Not long after the terrorist attacks in 2001, I found myself in a spirited debate with a political scientist friend of mine. He thought the inevitable result of 9/11 would be a centralization of power in Washington, and a shrinking of the state and local role in American government. I thought the opposite -- that Washington would be so preoccupied with terrorism and foreign affairs that more of the domestic agenda would be forced downward, in an odd sort of devolution.
Seven years later, I think I was mostly right. The Bush administration and Congress have in fact been consumed with the struggle against foreign enemies. The domestic experiments in recent years have come from the levels below, on climate change, on health care and even on immigration, which would seem to be a national issue if there ever was one.
Now we are in a crisis of a different sort, with a new president-elect and a different party in power. This time I don't think I'd make the same argument as before. My guess is that the current financial turmoil will lead to an enhancement of federal authority in a way that the 9/11 attacks never did. The question for states and localities is how to operate in the new political world we are about to enter.
Why will it happen now, when it didn't happen before? Well, for several reasons. One is that when Washington starts to re-regulate the financial industry -- as it is certain to do -- there is no clear way for it to separate finance from other big chunks of the American economy, some of them currently overseen at the state level. Insurance is the premier example. Much of what went wrong on Wall Street involved insurance company investments, although not insurance policies per se. I don't know how long the states will be able to keep this huge industry out of federal regulatory hands.
Perhaps more important, the Wall Street meltdown has ended a period of more than two decades in which federal regulation itself was seen by many in both parties as a threat to prosperity, and unfettered markets were thought to be the right answer to almost every economic question. In the past two months, regulation has ceased to be a dirty word in Washington, even on the Republican right. The consequences of this for the federal system will be wide-ranging and long lasting.
Into this maelstrom comes Barack Obama, along with a Congress containing large Democratic majorities. Congressional Democrats will not need to be dragged kicking and screaming into a more active role in setting domestic policy. They will see it as the most important item on their agenda.
DOES THIS MEAN that states are essentially going to be spectators in the policy events that are soon to unfold? I wouldn't jump to that conclusion. No matter what the makeup of Congress might be, a lot still depends on the personal inclinations of the president. Is he a natural centralizer, or a budding devolutionist?
On the one hand, you might argue, we won't have an ex-governor as president anymore. For 28 of the past 32 years, the country has been led by someone with a gubernatorial background. (George H.W. Bush was the lone exception.) Sometimes that has led to cooperation with the states from the executive branch; sometimes it hasn't.
Ronald Reagan was probably more interested in eliminating government programs altogether then he was in devolving them. But he did offer the states a deal they were crazy to refuse: He was willing to move Medicaid exclusively to the federal level if states would take over welfare. Had this exchange gone through, the state fiscal picture wouldn't look nearly as bleak as it does now.
Bill Clinton came into the White House with the distinction of having served as a governor longer than any president in American history. There are those who felt Clinton neglected his Little Rock roots once he reached national office, but the picture is mixed. Welfare finally did get dumped on the states, without anything like the favorable deal that Reagan had offered. But Clinton did give them large helpings of cash in compensation -- a handout that helped keep many state budgets solvent for the better part of a decade. Clinton also was relatively receptive to states that wanted federal waivers to try something innovative in health or social policy.
George W. Bush took over the presidency after six years as governor of Texas, and early on, showed every sign of sympathy with the beleaguered states against the overweening federal Leviathan. Two years before he became president, he told Governing that if he were in office, the feds would stop sending out mandates to states and localities without offering money to pay for them. Once he got to Washington, he forgot about this and his administration imposed multibillion-dollar mandates for programs such as No Child Left Behind and the REAL ID program. So you never know.
Now we are getting someone completely different: a president who will enter the White House straight from the U.S. Senate. We sometimes forget how rare this is. In the entire 20th century, only two sitting senators became president: John F. Kennedy and Warren Harding. Obama has no direct knowledge of what it's like to be a mayor or governor and to have to take what Washington dishes out.
On the other hand, the formative years of Obama's political career were spent in a state-government setting -- in the Illinois Senate. He spent twice as much time there as he has in the U.S. Senate, and more years in a state legislature than any president since Abraham Lincoln. Before that, as a community organizer on the South Side of Chicago, he had to work with a local political machine. To say that he will enter the White House unfamiliar with the pressures of state and local politics would be to misread the situation pretty seriously.
Moreover, Obama made some rather interesting comments about cities and their problems over the course of his campaign. "As a community organizer," he told the U.S. Conference of Mayors this past June, he and others were "focused on the place that could do the most and the fastest to make a change in our community. It was the mayor's office ... You need a partner in the White House ... You shouldn't be succeeding despite Washington. You should be succeeding with a hand from Washington."
Of course, it wasn't entirely clear whether giving the cities a hand meant giving them money or just applause. But I think Obama's nearly two decades in the trenches of city and state politics in Illinois could give him more sensitivity to state and local needs than four years in a governor's chair might have done. I'm not saying it will; I'm just saying it could.
Whatever Obama might have in mind, new programs involving cash outlays to strapped state and local governments aren't much of a possibility. The federal government is just as broke as they are. On the other hand, there is an obvious opportunity for some common ground. There is bipartisan support in Congress for a stimulus package of some kind early next year, and there also is support for doing something about unsafe infrastructure around the country. Put those two together, and you have the makings of badly needed assistance to states and localities that might prove attractive enough to become law fairly easily. If I were a mayor or governor, I think I'd hang a sign over my desk that said -- "It's the roads and bridges, stupid."
Beyond that, governments outside Washington may be spending the next four years seeking to do the best they can for themselves in the period of re-regulation that is certain to come. In some areas, a new wave of centralized control will be a blessing to these governments, not a curse. It's impressive that 710 cities have chosen to abide by the Kyoto treaty on climate change, even as the Bush administration rejected it. It's impressive that Massachusetts, Maine and Vermont have experimented with broad-scale health care programs in the absence of federal action. It's even impressive, in a way, that Georgia, Colorado and Oklahoma have sidestepped gridlock in Congress and enacted their own immigration laws, whatever one may think of the individual provisions. But it's not plausible to argue that this is the way the federal system ought to work. Congress should be legislating on these subjects. The states should be perfectly happy to let them do it.
Whatever form of activism the new president and the 111th Congress choose to undertake in re-regulating the economy, it remains crucial for state and local governments to insist on two central ideas, even to the point of tedious repetition. The first one is that any new federal regulatory regime ought to have substantial flexibility for governments below to experiment with their own methods and strategies. This is how we eventually got welfare reform, arguably the most important federal domestic enactment of the past two decades. The second important point is that the prohibition against imposing mandates without providing money has to be enforced. This was one of the few planks in the Republican Contract with America of 1994 that actually made it into law. The Bush administration essentially ignored it. States and localities can't afford to let that happen again, no matter how belligerent they have to be in insisting on observance of the law.
If all those things come to pass -- and they can -- this doesn't have to be a discouraging time for state and local America -- even if a new federal Age of Regulation is about to begin.
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