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From the Archive: The New Federalism: Unplanned, Innovative and Here to Stay

State and local governments are fending for themselves in unprecedented and imaginative ways. Things will never be quite the same.

State and local governments, with a new sense of independence from the federal government, have been taking on new responsibilities in the 1980s -- a change that promises to be both more profound and more permanent than most people have recognized.

The city of Des Moines, Iowa, for instance, is using public and private funds to establish a 1,000-acre demonstration farm near the city of Shijiahzuang in the People's Republic of China in an effort to create new markets for agricultural products exported by Des Moines businesses. Foreign trade issues, once left almost exclusively to Washington, have become so important that they are finding permanent places on the agendas of such organizations as the National League of Cities and the National Conference of State Legislatures.

In Massachusetts, collecting delinquent child support has been turned over to the state Department of Revenue so that the same tough tactics used against tax evaders can be turned upon wayward parents. Wisconsin has a new law requiring that child-support payments be deducted automatically from the wages of fathers who leave their families on public welfare. These are only two among many states that have gone far beyond federal requirements in holding parents responsible for their children until age 18, just as they have gone beyond federal mandates in such areas as environmental and health programs.

California uses the proceeds from a tax on production of offshore oil and Kentucky has created a special fund to help the poor acquire homes in rural and urban areas. Both are representative efforts by states to replace the once-mammoth federal housing programs that have been cut or eliminated.

In education, states as diverse as Georgia and Minnesota authorize state officials to take over and run local school districts that persistently fail to bring their classrooms up to minimum standards. This is part of a nationwide pattern of state intercession in public education, once strictly a local government prerogative. In 1985 alone, total public education outlays increased by $12 billion, to $146 billion, almost all of it the result of expanded funding at the state level.

An explosion of innovations and initiatives by state and local governments has occurred since 1980 under President Reagan's policy of cutting back on the federal domestic programs and regulatory requirements enacted over more than half a century. Although the changes have occurred without any overall blueprint, there is a consensus that they are more far-reaching than almost anyone envisioned seven years ago, despite the fact that Congress has blocked a number of Reagan's attempted cutbacks.

When Reagan was elected, there was a widespread belief that his efforts to shift power and responsibility from the federal level to the states, cities and counties -- a process and policy called "devolution" -- would be an aberration, that there would soon be a return to the 20th century norm of authority moving steadily from the state and local governments to Washington.

At least as far back as the Eisenhower administration, there were serious efforts in Washington to restore some powers to the then-moribund states. But those efforts proved unsuccessful. Even the enactment in 1972 of a program for sharing federal revenues with the states and localities was offset by tighter federal controls overall. Then, in the 1980s, several largely unplanned and unanticipated forces came together to create the so-called "Reagan revolution," marked by stagnation in Washington and bursts of governmental activism elsewhere.

"There has been a Reagan revolution during the time of Reagan," says U.S. Sen. Dan Evans, a Republican from the state of Washington and a former governor long considered a leading authority on the federal system. "There is a change going on, but we are doing all these things not so much because we think they are right but because we have to" under the economic realities of recent years. These realities include the persistently huge national debt that has caused drastic cutbacks in many federal programs and the shift from a national to a world economy that for the first time has left states and localities competing against each other for international markets and investments. That competition in turn has led to innovations in education, job training and social programs deemed vital to the new kinds of economic development.

Among the major changes that have occurred:

