June 11, 2006 to June 18, 2006
Antiterrorism Grants
Antiterrorism Allocations--Becker
Posner discusses many of the thorny issues involved in the allocation of funds by The Department of Homeland Security to American cities to combat terrorism. I will concentrate my comment on how to align the incentives of cities to those of the country as a whole.
Posner points out that there is a conflict between the incentives of cities and those of the federal government. When cities do more to prevent terrorism against their residents and buildings, they also help the country fight terrorism against other cities and towns without getting compensated for that help. He also indicates that if the federal government simply gives money to cities, the cities may reduce the amounts they would otherwise spend fighting terrorism. Both problems arise in many infrastructure and entitlement programs, such as road-building, Medicare for the poor, and the fight against contagious diseases.
These sources of the tendency for cities to underspend on anti-terrorist activities can be at least partially overcome if Homeland Security did not outright give various amounts to different cities, but instead relied on the method used to combat similar issues that arise with other grant programs. The Department of Homeland Security should offer to give cities a certain number of dollars for each dollar they spend on antiterrorist activities. For example, if a city spent $30 million, they might get an additional $60 million from the federal government. In this example, a city would get to spend $3 dollars for each dollar they used from their own funds to fight terrorism.
Federal matching of this type discourages cities from cutting back on their spending to fight terrorism since they lose say $3 dollars for each dollar they cut back. Matching grants also induce cities to give de facto recognition to the fact that each dollar they spend helps residents of other cities as well by improving the overall American fight against terrorism. The ratio of federal spending to city spending should be a measure of the ratio of the benefits to other cities compared to the benefits to the city spending their own money to fight terrorism.
The matching need not be independent of how cities spent their own monies. Cities are more likely on their own to spend on salaries than on capital goods that are produced elsewhere since spending on employees gives jobs to local residents. The matching grants should then be oriented toward capital spending rather than labor spending. In fact, the Homeland Security program is so oriented, and that seems to me to make some sense.
However, matching grants, particularly if the ratio of federal to local contributions is large, can create the opposite problem from that created by outright grants; namely, cities may spend too much since their spending is multiplied through the amounts available in matching funds. This is usually controlled by placing upper limits on the amounts that could be received in matching funds. Cities that are especially attractive to terrorist attacks--such as New York and Washington--would spend more fighting terrorism even without federal grants. Still, on their own they may not spend enough, so the upper limits they could receive in matching grants should exceed that available to say Kansas City.
One problem is that as coastal cities like Los Angeles, San Francisco, Boston, New York, and Washington became better prepared to fight terrorism, terrorists might shift inland, to places like Detroit, Chicago, Cleveland, Omaha, Topeka, and elsewhere. As the bombing in Oklahoma City showed, even attacks in smaller cities cause considerable fear and consternation. That is why a federal program has to be national, and target smaller places as well as larger ones. Matching grants encourage smaller cities also to contribute to the fight against terrorism, and they will spend more when they become more vulnerable after the more attractive terrorist targets became better prepared. So the system is partly self-correcting through the incentives that cities have to protect their own citizens.
But matching grants do not solve all the problems of how to best allocate limited federal funds. So the federal government will still need some guidelines that determine which cities should be given more Homeland money, although in a matched way.
The Cut in Antiterrorism Grants to New York and Washington, D.C.--Posner
The Department of Homeland Security will be distributing some $700 million this coming year to American cities for antiterrorism measures. The amounts allocated to New York and Washington, which are generally regarded as the prime U.S. targets for a terrorist attack, are about 40 percent lower than the current year's allocations, and this has engendered indignation on the part of officials of those cities. Other large cities have seen their allocations cut sharply as well. In part the change in allocations is due to the fact that Congress cut the overall amount of money for this program, but in larger part it is because of a deliberate decision to shift money to smaller cities. Michael Chertoff, the Secretary of Homeland Security, defends the shift on two grounds: that the money should be used to build physical capacity to respond to terrorism rather than to fund recurring expenses such as salaries of emergency-response personnel, and that New York, Washington, and a few other major cities have received the lion's share of the grants since the beginning of the program because they are the prime targets but their urgent needs have been attended to and it is now time to attend to the needs of the lesser targets.
The interesting policy questions are, first, should the federal government be making such grants to cities, and, second, what should be the basis for deciding how large a grant to make to each city? Taking the first question first, there is no doubt that the federal government and not just states and municipalities should spend money to protect the nation from terrorist attacks, since, as we know from the 9/11 attacks, an attack on a city (or on any other major target) has consequences far beyond the state in which the city is located. But should the government finance defensive measures by the cities or should it spend the money itself? The argument usually heard for the grant approach is that the locals know better their vulnerabilities and how best to reduce them. But the argument is weak because while the locals do know a great deal about the competence of their response personnel, they know little about terrorist threats--terrorist plans, methods, preferred targets, and so forth.
Moreover, when a pot of federal money has to be divided up among state or local governments, pork-barrel politics are bound to distort the allocation. Concern with this problem led DHS to employ anonymous committees of local security and emergency-response officials to vet the grants, but partly because of their anonymity and partly because such officials are only quasi-professional, this version of peer review was not highly credible.
