High Cost of a Helping Hand

The long road to deficits has been paved with the best of intentions

The federal budget cuts proposed by the President look crisp and bloodless when summarized in tidy charts and statistical tables, but it is a very long way from the Latinate language of program descriptions to the bumpy realities of people and places those Washington moneys touch. Though inevitably some were born of boondoggling and hornswoggling in the give and take of American politics, most federal programs were conceived with the best of intentions, created to advance goals on which much of America agreed. To feed the hungry. To heal the sick. To train the jobless. To enable the nation's youth to go to college. To help American business compete abroad. To further the arts. To preserve the family farm. But whether misused or effective, each contributed to an ever growing cascade of federal largesse that the nation can no longer afford. TIME correspondents examined a sampling of current programs across the nation, assessing how they worked and what the Reagan cuts might mean--for good or ill.

Worked Up over CETA

Joseph Lilley, 41, drives a van for Erie Independence House, a home for twelve handicapped people in Erie, Pa. He earns $4 an hour for a 40-hour work week, and his salary is paid by the Comprehensive Employment and Training Act (CETA), the federal jobs and job-training program founded in 1973. With four children and a wife on welfare, Lilley considers himself lucky to hold the CETA-funded post. "Before this job, I was on welfare," says Lilley. "I probably would have trouble finding another job because I have a prison record. CETA helps people like myself get going again."

Not any more, if the Reagan Administration succeeds in its plan to abolish CETA programs across the nation. In Erie, Lilley is one of 500 people currently paid by CETA and working for such nonprofit agencies as the Y.M.C.A. and the Red Cross or learning job skills in local training programs. In addition, CETA funded summer jobs for 500 of the city's youngsters last year. In the fiscal year ending Sept. 30, Erie will receive $5 million from CETA --a welcome transfusion for a decaying industrial city that is hemorrhaging jobs. The unemployment rate in Erie now hovers at 9.5%, against a nationwide rate of 7.4%. The Holiday Meat Packing Co. closed its doors for good two weeks ago, leaving 230 jobless; the Continental Rubber Works, which employs 320, will shut down soon.

Many Erie officials, not surprisingly, condemn the proposed slashing of CETA funds. Says Mayor Louis Tullio: "It's going to have a drastic effect on the nonprofit agencies, on the services they provide, and on the city of Erie." R. Benjamin Wiley, executive director of the Greater Erie Community Action Committee, which administers CETA programs, is even more vehement in describing the impact. "There's going to be more crime and more homicides," warns Wiley. "The bottom line is that if these programs are cut, you're putting more people out there on the unemployment line, and people are going to find other ways to get hold of money."

Similar fears are voiced by agency heads and CETA employees alike. "Without CETA, we'll have a serious problem," says Robert Harrison, executive director of the John F. Kennedy Center, a community organization that provides social services to about 3,000 families and employs six CETA workers, about 15% of its staff. Harrison predicts that the center will be forced to reduce sharply its day care and youth recreation programs, as well as curtail the hours of its health clinic. Howard Mclntyre, 31, earns $30 a week while learning to be a machine-tool operator in a CETA training program; he now fears that he is headed for the unemployment line. "I got laid off two years ago because I didn't have enough experience," says Mclntyre. "CETA helps you get that experience. It's a lot better than welfare."

Opponents of CETA funding, however, argue that many people employed in the program are not learning a craft, but are only filling menial jobs. They are thus not gaining the kind of work experience that prepares them for better positions. For those who are indeed learning a skill, like McIntyre, there is no guarantee that they will be hired in economically strapped Erie.

Mayor Tullio admits that abolishing CETA will not throw all 500 CETA employees out of work. He estimates that the non-profit agencies will end up placing on their own payrolls as many as half of those currently paid by CETA. Says Tullio resignedly: "The things we're going to have to live without, we're going to have to live without." Meanwhile, most CETA workers are determined to find other jobs, rather than join the welfare rolls. "I'll try to find work," says David Goodwill, who is now paid $3.75 an hour by CETA to teach welding. "We'll just have to wait and see."

