• Following the Money with Ma Yinchu

    By Austin Dean

    Who pays for what? This is an eternal source of disagreement in public administration.

    It’s the question behind recent debates in New York about how much money the state should allocate to the City University of New York (CUNY) system. Since the 1970s, the state of New York has paid the operating funds of CUNY’s “11 senior colleges, or four-year institutions, and at its six graduate and professional colleges,” just as it does for the State University of New York (SUNY). New York City has been the main funder of the CUNY’s seven community colleges. In January, New York Governor Andrew Cuomo proposed a state budget that would cut $485 million to the CUNY system. It was, he argued, time for the city to pay more. At the end of March, and after much opposition, Cuomo dropped his proposals to cut state funding to CUNY’s budget.

    Cuomo’s decision would have been of interest to Chinese students studying in the United States a century ago. Many of these students were obsessed with the details of local and municipal finance in the United States — with good reason.

    The finances of the late Qing dynasty and early Republican periods were constantly in flux. Which taxes belonged to the national government? To local governments? What should be taxed and how much? How should the system of budgeting work? Could waste and corruption be eliminated?

    One person particularly preoccupied with the question of municipal finance in the United States was Ma Yinchu, later famous as the intellectual father of the one-child policy in the People’s Republic of China. Ma studied economics at Yale before getting his PhD from Columbia. Appropriately enough, he wrote his dissertation in 1914 on the public finances of New York City.

    The topic had a practical purpose. As Ma wrote in the preface of the dissertation, “the finances of the Empire City of New York and those of the Empire and Republic of China have many points of resemblance.” Corruption was rampant; waste was all too common; debt levels skyrocketed.  He thought the “scientific methods” the city had recently adopted for budgeting and auditing could “afford a valuable lesson for China’s benefit.” In fact, he hoped the dissertation would be translated into Chinese.

    Interestingly, in light of the current debate about funding for CUNY, Ma repeatedly returned to an example from higher education to show how things should not be done. Here is the text of the 1905 New York City appropriation for higher education:

    For salaries of professors, tutors, and other in the Normal College and in the Training Department of the Normal College, for scientific apparatus, books, and all necessary supplies thereof; for repairing and altering the college building, and for the support, maintenance and general expenses of the same — $220,000.

    Ma thought this type of lump-sum appropriation was egregious. With a scale “so comprehensive” and “indefinite,” the funds might be spent on anything. Take the term “supplies.” If the school spent $30,000 on educational supplies, no one would complain. But what if it spent the same amount on office supplies? Surely most people would think there was significant skullduggery at work. A general appropriation such as New York had been giving its higher-education institutions would be impossible to audit. Ma thought this old system of doing things mirrored the one in China.

    Much better, Ma wrote, was the new system of budgeting in New York City that segregated expenses according to functionality. Instead of a lump-sum appropriation, the budget designated funds to be used for specific purposes: general salaries, equipment purchases, office supplies, etc. With this system in place, it was much easier to track and audit the use of funds.

    But making the budget was only one step: it had to be funded by taxes. Ma devoted another part of his dissertation to this eternally complex topic.

    Ma was particularly interested in the property tax. As he wrote approvingly of the system in the United States, the taxation of real estate “must be delegated to the county, city or town exclusively” because they are the “source from which the land value springs.” His own country had no such system.

    The property tax remains one of the more controversial duties in contemporary China. The transaction of buying and selling property is taxed, but there is no recurring annual tax levied on individual owners of real estate. It regularly gets discussed and has been tried out in small pilot programs, but a nation-wide introduction always seems to be a few years away.

    Ma also had a lot to say about debt. This was natural, as both China and New York City owed large amounts of money, albeit for different reasons. China had massive indemnities to pay off from the Boxer Rebellion. After the fall of the Qing dynasty, the new government under Yuan Shikai accumulated more debt by relying on loans from foreign creditors.

    In New York City, Ma thought the debt burden arose from the “unsound financial practice of borrowing on long term for the acquisition and construction of improvements which shall entail no expense on the present taxpayer.” New Yorkers wanted a free lunch. He could see no reason why the city was in the habit “of selling 50-year bonds to pay for ten-year street paving, which last often for not more than five years!” It made no sense.

    Ma Yinchu was an opinionated and prolific writer. His collected works span more than ten thick volumes; the dissertation on New York City finances was his first major undertaking. It’s hard to say which side of the recent debate about the CUNY system Ma would have taken. On the one hand, he was in favor of city expenses being covered by taxes under the control of the municipality. On the other, his own education benefited from funds allocated by the Qing government; sometimes a higher level of government has to provide funds for important purposes. Regardless of who supplied the funds, though, there’s no doubt that Ma would certainly want the money well accounted for.