  • Renewal and invigoration of long-dormant state and local governments. This has extended to jurisdictions long known for entrenched conservatism and stingy social policies, such as South Carolina and Mississippi. Until recently, most of the states, in fact, were known as dormant governments, content to let the federal government handle constituent pressures for additional social and economic programs.
  • Enactment of tax increases by states, cities, and counties that some believe may be producing as much or more revenue as has been eliminated on the federal level by the Reagan tax cuts. A prime example was Texas's recent multibillion-dollar sales tax increase. Gov. Bill Clements, after pledging both in his campaign for office and after his inauguration that he would never consent to a tax increase, finally agreed in the face of a pro-tax coalition that included prominent members of the business community determined to raise the state's level of education.
  • A sharp decline in ideological or partisan divisions among state and local public officials, a result of the growing belief among Democrats and Republicans alike that certain public outlays for social and economic programs are likely to save money in the long run. Liberals and conservatives have teamed up in state after state, for example, to provide more funds for prenatal care on the assurance that a reduction of birth defects would vastly reduce medical costs in public hospitals.
  • A wave of reforms in such institutions as public schools and welfare departments that officials believe may be more beneficial to the public than new outlays of money. Reforms in education, such as requiring teacher examination and special incentives to attract the best teachers, are well known. But little-publicized examples abound, such as efforts in a number of states to restructure state employment security offices so that they will be as receptive to helping welfare clients find work as they are to placing those recently laid off from their jobs.
  • A formal effort by state legislators across the nation to give local jurisdictions more authority to raise new taxes and to end other policy restrictions that historically caused bitter animosities between the states and their creature governments.
The legislators' move was sparked by the federal government's decision to end most direct aid to cities and counties, leaving them nowhere else to go but the state houses they had previously bypassed to deal directly with Washington. It was local governments, rather than the states, that took the brunt of the federal cuts, and after general revenue sharing was ended in 1986, most local governments were left, for the first time in many years, without any direct federal assistance, according to a study by the Advisory Commission on Intergovernmental Relations (ACIR), a non-partisan federal research agency. Now, for the first time in the memory of those involved, a National Conference of State Legislatures task force is urging a closer working relationship between local and state officials with a goal of achieving greater local autonomy.

There was little that was logical in the process of arriving at the kind of federalism that we have today. In the years following World War II, the public turned increasingly to Washington for every conceivable kind of public assistance; the state governments had become dormant and indifferent, and the cities did not have the resources to help themselves. By the end of the Carter administration, however, there was a growing consensus -- including many liberals who had long advocated federal solutions to most domestic problems -- that the hundreds of federal programs, taken together, had become a cumbersome monstrosity that could not possibly be administered properly.

One trouble was that the national government, rather than hire more civil servants to manage the programs, had delegated their administration not only to state and local officials but to private individuals, from bankers on student loans to real estate hustlers on housing. According to a mountain of evidence compiled by the ACIR and the Urban Institute, an independent think tank, abuse or fraud became commonplace and the general public had little knowledge of or access to how the programs were being run. In this atmosphere, according to the studies, there was no way to know who or what level of government to hold accountable when things went wrong.

Reagan was elected on a platform that included a pledge to eliminate most of the domestic agenda amid speculation that the country had become more conservative. Yet every public opinion poll taken since then on attitudes toward government activism showed little or no change in what people expected from the government. The polls showed that the majority continued to believe that the government should be extraordinarily active in helping individuals and building a better society, even to the extent of creating jobs for all those who could not find work otherwise, something no government program had ever attempted to do.

When the cutbacks in federal aid -- which had begun at the end of the Carter administration -- got underway in earnest under Reagan in 1981, there was widespread doubt, whether in New York or in Oklahoma, that the states would make much of an effort to fill the gap, and there was a general belief that the localities, especially the old industrial cities, could not or would not pick up the cancelled programs. That was because opinions were formed from history rather than from emerging conditions.

As it turned out, state and local governments did have competent work forces to handle the new responsibilities. Unrecognized by most people, in or out of government at any level, these forces had been built to administer the federal aid programs. When devolution came, they were augmented by great numbers of recent graduates from schools of government and public administration -- the best and the brightest, some said -- plus some federal civil servants, who recognized where the action was and chose to locate there.

Also not generally foreseen was what John Kincaid, director of research for the ACIR, calls "the profound change in the world economy" that has led to "competitive federalism," with all levels of government, including the federal government, acting on their own to achieve economic survival in the world economy. This marks a drastic change from the past, when the national economy was predominant and states and localities looked to the federal government to provide stability and guidance.

Gov. Bill Clinton of Arkansas, a Democrat who retired in August as president of the National Governors' Association, underscores this view as an explanation of the spurt in state activism. "We were largely unprepared for the onslaught of global economic competition," he says. "Too many of us for too long took it for granted that America's position as the world's dominant economic power was permanent. Now we know better. Forces of international competition have disrupted the equilibrium of our society and called into question President Kennedy's adage that 'a rising tide lifts all boats.'"

