COLUMN ONE : Where the Money Really Goes : Everyone sees federal spending as a fat target for reform. But tracking the dollars that flow into ordinary Ontario shows why budget cutting is easier said than done.

ONTARIO — No disrespect intended, but this is a pretty ordinary place.

Median income here perches at just about the statewide average. So too does the percentage of residents in poverty--slightly less than one in six. Walk down the streets and the faces you see present a fairly representative cross-section of the American working and middle classes: about half of them white, the rest divided among blacks, Latinos and Asians.

One other thing that’s pretty ordinary: Last year, the U.S. government showered the 144,000 residents of this fast-growing Inland Empire city with more than $367 million in taxpayer funds.

To borrow a Reaganite metaphor, $367 million would make a chain of dollar bills stretching across the country from Washington to Ontario 13 times. And that counts only direct spending and not, for example, the $69 million that flowed last year into the San Bernardino County hospital, or the $101-million budget of the veterans’ medical center in Loma Linda, or the hundreds of millions spent at nearby military bases or the effect of federal agriculture and water subsidies on the price of food in local markets.

But even adding all those sums together would not make Ontario extraordinary.

In the 62 years since Franklin D. Roosevelt launched his New Deal, the 30 years since Lyndon B. Johnson inaugurated the Great Society and, above all, the 25 years since Richard Nixon allowed benefit programs to soar loose from their tethers--allowing money for entitlements to grow by 50% during his term--federal spending has become all-pervasive, reaching into every town in the nation.

A close examination of the flow of federal dollars into one small Southern California city shows just how deeply the stream of money penetrates and indicates precisely why slowing it down has proved--and almost certainly will continue to prove--so difficult.

There is no doubt that the citizens of Ontario would like to see federal spending cut back. In the most recent election, Ontario--and San Bernardino County as a whole--mirrored national trends by turning sharply to the Republicans. Bill Clinton beat George Bush by four percentage points here in 1992. In 1994, former Republican Rep. Mike Huffington beat Democratic incumbent Dianne Feinstein, 60% to 40%, in the U.S. Senate race. Politicians and analysts agree that disgust over the federal government’s apparent inability to get control of its finances propelled a good share of that shift.

“We’ve got to have it in the Constitution,” said Marjorie Little, a 65-year-old retired nurse’s aide and Ontario resident, talking of the balanced-budget amendment to the Constitution that Republicans promised in their “contract with America” and which House Speaker Newt Gingrich (R-Ga.) hopes to bring to a vote this week. “These poor kids aren’t going to have anything left the way things are going.”

But talk a bit more with Little and her comments quickly reveal the other side of budget-cutting. “We need our highways and education,” she said. And as for Social Security, which she and 14,000 other Ontario residents receive, “that’s part of government spending they should never touch.”

And that, in miniature, is the problem.

“There’s a pretty uniform public feeling that government is too big and needs to shrink,” said Rep. George E. Brown Jr., the veteran Democrat whose district includes the eastern half of Ontario. “People generally have the view that everything should be cut except what they get some benefit from.”

One in Four Gets Government Aid

In Ontario, government records indicate that more than one in four residents receives some form of federal payment--Social Security, a veterans or federal retiree payment, a welfare grant, food stamps, a doctor’s bill paid by Medicare or MediCal. Federal funds help expand the airport and highways, fuel the buses, put food on the lunch table for schoolchildren and provide jobs at dozens of companies that maintain planes for the Air Force, supply hospital equipment to the Veterans Affairs Department and sell cardboard boxes to the Justice Department.

To approximate the overall economic impact if federal spending were to disappear altogether, imagine one out of every five stores in the city closing overnight, taking with them all their purchases, their sales and their payrolls.

The lesson from all this is not that federal spending cannot be cut, still less that it should not be. Rather, it is that the spending many people would consider excessive, unnecessary or unwise--even taken altogether--adds up to relatively small percentages of the federal budget.

Little blames uncontrolled immigration for much of the federal red ink, believing that immigrants have swelled federal benefit rolls. In Washington, conservative members of Congress blame welfare spending. Talk show hosts focus on foreign aid. Liberals traditionally aim their ire at the Pentagon budget.