Farming, Thanks to FHA

Between 1959 and 1969, Derold Happel and his wife Brenda rented up to 300 acres of fertile farmland in Iowa's Benton County, northeast of Des Moines. They longed for land of their own, but they had no assets they could mortgage to get a big enough loan from local banks. A friend told Happel about the Farmers Home Administration. He borrowed $60,000 for 40 years at 5% from FHA and bought 120 acres of prime land with the cash. Today he owns 275 acres, rents 500 and farms 425 more for an absentee owner. Without FHA, Happel figures, he would still be just renting, or working as a farm hand.

FHA was set up in 1946 to help small farmers get started or stay in business when faced with high land costs, high interest rates and rising equipment or operational costs, as well as to recover from drought and other disasters. FHA has since become a helpful big brother to much of agricultural America. It aids in building water and sewage systems for small towns, and provides loans to construct low-cost housing for the rural poor. Last year FHA spent about $14.5 billion in loans and public construction grants. Reagan proposes to cut this lending by 25%, saving more than $400 million by 1986.

Even some FHA supporters concede that the program is not very efficient, since it helps relatively few people. Consider the town of Mount Auburn, Iowa, which needed a new water system to replace its shallow and inadequate wells. Mount Auburn turned to FHA, which provided $395,000 in grants and $140,000 in low-interest loans to build a new water system--for 187 residents. In Benton County, FHA spent $5 million to help an area with only 22,000 people.

A major criticism of the program is that FHA subsidizes inefficiency by providing marginal farmers with enough funds so that they will not have to quit the land. Contends John Lawlor, executive vice president of the Citizen State Bank in Belle Plaine: "They've kept people in business who should have been carrying a lunch pail." But Vernon Nelson, FHA supervisor for Benton County, is proud that his loans have contributed to the success of farmers who just need a little help in competing with the conglomerate operators. The argument over FHA boils down to one of practicality vs. sentiment, depending on how important maintaining family farms seems to be.

Cutting back on FHA will not help that old rural dream. Rick Happel, Derold's 22-year-old son, applied for an FHA loan last summer to buy some land of his own. He was turned down because the agency has no more money to lend. "A guy like me," he fretted last week, "might never be able to own land."

Calling in Student Loans

James Andrews, 19, the son of a Maine logger, taught swimming at the lake near his home in tiny West Paris for eight hours a day last summer, then put in a six-hour shift at a local restaurant. All that work was to help in what he calls his greatest achievement: being the first member of his family to go to college. Industrious and frugal, Andrews was impressed by Reagan's attack on federal profligacy and voted for him last fall. Now, however, Reagan has threatened Andrews' dream by proposing to slash $800 million from the student loan and aid programs that are his lifeline as a freshman at Bates, a small (enrollment: 1,450) liberal arts college in Lewiston, Me. Andrews' summer savings and the $35 a week he earns as a lifeguard at the college make little dent in the $7,500 tuition and board. Says he: "Cutting financial aid for students is not cutting fat, it's cutting lean."

The Guaranteed Student Loan authority provides federally subsidized 9% loans directly from banks to students. Other forms of financial aid are administered by the colleges themselves, based on their own determination of what the student needs. At Bates, where 62% of the students receive some aid, G.S.L.s provide $1.5 million in loans a year, as much as the combined total of all other student assistance programs financed by the college and Government. Average yearly G.S.L.: $1,750.

The dependence of Bates' student body on G.S.L. funds has grown more than sevenfold in the past decade. College officials say this growth is due to the increasing cost of education (tuition and board have more than doubled in ten years, but that is no greater than the inflation rate for the same period) and the shrinking disposable income of the American family. During this period, colleges have tried to accept students without regard to their ability to pay. Thus Bates' own scholarship fund, from private donations, has also increased, from $254,000 in 1970 to $ 1.4 million this year.

Bates President Thomas Hedley Reynolds acknowledges that "G.S.L. is a troublemaker. Abuses are growing, and I'm sure most administrators would agree it needs to be tightened up." The loans also provide some funds that even the colleges think a student's family should be capable of providing. Tales abound of families borrowing more low-interest G.S.L. money than they actually need for tuition and using some of it for other investments. The Reagan Administration says it wants to cut the program to provide for only the "truly needy."

The changes will hurt many middle-class families, who find tuition costs staggering even when given the chance to borrow at 9%. Because it threatens the dreams of much of his constituency, Reagan's proposed reduction of G.S.L. may be one of his most politically controversial moves. Families that in theory do not meet the new hardship requirements may find it difficult to raise tuition funds. In assessing a student's ability to pay for his schooling, Bates takes into account the family's assets--which may include things such as timber lots that cannot be translated into any form of ready cash.