As a result of this, two major things happened at the state and local levels. First, public officials -- seeing plants close, the bottom drop out of agriculture in many areas, and a sharp decline in such staple industries as timber and mining -- became frightened for their states or communities. The fright was heightened in many areas having large unemployed populations unequipped to hold the technical and professional jobs needed to compete in the world economy. The response was an unprecedented surge on every level in efforts to achieve "economic development."

With federal help virtually ended, including programs to promote foreign trade such as the Foreign Trade Office in the Commerce Department, states and localities struck out on their own. Governors and mayors began combing the world for markets and investments. Clinton said that on one industry-hunting trip to Japan, he encountered 11 other governors there for the same purpose. Cities such as Atlanta and San Francisco envisioned themselves as Hong Kongs drawing wealth from all points of the globe. If there was no better way to attract attention in the competitive arena, some governments turned to gimmickry -- Beaumont, Texas, for example, claiming that its economic development committee of several hundred was the largest in the world.

The second occurrence was that constituents, seeing the futility of placing demands on Washington, turned their sights on the states and, to a lesser extent, on the cities and counties. If the view from Washington was that of a lessening demand for government activism, state and local officials saw it differently. And officials representing all points on the political spectrum sought to meet those demands in much the same way. Governors Lamar Alexander of Tennessee, known as a moderate Republican, and Bruce Babbitt of Arizona, known as a liberal Democrat, defined their roles in widely diverse states as stretching tax dollars as far as they could, raising taxes when necessary and delivering an array of improved services, from environmental programs to new approaches to education, with the consent and support of broad coalitions of citizens who shared their concern about the future. Mayors such as Democrat William Donald Schaefer of Baltimore (now Maryland's governor) and Republican George V. Voinovich of Cleveland, strapped for new resources, launched public-private partnerships as never before to enlist business and other community leaders in their improvement campaigns.

The volume of state and local tax increases since 1980 is surprising in view of the fact that the movement toward raising taxes began while the nationwide tax revolt set off by the voter approval of Proposition 13 in California, which drastically reduced property levies, was still underway in a number of states. No one has come up with a reliable estimate of exactly how much additional revenue has been raised during this period because of the complexity of the laws and jurisdictions involved. But there are indicators of an overall strong upward surge. More than half the states have increased their personal income or sales taxes; virtually all have increased user fees for such services as parks or charges for various kinds of licenses.

"There is an ironclad practice that all states follow," says John Shannon, executive director of the ACIR. ``If they are in a little trouble financially, they increase user fees and licenses, things like that. If they are in moderate trouble, they will turn to lotteries or sin taxes [on liquor and cigarettes, for example]. But if they are really, really in trouble, they will increase sales or income taxes."

Between 1983 and 1986, according to the Census Bureau, state tax collections rose by a third, to $228 billion. But this does not include lotteries and other revenue-producing efforts that are not classified as taxes but nevertheless extract money from citizens to pay for public services. Lotteries, which were in use in only a handful of places, have now spread to 27 states and the District of Columbia, despite strong opposition on moral grounds, and are under consideration in several others.

"Over the past two years, lottery revenues have almost doubled, and it appears this growth will continue for the next couple of years," the National Governors Association reported recently. "Fiscal 1986 gross lottery revenues have passed the $11 billion mark, netting states almost $5 billion. Total net revenue raised by currently operating state lotteries in a year is greater than the amount raised each year by the cigarette and alcohol excise taxes in all 50 states."

On the local level, legislatures have been giving towns and cities authority to levy or increase sales taxes, and the local governments have done so in increasing numbers in states such as Texas and Georgia where the state governments do not have a tradition of sharing their own revenue with the localities.

One indication of what has been occurring is that total expenditures by local governments increased between 1983 and 1986 by 26 percent, to $332 billion, despite the decline in federal assistance, according to figures compiled by the ACIR.

Now the question arises as to how long this kind of federalism can continue after Reagan leaves office. No one expects a return to the days of overwhelming federal dominance. "With a $2 trillion national debt and record trade deficits, the federal government can no longer ride to the rescue with a full complement of cavalry," says Kincaid of the ACIR staff. "Indeed, the states may have to rescue the national government occasionally, as they have to some extent in international trade."

