Management & Labor

States Handing Off More Responsibilities to Cities

States are asking cities to take charge of more programs, but they may not provide enough support.
by | April 2011

Jerry Brown is dusting off one of the oldest plays in his book. Back in 1975, during his first term as governor, Brown had appeared before the California State Association of Counties (CSAC) to talk about realignment -- the term of art in California for devolution, or changing the way responsibilities are split between the state and localities.

Now that he’s back in the governor’s office, Brown is putting some of those ideas into action. He returned to CSAC on his first full day in office to promote a realignment package that would make counties responsible for running a much larger share of public safety and social service programs. Proposition 13 -- the property tax law that passed during Brown’s first term -- “took away the power of counties to tax, for the most part,” Brown said at CSAC in January. “It sent the decisions up to Sacramento. So we want to redistribute all that.”

County officials are welcoming the chance to take charge of certain programs, while expressing great concern about handling others. Unsurprisingly, the big question is money -- whether the state will send enough cash to localities to fund the missions it expects them to carry out. “There’s a lot of anxiety,” says Jean Kinney Hurst, a legislative representative with CSAC. “We’re talking about $6 billion worth of programs, many of which counties have never done before.”

Similar anxieties are being expressed elsewhere around the country. Other states may not be holding the same overt policy debate about whether localities should take on a larger load, but the question is nonetheless being posed in the form of budget cuts that leave localities more on their own. “There’s a potential,” says Ellis Hankins, executive director of the North Carolina League of Municipalities, “for local elected officials to have to pick up more of the burden and increase the taxes to pay for more public services.”

There’s nothing new in this. States always cut aid to local governments in recessions. During the ongoing state budget crunch, the cuts have grown so deep that many officials at the local level are complaining that states are doing to them what Washington does to the states -- passing on more mandates even while cutting funding.

“We want to make sure that, at a minimum, states don’t try to balance their budgets on the backs of cities by mandating that local governments do what historically has been done by states,” says Don Borut, executive director of the National League of Cities. “And we don’t want the states preempting or putting restraints on how cities can raise money.”

Devolution by budget cut is happening all over the country. Very few states still have a line item called “aid to localities.” But program responsibilities -- and finances -- are all mixed up between the state and local levels across a broad range of program areas, including health, public safety and the big cost driver of education.

States have slashed billions over the past couple of years that otherwise would have gone to local governments. In Massachusetts, for example, Gov. Deval Patrick has proposed cutting direct municipal aid for the fourth year in a row. His package would bring the total cut to more than $481 million, or 37 percent. Beverly, Mass., Mayor William Scanlon says such cuts are “really painful,” because state aid is the second largest share of his city’s revenue. But cuts in total state aid to localities -- education has been better protected than municipal aid -- aren’t out of line with levels of Massachusetts’ spending cuts overall. Scanlon says he recognizes that the governor and legislators have had little choice in the matter. “The state’s revenues have fallen off the table,” Scanlon says. “If I was in their shoes, I’m afraid I would do what they’ve done.”

What Scanlon and other mayors object to, however, is the state backing out on prior promises -- failing to return what are really local revenues. Massachusetts established a program back in the 1970s to encourage police officers to continue their education by increasing their salaries when they receive degrees in higher education. The state promised localities it would pick up 50 percent of the tab. Under that formula, the state’s share for the coming year stands at nearly $60 million, but Patrick’s budget only provides $5 million. Court decisions suggest that localities may be on the hook for the rest.

Similar stories can be told all over. North Carolina Gov. Bev Perdue wants to slash the local share of lottery proceeds from 40 percent to 10 percent. And her budget would shift the $57 million cost of school bus replacements onto counties, a responsibility they have never had before. In all, the overall cost shift to counties is $345 million. In Michigan, where much local taxing authority was taken away decades ago in favor of a local share of state sales taxes, the state over the past decade has cut $4 billion that, by statute, should go to local governments.

Michigan Gov. Rick Snyder not only wants to cut remaining revenue sharing by a third this year, but wants to make localities earn the money. State aid, under his proposal, would be contingent on their putting in place measures to save money, including consolidation of services and winning concessions on wages and benefits from their workers.

Last month, Snyder pushed a bill that would make it easier for the state to intervene in municipal and school district finances by creating “emergency fiscal managers” with broad authority. Snyder said he didn’t want the state to have to take over local budgets but that his legislation would create an early-warning system when localities are getting in trouble.

It has become a common tack. Governors promise more flexibility on certain rules or help with pensions or employee health costs in exchange for less money overall, and demand that localities change workforce rules and consolidate certain services -- or merge with their neighbors altogether. Governors haven’t gotten far over the past decade with most of their proposals that local governments consolidate, but they are now wielding a much bigger financial stick. “The fiscal constraints are now coming to bear on localities,” says John Krauss, director of the Indiana University Public Policy Institute, who helped run a local government reform commission for Gov. Mitch Daniels.

“Resources are becoming scarce, things change and you can’t do it the same way,” Krauss continues. “Localities are now seeing that it is probably wise to have merger and intergovernmental agreements. Those are taking off.”

Krauss argues that consolidation at the local level is “logical,” and notes that many of the ideas his commission recommended echo back to a governmental reorganization report from 1932. But local officials are understandably wary of reorganization that is pushed from above. They naturally worry about having to pick up any financial difference, particularly where they are operating under constraints -- often imposed by their states -- in terms of their own ability to increase taxes.

But they also worry about equity issues. Some local governments are better off financially than others. As more and more responsibility falls primarily or wholly on local governments, states may be abdicating their role in seeing that a certain level of service is made available to all residents, regardless of the jurisdiction in which they reside. For some services, such as education, states are required to see that disparities based on ZIP code are not too wide.