But the truth is that here in Ontario, as in the nation at large, most of the money is where most of the votes are--in the hands of the middle class, who have grown increasingly unhappy with Washington’s costs, yet persistently unwilling to forgo its benefits.

The vast majority of Americans know little about the federal budget and misunderstand much that they think they know. That should come as no surprise--for years politicians of both parties have exaggerated the scale of programs they know to be unpopular, such as welfare and foreign aid, and suggested that spending could be brought under control by pruning, in former President Ronald Reagan’s famous phrase, “waste, fraud and abuse.”

Even without such false leads, the budget would be difficult to grasp simply because of its vast scale. In San Bernardino County alone, 95 federal departments and agencies spent money last year, pouring funds into communities through a bewildering array of channels.

Ontario, for example, receives about $2 million a year in a community development block grant from the Department of Housing and Urban Development, which city officials then parcel out to projects, from a drop-in center that serves the homeless to money for low-income households’ earthquake retrofitting.

Meanwhile, the school district receives funds to help educate low-income children, the county government gets money to help pay for social services and the regional transit agency, Omnitrans, receives about $11 million for purchases of new equipment and subsidies that help hold down fares.

Roads, Airport Spending Visible

The most visible federal spending in Ontario involves transportation. Congress has appropriated $33.5 million to improve roads leading to Ontario International Airport. At the airport, which actually is owned by the City of Los Angeles, federal funds a few years ago helped pay for a major expansion of runway aprons. Over the next few years, officials hope to use an additional $33 million of federal funds in expanding the airport’s cramped passenger terminal.

Improving the airport has, in turn, had a major effect on the economy of the city and surrounding counties. “In an era of just-in-time delivery, it’s been very important to companies,” said John Husing, a San Bernardino-based economist who tracks Inland Empire trends. The airport has become “a crucial regional asset.”

But spending on highways and airports makes up less than 3% of the $1.5-trillion federal budget. Unlike local governments, which provide visible services such as trash removal and police protection, most federal spending--particularly the huge benefit programs that send checks directly to individual homes--remains hidden.

For all those reasons, there is no surprise in polls--such as a recent one conducted for the Henry J. Kaiser Foundation--that find widespread misconceptions about how Washington spends its money. Asked what is the largest federal expense, 30% of respondents cited defense. That result, although incorrect, is not too bad--military spending is in the top three.

But 27% of those polled named foreign aid, which makes up only about 1.3% of federal spending. Only 15% correctly chose Social Security. And only 5% cited health care spending, now roughly tied with defense and soon expected to pass it, as the government’s second-largest cost.

Nearly one in five of those polled said they thought the largest program in the federal budget was “welfare.”

Welfare a Lightning Rod for Politics

Welfare. No other program in the federal budget excites more rancorous disputes. And none may be more misunderstood in size or nature. As liberals see it, the welfare that people disapprove of is chiefly cash payments to families, or Aid to Families With Dependent Children. This amounts to about $16 billion, or 1% of the federal budget. Conservatives interpret welfare more broadly as virtually all programs for the poor. Their definition amounts to roughly 9% of the budget. Congressional Republicans have proposed combining many such programs and reducing overall spending by about 8%.

The Republican definition of “welfare” programs to target would include the funds that subsidize rents for tenants at Ontario Townhomes, an 82-unit garden apartment complex north of the airport. The GOP’s proposed block-grant approach would also include food stamps, which last year gave low-income Ontario residents roughly $21 million in coupons to buy groceries at local stores.

The money to be cut would also include the funds used to pay the salary of the young teacher who one morning this month sat on the floor of a small classroom in the Linda Vista Preschool, helping a shy-looking girl play with a dollhouse.

Under current law, schools receive federal aid based on a formula that measures both the number of low-income students and the number performing below grade level. As a public preschool and kindergarten serving about 560 children from a largely Latino, low-income area, Linda Vista qualifies on both counts.

With what principal Sandra Ulrich calls a “very high transiency rate” and 29 to 32 preschoolers in each class, it would be easy for a small child to get lost. To try to prevent problems, the school uses some of its $124,000 in annual federal aid to hire two counselors who watch for children who seem withdrawn or otherwise at risk of trouble. Every week, the counselors take those children aside for half an hour of one-on-one work, such as the quiet dollhouse session, hoping that such contact with a friendly adult can head off expensive problems down the road.