Other student loan programs--notably those that are administered by the colleges--have collection rates as high as 98%. Reynolds argues that instead of being cut, as Reagan proposes, the G.S.L. program should be controlled by colleges rather than banks. This change would help guarantee that the loans would be applied toward real need and eventually repaid. Otherwise, says Reynolds, with costs continuing to spiral (next year's tuition and board are scheduled to jump to $9,000), Bates and other colleges may have to start basing admissions on ability to pay. Says he: "We can stand a lot of programs being cut if the Reagan Administration really tackled inflation. But if they only cut out these little programs and fold them into defense spending, the entire country is going to suffer."

The new requirements and restrictions will indeed make going to college more difficult. But Andrews' classmate Susanna Burger, who hopes some day to get a G.S.L. loan, understands what Reagan is trying to do. Her view: "Since there seem to be a lot of people not paying back their loans, I think it's logical to tighten up this whole program."

Playing for Time

Founded in 1889, the St. Louis Symphony is the second oldest major American orchestra (after the New York Philharmonic). For most of its history, it was a competent provincial ensemble of modest renown. Thanks to a string of ambitious musical directors (including its current American-born conductor, Leonard Slatkin) and the growing support of Missourians, the 101-member orchestra is now acclaimed far beyond St. Louis. It plays a full 52-week season, tours frequently and performs before appreciative home-town audiences in 2,700-seat Powell Symphony Hall, which visiting soloists have praised for its acoustical excellence.

Maintaining the quality of the St. Louis Symphony will substantially be more arduous under the Reagan Administration's budget cuts in the National Endowment for the Arts (NEA). Starting in 1971 with a grant of $100,000, the orchestra has received a total of $1.26 million from NEA. This year it expects $260,000. Although that amount seems small compared with the orchestra's $7.3 million budget, the NEA money is a grant that must be matched by private contributions. NEA funding stimulates donations; for example, the symphony received a special $ 1 million grant from NEA in 1977 that attracted $4.5 million in corporate and individual donations. "There's a multiplier at work," explains David Hyslop, the orchestra's executive director. "Every dollar spent by NEA on the arts generates another dollar--or two or three."

Those generated dollars helped the St.Louis Symphony erase old debts of $750,000, bolster its endowment fund to $7.5 million, and finance its first trip abroad (to the Athens Festival in 1978). Many cultural fund raisers fear that a cut-off of NEA funding will dampen the enthusiasm of pinstripe Medicis to give money to orchestras or museums. "Companies need a stimulus, and they also need practical help in deciding how to allocate funds to the arts," says Anne Murphy, executive director of the American Arts Alliance. "It's easier to contribute to projects that NEA has decided are worthwhile."

As proud as Missourians may be of their orchestra, some would not object if NEA funding was eliminated. "It is not unreasonable to cut spending for the arts when more important programs such as food stamps are in jeopardy," says Beatrice Schwartz, spokeswoman for the St. Louis Urban League. "The arts are a luxury in this country." But Anne Murphy argues that Washington's support of the arts is too miserly as it is. "The Federal Government already spends less money on the arts than the city of Vienna does," she says. "The Department of Defense last year spent over $51 million on military bands. The NEA's music budget for the same period was only $13.5 million."

For St. Louis music lovers, worries over NEA funding cuts may be premature; orchestra officials have no inkling of how much funding they will lose and, indeed, NEA may decide to channel its remaining dollars to a few well-established institutions like the St. Louis Symphony rather than spread the money around the nation. Nevertheless, orchestra officials are already mulling over initial money-saving measures, such as ending some outdoor concerts this summer and joint ventures with the Opera Theater of St. Louis. "We'll be hurt, but we'll survive," says Susan Switzer, the symphony's public relations director. "Other orchestras may not be so lucky."