That’s certainly the case in California, which is a pioneer state when it comes to school-equity lawsuits. Because of a 1988 ballot initiative, the state is required to spend at least 40 percent of its general fund revenues on K-12 education. A lot of the money the state spends on education comes out of locally collected property taxes, which the state vacuums up and then redistributes.

Education is just one way state and local finances are hopelessly entangled in California. There are dozens of others. A discussion solely about how revenues from vehicle license fees are shared between Sacramento and localities could go on for many long and tedious hours. Even local officials who are nervous about Brown’s proposals give him credit for trying to sort through the mess. There’s a lot to be said for citizens’ being able to know who’s responsible for raising the money and spending which funds for which programs. But given the convoluted nature of the way money is taxed at one level of government -- and then chopped up and redistributed to other levels of government -- it’s often impossible to know who to thank and who to blame. “One of the reasons why California got so screwed up,” says former California Assembly Speaker Robert Hertzberg, “is the unintended consequences of the jury-rigged attempts to get money to the locals.”

Hertzberg is a strong backer of Brown’s realignment proposal. He recognizes, however, that the word “realignment” is code to local governments that they will have to pick up more responsibilities without getting more money to pay for them. Brown initially proposed offering localities funding to cover their new responsibilities for five years, but has since said he will find a way to provide more permanent funding. “It’s a long discussion that starts with, ‘There better be enough money,’” says David Finigan, a Del Norte County, Calif., supervisor.

Finigan has reason to be wary. Brown’s whole idea is predicated on the hope that voters will approve a tax package to pay for it in a special election in June. And past realignment debates in Sacramento haven’t all come through with the kind of money that Brown is promising. A 1991 realignment of social services left counties about a billion dollars short.

Cities are already livid that Brown wants to eliminate nearly $2 billion in local redevelopment funds. The state of California has long been notorious for dipping into local coffers, either by using sticky fingers to hold on to tax dollars the state is supposed to hand down, or by “borrowing” local revenues. Local officials in California have twice succeeded in recent years in convincing voters to pass propositions designed to block such behavior on the part of the state. “There has been a long-standing history of distrust in the relationship between the state and local governments in California,” says CSAC’s Hurst. “Unless you put things in the constitution, you can’t rely on anyone’s word or handshake agreement.”

Los Angeles District Attorney Steve Cooley warns that Brown’s proposed realignment will “wreak havoc” and be a “public safety nightmare.” He notes that jails in his county are already at or near capacity limits imposed by federal courts. County supervision of paroled rapists and murderers, he says, would mean some convicted felons will serve little or no time in custody due to insufficient bed space.

But many other local officials in California aren’t opposed to the idea of realignment—in principle. Just as states have long argued that they can run programs more efficiently than the feds if given adequate support and flexibility, Finigan says that localities can handle most of the programs Brown has put on the table “better and cheaper” than the state.

Hertzberg now co-chairs California Forward, a policy group that has advocated better alignment of services and level of government. He says it’s unfortunate that the idea has been distorted by the unending arguments in California about how revenue streams flow up and down and diverge between the state and localities. He recognizes that money has to follow program responsibility in order for realignment to work, but argues that realignment is a necessity in order for localities and regions within the state to operate in a more responsive way.

It’s possible that Brown’s ideas -- ambitious as they are -- represent only a first step in this regard. It will be challenging enough to put counties in charge of parole, for instance. But the current debate about public safety and social services may only be the opening of a long discussion that will eventually incorporate even bigger issues such as education and the tax code.

If it’s done right -- and isn’t just a cost-cutting maneuver -- many local officials in California believe they can offer more efficient coordination of services. As things stand now, though, counties struggle to knit together closely related programs that nonetheless are funded through separate state revenue streams, each with its own set of mandates.

Some counties have figured out how to do this already. Kids who are at risk of being removed from their homes, for instance, might fall under the purview of any of three different agencies, depending on whether the problem is parental abuse, drug use or involvement in crime. Each of these programs comes with its own set of state money that goes to either the county health, human services or probation department. Quite often, the problems of at-risk kids are intertwined. But this has often led to situations where local agency officials point fingers at one another and argue, “This kid belongs to you, it’s a substance abuse issue,” or “No, the primary problem is the criminal activity.” Taking kids out of their homes is an expensive proposition and no one wants to be stuck with the bill.

About a decade ago, officials in San Mateo County, Calif., decided it was pointless to try to shift responsibility between departments. Officials from different agencies began meeting on a weekly basis, getting to know the kids and their problems, and trying to coordinate the whole panoply of services that they might need. It didn’t always go smoothly at first, but over time the agencies learned to work together. The result has been a 50 percent reduction in the number of kids removed from their homes. “Kids who stay in their homes, so long as they get the right services, do a whole lot better in the long run,” says County Health System Chief Jean Fraser.

Fraser recognizes that her county has resources others might not be able to draw on. The county is made up largely of affluent suburbs just south of San Francisco and has 700,000 residents -- as many as the state of Vermont. But she argues that it’s even more important for poorer counties to have greater flexibility in expending the limited resources at their disposal.

Already facing budget shortfalls of their own, it’s difficult for local officials to contemplate the prospect of taking on further program responsibilities. Many of the programs Brown is expecting them to take over come laden with mandates from either the state or federal level -- or both. And in many other states, localities are being asked to do more without seeing real help in terms of delivery on promises of greater flexibility, or even serious debate about what responsibilities best lie with which level of government.

The issue, of course, is whether California will remain committed to funding the responsibilities Brown hopes to pass down -- an ever-present source of anxiety for local officials in California, as it is for their counterparts in other states. If the commitment is there, Fraser sees real promise in the notion of freeing counties to design programs in ways that best meet the needs of their own residents. “From our perspective, the idea of having more flexibility about what we do is really exciting,” she says. “We’re raring to go.”

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