery.

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