Medicaid Pains

Medicaid is a governmental program with certain features Ronald Reagan would be expected to admire. Operating within only the broadest of federal guidelines, it permits individual states to determine who is eligible for its benefits, and lets the states decide how much doctors, hospitals and nursing homes can collect for the services they render. Georgia is one of the most tightfisted: it has stiff eligibility requirements and ranks 46th among the 50 states in Medicaid funds received annually from Washington, even though it is 13th in the population ranking of the states. Despite such frugality, Georgia expects to share in Reagan's proposed Medicaid cutbacks that would amount to more than $5 billion by 1986. One institution that particularly worries about those cutbacks is Atlanta's Grady Memorial Hospital.

Grady is a teaching hospital for Emory University Medical School. It has an array of specialized clinics and several doctors with worldwide reputations. For nearly 90 years Grady has also been the main source of medical care for Atlanta's poor. Last year a fifth of Grady's $80 million budget came from reimbursement for services provided to Medicaid patients. In 1980 the hospital served more than 300,000 outpatients in its jammed waiting rooms, clinics and stretcher-filled emergency rooms. An additional 42,244 patients competed for space in its 934 beds.

To be eligible for Medicaid at Grady, patients must meet the same low income levels as do persons who qualify for aid to dependent children, the most common welfare program in Georgia. The blind, the disabled and those over 65 also qualify. For each $1 that Grady spends on a Medicaid patient, the Federal Government contributes $2, under a sliding scale that permits Washington to help states with low per-capita income more than wealthier ones. Unfortunately, that ratio works in reverse when funds are reduced. Says Michael Yelton, director of public relations at Grady: "For every dollar we do not receive, we would have to cut $2 to $2.50 out of the budget."

If Medicaid is cut back, Grady's administrators fear that they may have to turn many poor patients away and eliminate some of the hospital's services. Noting the choices that might have to be made, Yelton suggests, "We might decide to keep the glaucoma clinic but drop the cataract clinic. We would just have to tell the cataract patient, 'I'm sorry. We can't see you.' " In offering reduced services, Grady doctors say, some patients with an easily remedied ailment may not get help until their conditions become far more serious--and also more expensive to treat.

But can't the state of Georgia, or Fulton and De Kalb counties, which help support Grady, take up any slack left by federal Medicaid cuts? Fulton already supplies one-third of Grady's budget, De-Kalb 7.7% and the state 4.1%--and none seem willing to vote tax increases to help out the hospital. Fulton County rejected Grady's plea to contribute an extra $7 million for its operation this year.

There have, of course, been abuses in Medicaid programs. Some Georgia doctors have turned in bills for more hours of service on Medicaid patients alone than they could possibly have worked on a 24-hour-a-day basis. Patients have abused the system in small ways by demanding appointments they do not really need. Civic leaders in Atlanta regard Grady as an indispensable asset. To its poorer patients it is something even more important. "If they cut the Medicaid budget, what's everybody going to do?" asked Gwendolyn Jackson, 53, who entered Grady's emergency room last week suffering from pneumonia. "Does Reagan think we enjoy being on Medicaid? He's cutting people who can't afford to be cut."

Banking on Ex-Im

One of the oldest names in the tractor business, J.I. Case Co. is the largest employer in Racine, Wis., a typically declining industrial city. Razed or boarded-up buildings give its downtown the look of a community under siege; the population has declined by 10,000 in the past decade (to 85,000), and last year only four one-family house building permits were issued. Case has gradually lost its share of the domestic farm-equipment market to more aggressive firms; after a brush with bankruptcy and a bitter history of labor strife, it is now part of the Tenneco conglomerate and is competing successfully for the huge worldwide market in tractors, large and small, and in heavy construction equipment. Nearly half of its sales are abroad, and its top export officials are worried, but far from panicked, over Reagan's proposal to cut funding for the U.S. ExportImport Bank in 1982 by $400 million.

To Case, as well as to many of the nation's large aircraft and power-generating equipment manufacturers, the value of Ex-lm is that it helps them compete with other industrial nations in selling high-cost items that require heavy financing.The bank either makes direct loans to foreign buyers of American products at reduced interest rates, or guarantees that private financiers of such purchases will not take a risk. The arrangements are vital, since European and Japanese companies, in particular, enjoy generous financial commitments from their governments. In the large contracts, notes Bill Chao, director of corporate planning for Case, "financing is make or break--even more crucial than a technological edge."