Furthermore, the locals may use the federal money simply to replace the expenditures they would otherwise have made on antiterror measures. Suppose a city wants to spend $10 million on such measures and would spend it out of its own funds, but it gets a grant of $10 million from DHS. Then it may simply reallocate the $10 million in its own funds that it would have spent on such measures to some unrelated program. To the extent that such reallocations occur, the $700 million DHS program, with all its entailed paperwork, peer reviews, and political controversy, is not a security measure at all but just a general federal subsidy of local government. Notice, moreover, that the less of its own money the city spends, the less secure it is against terrorist attacks, and it can use the lack of security to argue for an increased federal grant next year!
All this said, probably some sort of grant program makes sense simply because optimal antiterrorism measures require enlisting local facilities and personnel, and cities may underspend on these because the benefits will accrue in part, maybe major part, to other, perhaps far distant, cities; that is the externality point with which I began. I am puzzled why the program should favor communications equipment, computers, emergency vehicles, pathogen detectors, containment shields, and other capital goods over salaries; effective antiterrorism measures tend in fact to be labor-intensive. Becker, however, suggests an explanation in his comment.
Moving to the second question, how should the amount received by each city be determined, one encounters baffling problems of measurement. Ideally, one would like the grant moneys to be allocated in such a way as to maximize the excess of benefits over costs. The costs are relatively straightforward, but the benefits are not. The benefits of an antiterrorism measure, for each potential target, depend on (1) the value of the target (not just in terms of financial loss, of course) to the United States, (2) the likelihood of its being attacked, (3) the likely damage to the target if it is attacked (which requires consideration of the range of possible attacks), and (4) the efficacy of a given measure to prevent the attack or reduce the damage caused by it. (2) and (3) are probably the most difficult to estimate accurately, because to do so would require extensive knowledge of the plans, resources, number, location, and motivations of potential terrorists. But (4) is very difficult too, because the effectiveness of increasing the number of policemen, or of installing surveillance cameras on every block, or of increasing the number of SWAT teams, or of taking other measures of prevention or response, is extremely difficult to assess in advance.
About all that can be said with any confidence is that cities and other targets that are near the nation's borders (including coastlines) are probably more likely to be attacked than cities and other targets that are well inland, that larger cities are more likely to be attacked than smaller ones because the larger the city the easier it is for a terrorist to hide and move about in it without being noticed, that attacks on large cities are likely to kill more people and do more property damage than attacks on small ones, that among coastal cities New York and Washington probably are the prime targets because of their symbolic significance, but that to neglect the defense of the small inland cities would simply make them the prime targets, and that an attack on such a city might sow even greater fear nationwide than another attack on a large coastal city by making people feel that nowhere is safe. But no numbers can be attached to these probabilities. They belong to the realm of uncertainty rather than of risk, to borrow a useful distinction made by statisticians: risk can be quantified, uncertainty cannot be.
This analysis suggests that more antiterrorism resources should indeed be allocated to the large coastal cities than to other potential targets, but that is the pattern even after the recent cuts. What seems indeterminate is the precise amount of money that should go to each city. That makes one wonder why DHS was willing to incur the political pain of drastically altering the existing grant pattern.
Antiterrorist Allocations--Posner's Response to Comments
I want to note one particularly acute comment--that awarding grants of federal money to localities on the basis of the "quality" of their grant proposals just rewards skillful grant writers. I think that is probably true. This is not like grant applications for money for scientific research, which are evaluated by distinguished scientists. Counterterrorism is not a science, and the "peers" who reviewed the grant applications for the Department of Homeland Security appear to have been a miscellaneous assortment of persons engaged in emergency response and other security-related activities. The room for subjective, political judgments must have been large.
I also agree with the commenter who criticized me for suggesting that DHS had experienced "political pain" by cutting the allocations for New York City and Washington, D.C. DHS received criticism, but since both NYC and Washington are solidly Democratic, the political pain has been more than offset by the gratitude of cities in states that lean Republican or are toss-ups. Now for all I know politics played no role in th allocations, but the lack of transparency in the "peer review" process makes it difficult to dispel suspicion of political motives.
Commenters debated over whether cities or the federal goverrnment have better information about optimal counterterrorist measures for a given city. Thinking further about that issue, I now incline to the view that the only respect in which a city has the comparative advantage is with respect to measures for gathering information about residents who might be terrorist supporters and for patroling local sites and facilities (like the New York subway system). These information-gathering and patrolman-on-the-beat activities, which incidentally are labor-intensive, are ones for which grants to cities make sense. But when it comes to capital expenditures, such as for radiation and pathogen detectors, radiation shields, communications equipment, and decontamination facilities, the federal government probably has the comparative advantage. Apart from being able to extract price concessioms by buying in bulk, the federal government can assure compatibility across cities where needed (for example, in communications equipment), exploit economies of scale, base expenditures on more sophisticated appreciation of threats and technology, and resist granstmanship and local political pressures. Thus, on reflection, I am inclined to change my mind and conclude that DHS has it backwards in emphasizing grants to cities for capital rather than for personnel expenditures.