Officials have put most of the rest of their federal aid into a special program that teaches children basic reading and math through simple science projects--planting a garden, for example. These projects “really excite kids,” Ulrich said.

School officials also use some funds for field trips, such as a once-a-semester trek to nearby Mt. Baldy. “Our children, by and large, don’t get to go to the mountains, the beach, the zoo,” Ulrich said. “You can’t experience things just by reading about them.”

Programs like these are typical of the way schools nationally use federal funds. Removing the money would not cause schools to close, but it would hurt, Ulrich said. “There’s so little money to do so much,” she said. “People talk about waste. I don’t believe we waste any of our resources around here.”

About a mile north of Linda Vista is another example of federal education spending that probably would receive considerably less sympathy from the taxpayers.

In what was once the lobby of a bank, about 30 students--most young women dressed in white smocks--stand at tables stocked with mirrors, curling irons and lotions as they practice cosmetology. A few hardy souls sit in chairs receiving low-cost haircuts from student trainees.

Richard’s Beauty School is part of a chain of cosmetology trade schools in the region. It was also the recipient in the last fiscal year of about $81,000 in federal funds.

The money came from the Pell Grant program, designed to help pay college tuition for low-income students. The program covers institutions like Caltech and Stanford, but it also applies to profit-making trade schools.

Over the years, critics have tried to bar grants to trade schools, saying they do not deserve federal support. But the schools always have battled back, arguing that the government should help not only those who have the academic background to attend a four-year college but those who seek to learn a marketable skill.

Defense Spending a Shrinking Target

While conservatives traditionally have railed against such examples of what they see as wasteful “welfare” spending, liberals have focused their ire at the defense budget, now about $270 billion.

In recent years, defense cutbacks have made many Southern California residents acutely aware of how dependent the region had become on defense-related jobs. The inland region has lost about 20,000 jobs to defense cutbacks, with another 5,000 likely to disappear in the next few years, Husing estimates. But even with the cuts, defense continues to have a major impact on the regional economy.

At Ontario airport, Lockheed Aircraft Service Co., the city’s largest private employer, maintains an aircraft maintenance facility that employs 1,700 workers--about 90% of whom work on defense-related contracts. Roughly 65% of the workers live within 15 minutes of the plant, either in Ontario or in nearby communities, adding a payroll of roughly $50 million to the local economy.

In addition to Lockheed, local companies make components for guided-missile launchers and power transmission equipment for Navy ships. Others process data for the Air Force, supply abrasives for the Navy and construct buildings for the Marines.

And then there is Action Embroidery.

Standing in front of a huge mechanical loom that sews away at 3,000 stitches an hour, Vice President Ira J. Newman points to equipment that turns out a product vital to the smooth functioning of the armed forces--insignias of rank. His company, just west of Ontario airport, is one of half a dozen in the country that make the stripes and the bars that distinguish a sergeant major from a major general--about $4.2 million worth of insignias last year. Although the company has diversified into sports emblems in the wake of defense cuts, 93% of its output remains military, Newman says.

Such businesses attract much less attention than high-tech weapons manufacturers, but they make up a large share of the $171 billion that the Defense Department spends each year to buy goods and services. “We employ a lot of people,” Newman said. “It keeps a lot of folks happy.”

Newman’s company provides 129 jobs. They pay relatively low wages, averaging about $5.50 an hour, but are the sort of entry-level positions that provide workers a first step into the labor market.

Liberals might argue for a smaller armed forces that would need far fewer uniform patches, and probably fewer planes for Lockheed to maintain as well. But they might well balk at the job losses such cuts would cause.

In any case, defense no longer drives the federal budget. When John F. Kennedy was President, defense spending made up 53% of federal outlays. But today, the Pentagon takes up 19% of the budget and its share is falling.

On the other hand, conservative hopes to balance the budget by cutting funds for the poor do not add up either. The Republican program, which already has sparked huge controversy, claims to save $40 billion over four years from welfare spending. But during that same span of time, the cumulative federal budget deficit will be roughly $800 billion.

Programs Aimed at Retirees

So where does all the money go?