Nor does the current crop of presidential candidates promise any return to massive federal programs. And parts of the candidates' platforms are being shaped around initiatives that have been taking place in the states: a renewed commitment to education, a welfare system that emphasizes work, and a focus on the needs of children.

Perhaps a key to what may evolve is what decision may be made at the national level about welfare. When Reagan came into office, the governors promised to support many of his budget cuts if the federal government would assume most of the rising cost of welfare. Reagan, wedded to the 19th century idea of local welfare responsibility, did not make the deal. But the idea of the federal government taking on most of the burden of welfare in return for the states and localities assuming an array of programs and services still being carried by the national government -- community development and general assistance programs, for example -- lives on.

Sen. Evans and Democratic U.S. Rep. Tom Downey of New York, among others, are promoting that concept in Congress as a "revenue neutral" way of ending the inequities of the present system while making the federal system more responsive to the needs of people. Not only would there be a uniform minimum level of welfare support throughout the nation, they say; their plan also contains a provision for the federal government to provide grants, a renewed form of revenue sharing, only to those units of government in most need. Thus the federal government's chief role in domestic affairs, in addition to enforcing constitutional rights of citizens, would be to provide a minimum level of support for both needy individuals and communities.

Many officials say the Evans-Downey plan is a good idea with no chance of enactment. For one thing, city officials are adamantly opposed to it because they fear it would mean the end of even the remnants of federal aid they have managed to hold on to. Evans argues that the mayors are being shortsighted because the programs they want to save, such as Community Development Block Grants and Urban Development Action Grants, "are dying on the vine anyway."

He sees the possible passage of a bill sponsored by Sen. Daniel Patrick Moynihan, a New York Democrat, or similar ones that are pending as a first step in the evolution of his plan because the Moynihan bill commits the national government to a much stronger role in welfare assistance. He views the overall plan as "like tax reform in its early stages. It was hard to get people interested in tax reform. They would say it was a good idea but it is so far away there is no chance of its happening. I think we are not there yet on the federalism side of things, but we think we have a good trigger with the interest on welfare."

Arriving at a workable, just system of federalism for the future is much more difficult and complex a task than the Evans-Downey plan suggests. Despite the burst of state and local activism and the fact that the Reagan administration has decreased the number of mandates and other requirements that the lower governments must follow, many state and local officials across the country say little in the way of substantive change has occurred.

"Administration officials at the highest level are generally committed to the new federalism espoused by President Reagan, but the message has not sunk very deep into the governmental bureaucracy," says Idaho Attorney General Jim Jones, a Republican. There are still complaints about the "iron triangle," the practice of a few congressional and administration staff members running a federal program in conjunction with a member of Congress so that their will rather than the public's is imposed on the state and local governments that administer the program. Whether vocational rehabilitation or mine safety, the complaint is that the member of Congress involved is beholden to a national special interest rather than the people who elected him or her.

Further, there is widespread skepticism that the legislation proposed by the White House Domestic Policy Council in late 1986, which would formally give the states more authority and flexibility over a wide range of remaining federal programs, will ever come to fruition. Such proposals have usually failed in the past, and this one came so late in the Reagan term that many members of Congress dismissed it as unrealistic.

Yet in the opinion of many, the remarkable activism of state and local governments during the 1980s has set a precedent that no elected official is likely to ignore in the foreseeable future. Thus the states' recent initiatives would serve as building blocks for the "sorting out" process that officials at every level say is needed to decide which functions are appropriate for the federal government and which are best for the states and localities.

At the same time, there is a consensus that federal uniform standards cannot be abandoned, not only in welfare and enforcement of constitutional rights but also in areas where the states have had the predominant role. For example, David R. Mandel of the Carnegie Forum on Education says the intense flurry of state reforms in the public schools has not removed the need for a system of national teacher certification.

The future seems likely to be one in which the federal government will build its programs around the innovations of the states and localities rather than returning to the preemption by Washington of state and local prerogatives that characterized the 1960s and 1970s.

Tina Trenkner is the Deputy Editor for She edits the Technology and Health newsletters.
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