Restoring the Balance of Federalism

In the recession's wake, states and localities face new realities.
July 2010
Peter Harkness
By Peter Harkness  |  Founder, Publisher Emeritus

At the National Association of State Chief Information Officers 2010 Midyear Conference in Baltimore--which included private-sector vendors who provide the software and systems that allow CIOs to run their governments--I asked the audience of almost 400 people to respond to a deliberately provocative statement: "A fiscal crisis may be a terrible opportunity to waste, but pretty much that's what we're doing."

To my surprise, 62 percent of the audience, who voted using electronic gadgets, agreed with that proposition, and 32 percent--less than one-third--disagreed. I thought the results would be closer.

If you believe, as I do, that the Great Recession will have lasting effects on how governments from Washington to the smallest towns and counties must govern in the future, then we need to face some realities.

A couple of months ago, former President Bill Clinton made some telling points at a conference on the nation's debt crisis. The gist of it was: We've got serious delivery system problems. In health care, we have no better outcomes even though we're spending more than other advanced countries. In 2009--a horrible economic year--we spent 17 percent of our gross national product on health care while health industry profits were up 56 percent. Our education system is deeply flawed, again with more money being spent to produce mediocre results. We can't depend on discretionary spending because the future never has the imperative compared to the present. America must get back in the business of our future. We can't do it if health care continues mortgaging the future, or when foreign investors are covering almost half our debt. We won't succeed unless we do more to create jobs and reform health care and other service delivery systems.

In other words, we need to start seeing more bangs for our bucks.

It's hard to imagine making much progress in improving those delivery systems with our existing intergovernmental structure, fragmented and siloed as it is. With the federal government now paying an increasing share of the tab for state and local programs (30 percent and rising), the Obama administration is gently demanding a greater say in who receives federal funding (probably regions instead of states) and how it's spent. The goal is a greater degree of uniformity, with policy formed, top to bottom, around more uniform national goals.

"This is an administration that doesn't take the states and locals as it finds them. It has an agenda," Paul Posner, a federalism expert and director of the Public Administration Program at George Mason University, recently told the National Journal. "I can see this administration pursuing additional ways to put money down in the state and local sector but tying it to strong national goals. It's going to have to be a twofer."

In other words, Washington, D.C., likely will be less willing to pay for state and local initiatives that earn governors and mayors gold stars unless they address broad federal objectives. And the old adage that "he who pays the piper calls the tune" is operative--at least during this administration. In at least half the states, this may be a bitter pill to swallow. Already, more than 30 states are pursuing various efforts to block key elements of the newly passed health-care reform law; 20 of them have filed suit in federal court challenging its constitutionality.

The best way to restore more balance between Washington and the states and localities would be to return to some fiscal balance. But even if we do things right and truly take advantage of the opportunity the crisis presents, it will be a long slog. Some taxes have been increased and more likely will be, particularly on alcohol, cigarettes, sugary soda pop and candy. Tolls are being raised or instituted. In half the states, gambling is being allowed or expanded. And spending is being reduced, particularly in areas like prisons, parks and pension plans, which was once considered taboo.

Finally many state and local leaders are looking for opportunities to be seized in how government is administered. Local leaders in particular are trying to determine how to change governance, not government--how to work more collaboratively across boundaries with nonprofits and the business community to meet common goals, rooted in the proposition that government cannot do it all.

Perhaps one recent event best exemplifies what's going on. In late April, New York City Mayor Michael Bloomberg appointed Stephen Goldsmith as the city's deputy mayor of operations. Goldsmith is best known as Indianapolis' fiscally conservative former mayor who was willing to think the unthinkable in running his city, requiring public agencies to compete against private firms for contracts to do city work. Often the unions won and lowered costs by thinning management ranks. The efficiencies were significant.

In New York City, where unions are unlikely to be so compliant, the competition strategy probably will be much tougher. And the truth is that privatization efforts in general have, at best, a spotty record across the country.

But Bloomberg, facing close to a $5 billion budget shortfall next year, is short of options. There is no alternative to reducing costs; it will depend only on how it is accomplished. You can call what Bloomberg is doing grasping at straws or grabbing an opportunity. Only time will tell.

Peter Harkness
Peter Harkness | Founder, Publisher Emeritus |