In Ontario, as in the nation as a whole, by far the largest programs pay the bills of the middle-class elderly. Of the $367 million flowing into Ontario, $103 million goes directly to the city’s 14,000 Social Security recipients. In addition, Ontario residents receive $7.7 million in military retirement pay, $4.4 million in pensions for retired government civilians, an estimated $5.3 million in other veterans benefits and $1 million to 109 retired railroad workers.

On top of that, projections based on the number of elderly in Ontario indicate that Medicare, the federal program that covers health bills of the elderly, paid about $65 million to city residents.

All told, spending on those over 65 accounts for half the federal dollars flowing into the city.

As in Ontario, so with the entire country: Entitlement benefits that flow primarily to middle-class retirees account for well over a third of all federal expenditures, and as the population ages, that share continues upward. But cutting those programs is politically almost impossible.

“There really is no serious proposal now to cut Social Security,” said Brown, reflecting a congressman’s nervousness about even discussing the subject.

“We will not balance the budget unless we attack the entitlements, and that means we will have to do something with Social Security,” he continued, suggesting that in the future, the retirement age will have to be raised to hold costs in line. But he added:, “I don’t think the public fully understands” the need. “This is a very difficult kind of a job.”

Times staff writers Tom Gorman in Riverside and Dwight Morris and researcher D’Jamila Salem in Washington contributed to this story.

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Main Street U.S.A.

PROFILE OF ONTARIO

General Population: 143,900 Anglo: 50% Latino: 40% Black: 7% Asian: 3% ***

Ont. U.S. Under 18 33% 26% 18-64 61% 61% 65 and over 6% 13% Income/Poverty Median household income $35,788 $30,786 Households owning own homes 58% 65% Poverty rate 13% 15% Households headed by females 17% 12% Poverty rate for households headed by females 30% 25% Education Less than high school 12% 25% High school 77% 89% College grad or higher 11% 13% Registration Democrat 47% 29% Republican 43% 34% Other 10% 37%

Sources: Census Bureau, California secretary of state’s office, Gallup Inc .

Researched by D’JAMILA SALEM / Los Angeles Times

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Where the Money Goes

Although foreign aid and aid for the poor attract the most attention in the budget debate, these two programs account for only 17 cents of each federal dollar spent. More than one-third of the money goes to programs exclusively for people other than 65, Social Security, health care and interest on the debt together soak up 57% of federal spending.

WHO RECEIVES CHECKS? 65 and over: 36% Low income: 16% Bond holders: 14% Military and civilian employees and veterans: 14% Private contractors: 13% State/local government: 5% Foreign aid: 1% ***

FOR WHAT? Social Security and other pensions: 26% Defense: 19% Medicare, Medicaid and veterans health: 17% Interest on debt: 14% Other: 14% Welfare, other income support: 10% Source: Office of Management and Budget: Budget of the United States Government, Fiscal Year 1995

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Federal Spending in Ontario

A breakdown of what the city of Ontario receives from the federal government, with figures for what the United States spends overall on those categories:

Ontario Nationwide (in millions) (in billions) Pensions Social Security $103.1 million $320 billion Federal retirement 4.4 37 Railroad retirement 1.0 5 Military retirees 7.7 27 Other veterans benefits** 5.3 4 Health Medicare** 65.0 144 Medicaid (MediCal) 39.9 87 Income Security Welfare (AFDC) 24.3 16 Food stamps 20.8 25 Housing 3.8 24 Defense Personnel 2.3 109 Procurement & operations 49.8 171 Social services, education & training Social services 1.7 15 Education Head Start 1.3 3 Elementary & secondary 5.0 15 School lunches 4.0 7 Post-secondary 0.7 11 Job training 3.5 7 Community and regional development Community development grants 1.9 4 Law enforcement Aid for hiring police 0.4 1.5 Transportation Highways* 4.0 18 Airport* 5.5 9 Mass transit aid** 1.1 4 Civilian payroll and government operations Civilian Payroll - 114 Social Security 1.9 FAA 7.0 Forest Service 1.3 Civilian procurement 4.0 30 Small business assistance loans Loan level 5.0 137 Actual government outlays 0.1 4

* Highway and airport projects have multi-year budgets. Figures estimate one year’s share.

** Estimate based on population.