Case, for example, landed a $10.4 million contract last year with the Dominican Republic for agricultural and construction equipment primarily because Ex-lm offered the buyers a $3.5 million credit line for five years at 8% interest. In November another five-year credit at 7%% helped Case sell a million dollars' worth of agricultural equipment to Israel. But as Ex-lm cuts back, warns Chao, "U.S. companies are vulnerable" to the heavy competition.

Still, Case officials sympathize with Reagan's budget-cutting goals. Jerome Green, Case's president, expects that lower corporate taxes and faster depreciation allowances will offset any loss of Ex-lm financing help. He notes that if the budget cuts "are evenhanded, we could benefit." Most important of all, he says, is to cut inflation. "If we can get inflation down, we could better compete in the marketplace," Green explains, adding, 'If we don't, it won't matter what kind of financing terms we offer."

One City's Food Stamps

The group includes Chicanos, blacks, young drifters, backpackers, the aged and handicapped. Some are evidently needy, others perhaps not. All sit patiently in a musty anteroom of an old gray school-house on Denver's shabby south side. The wait is long, sometimes half a day or more, for the chance to enter one of the pastel-colored, 6-ft.-sq. cubicles and apply for food stamps. Those who qualify take their ID cards and wait in line at a cashier's window for coupons redeemable for anywhere from $10 to several hundred dollars' worth of groceries.

"If I didn't absolutely need this, I wouldn't be here," says Jesus Vigil, 53, a former construction worker disabled in an accident. He draws $340 in disability insurance payments, from which he pays a $126 mortgage and partially supports a son. He has the papers that he hopes will convince the Denver food stamp program of his need: a $319 overdue utility bill and a $97 overdue water bill. "Food is so high," he says, "I just can't stay ahead." Vigil is allotted $33 a month. Each month, Jose Chavez, 72, a retired sheepherder, is driven by his granddaughter three miles in order to collect his $10 in stamps. Says she: "It helps a little, just a little."

These drab monthly rituals have been going on for 16 years at centers like the schoolhouse on West Byers Place, ever since the Department of Agriculture expanded its food stamp program as part of Lyndon Johnson's War on Poverty. Currently, 12.5% of Denver's residents use the program (the nationwide figure is 10%), which provides an average of $ 138 a month to 24,000 households. Denver is a boom town. Yet because it is an urban area with lots of poverty as well as wealth, as many as 60,000 people there now depend on the stamps. More than half the families have some form of income--Reagan proposes to cut the maximum income for eligibility from $14,000 to $11,000 a year--but at least 10,000 of them claim to be out-and-out welfare cases. Approximately 25% are elderly, disabled and handicapped. Eligibility requirements have been tightened in the past two years in an attempt to eliminate college students and those not in true need, but the rolls keep growing. In Denver, the number of families receiving food stamps increased by more than 1,000 in January.

Nationwide the figures are even more astounding. In 1964 the Federal Government spent $1.8 million on food stamps. This year, with some 21 million Americans getting aid, the cost is $11 billion. The number of recipients leaps by as much as 750,000 each time the jobless rate goes up a percentage point.

A major problem is widespread fraud and abuse. In Denver, a person with practically any form of identification, even a library card and a utility bill, can falsely present himself as, say, the unemployed father of six children and within three days get a month's supply of stamps worth up to $367. Since the Denver office has only two full-time investigators, it may be months before he is caught. Even then, cases are rarely prosecuted; most often, after a cumbersome administrative hearing, the recipient may be temporarily disqualified or ordered to pay $5 or so a month in restitution. The fact that 70% of those who claim to be unemployed never subsequently register at a state employment office, as regulations require, indicates that fraud is rampant. The Denver program, its administrators concede, is taken for at least $90,000 a month; the true figure is probably much higher. The horror stories abound: the woman who got stamps under five names, the three men who together used 27 names.

Unfortunately, cutting costs creates a catch-22 squeeze. Even before Reagan proposed a cutback in the program, Denver had reduced its administrative staff from 173 workers to 83. This made it all the harder to catch cheaters and carefully to determine eligibility. Says Program Assistant Rosemary Engard: "We are stretched so thin that more errors are bound to occur. The paperwork has become horrendous."

Food stamps play an important role for the truly needy. "It has meant the difference between some degree of nutrition and ill health in thousands of cases," says Denver Program Director Ronald Rice. But despite such good intentions, and the good work that results, the food stamp program leaves a lot of room for tighter cost controls.

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