Over to the States


A brilliant breakthrough in federalist sharing? A fiscal shell game? A smoke screen? A Trojan horse?

The Bush administration's suggestion to "turn back" to the states up to $22 billion, letting states take the funds as a block grant and spend them as they please, is being read lots of ways.

For governors who fear the turnback could be a carbon copy of Ronald Reagan's 1982 "New Federalism" proposals to "block" multiple programs and then quickly shrink their federal funding, the White House chief of staff, John Sununu, quickly produced all sorts of assurances. The initiative isn't designed "to save one cent in federal spending," said Mr. Sununu. Full program funding will continue for at least five years, he promised.

Initial suspicion among the governors gathered here for their midwinter meeting seemed to give way to pleasure after they heard the White House pledge. Washington's Gov. Booth Gardner, a Democrat and chairman of the governors' association, said the president was trying to be responsive to state wishes:

"Every time the president meets with governors and legislators he asks, 'If I could do one thing for you, what would you like?' And we always say, 'flexibility.' "

Mr. Bush proclaimed that releasing the funds to the states would "move power and decision-making closer to the people." Potential items, his budget indicated, would be $9.7 billion for social services and energy assistance for low-income families, $1.8 billion for education, over $2 billion in water-and-sewer construction grants and close to $7 billion for housing and community development.

Congressional Democrats reacted warily. "If this proposal is a shell game, if it is merely fiscal sleight-of-hand designed to hamstring states still further, if this is abdication masquerading as flexibility, then I will oppose this proposal," the House majority leader, Rep. Richard Gephardt, D-Mo., told the governors' meeting.

Mr. Gephardt suggested that the "menu" of items the president had invited the governors to choose for blocking "had been the target of a decade-long attempt to abolish them." The turnback proposals obviously will be scrutinized by Congress, which is reluctant to lose control over -- and political credit for politically popular programs.

If the governors are determined, they may get some of what they want. As Iowa's Terry Bransted, a Republican, noted, this is a year the states will be working on congressional redistricting. But in the world of real politics, both the White House and governors may be forgetting a vital factor: their other partners in the federal system.

The idea that the states might take over community-development block grants, most of which now go directly to cities, prompted an indignant warning from Tom Cochran, executive director of the U.S. Conference of Mayors: "Any sign of this program being cut, tampered with or given away is something we would not tolerate."

Since the death of general revenue sharing, community-development block grants remain the last remnant of string-free money the cities get from Washington.

Ohio's new Republican governor, George Voinovich, had a warning for his colleagues: Develop a common front, agree up front with cities and counties on a list of agreed-on items, or the whole effort could crash on take off.

Mr. Voinovich knows the politics: He served a decade as mayor of Cleveland, and a turn as president of the National League of Cities.

But President Bush, like Ronald Reagan before him, "tilts" so heavily to states, disregards cities and counties so heavily, that he misses a critical nuance. In recession-plagued 1991, cries of deep fiscal stress echo in statehouses coast to coast. A telephone poll by New York state found 40 states predicting deficits totaling $30 billion next year. Turning back a few programs for state discretion may sound nice, but be irrelevant.

Indeed, it could be part of a White House smoke screen to divert attention from a recession. Though the administration predicts a shallow recession, it already has forced the states into severe budget cutbacks; now some are cutting essential payrolls and programs.

It's almost amusing to recall that, last fall, challengers across the country accused sitting governors, or their parties, of lousy management causing fiscal shortfalls. Brad Johnson, head of the state of New York's Washington office, remarked last week to the New York Times: "Forty governors have not engaged in gross mismanagement simultaneously. The lion's share of the gap is a revenue fall-off."

What should the federal government do, right away, to help the states? One answer is obvious: Cut back on the $8 billion that states will have to pay for expanded Medicaid benefits next year. The governors are asking Washington to hold off on expanded state Medicaid coverage for two years.

The national government is set to borrow $350 billion or more for its 1992 deficit. When dealing with states barred constitutionally from registering any deficits, the Medicaid delay doesn't seem too much to ask. And it's a lot more important than the new "turnback" scheme.

Neal R. Peirce writes a column on state and urban affairs.

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