ADVISORY COMMISSION ON INTERGOVERNMENTAL RELATIONS
March 1986
Private Citizens
James S. Dwight, Jr., Arlington, VA
Daniel J. Elazar, Philadelphia, PA
Robert B. Hawkins, Jr., CHAIRMAN, Sacramento, CA
Members of the United States Senate
David Durenberger, Minnesota
William V. Roth, Delaware
James R. Sasser, Tennessee
Members of the U.S. House of Representatives
Sander M. Levin, Michigan
Robert S. Walker, Pennsylvania
Theodore S. Weiss, New York
Officers of the Executive Branch, Federal Government
William E. Brock, 111, Secretary, U.S. Department of Labor
Mitchell E. Daniels, Jr., Assistant to the President for Political
and Governmental Affairs
Edwin Meese, 111, Attorney General, U.S. Department of Justice
Governors
John Carlin, Kansas
Ted Schwinden, Montana
John H. Sununu, VICE CHAIRMAN, New Hampshire
Richard L. Thornburgh, Pennsylvania
Mayors
Ferd Harrison, Scotland Neck, North Carolina
William H. Hudnut, 111, Indianapolis, Indiana
Robert Martinez, Tampa, Florida
Joseph P. Riley, Jr., Charleston, S.C.
State Legislators
John T. Bragg, Deputy Speaker, Tennessee House of Representatives
Ross 0. Doyen, Kansas State Senate
David E. Nething, Majority Leader, North Dakota State Senate
Elected County Officials
Gilbert Barrett, Chairman of the Board, Dougherty County, Georgia
Philip B. Elfstrom, County Commissioner, Kane County, Illinois
Sandra R. Smoley, Supervisor, Sacramento County, California
A COMMISSION REPORT
Devolving Federal Program Responsibilities And
Revenue Sources To
State And Local Governments
This report was approved with a recommendation by
the Advisory Commission on Intergovernmental Relations on
December 4 , 1985.
Advisory Commission On
Intergovernmental Relations
Washington, DC 20575
March 1986
PREFACE
Americans have always c h e r i s h e d t h e r i g h t of s e l f - r u l e , and a fundamental premise of t h e American experiment i n l i m i t e d self-government i s
t h a t t h e democratic p r o c e s s works b e s t i n t h o s e governments t h a t a r e
c l o s e s t t o t h e people.
Our C o n s t i t u t i o n r e f l e c t s t h e s e v a l u e s by e s t a b l i s h i n g a l i m i t e d n a t i o n a l government and l e a v i n g t o s t a t e s and t h e i r
l o c a l governments broad a u t h o r i t y f o r l o c a l s e l f - r u l e .
I n p a s t r e s e a r c h , t h e Advisory Commission on IntergovernmenZal Relat i o n s (ACIR) has found t h a t i n c r e a s e d p o l i t i c a l c e n t r a l i z a t i o n and excess i v e n a t i o n a l involvement i n s t a t e and l o c a l a f f a i r s - - a c t i n g through a
v a r i e t y of i n t e r g o v e r n m e n t a l d e v i c e s - - t h r e a t e n
t h e i n t e g r i t y of l o c a l
self-government.
Based upon t h e s e f i n d i n g s , t h e Commission has examined
a number of ways t o a c h i e v e g r e a t e r d e c e n t r a l i z a t i o n , i n c l u d i n g block
g r a n t s and revenue s h a r i n g . This r e p o r t c o n t i n u e s A C I R ' s e x p l o r a t i o n of
a l t e r n a t i v e methods t o r e v e r s e t h e t r e n d toward e x c e s s i v e p o l i t i c a l cent r a l i z a t i o n through i t s examination of turnbacks: t h e simultaneous r e p e a l
of s e l e c t e d f e d e r a l grant-in-aid programs and relinquishment of c e r t a i n
federal t a x sources.
A t i t s September 1985, meeting, t h e Commission a u t h o r i z e d t h e t u r n back r e s e a r c h t h a t i s p u b l i s h e d i n t h i s volume and a l s o d i r e c t e d t h a t
r e g i o n a l p u b l i c r o u n d t a b l e s be h e l d t o i n f o r m t h e r e s e a r c h .
The t h r e e
r o u n d t a b l e s , h e l d i n Chicago, P h i l a d e l p h i a , and Salem, OR, h e a r d a wide
range of l o c a l , s t a t e and f e d e r a l o f f i c i a l s , a s w e l l a s p r i v a t e c i t i z e n s .
P a r t i c i p a n t s d i s c u s s e d such m a t t e r s a s t h e f i s c a l c a p a c i t y of s t a t e and
l o c a l governments t o accommodate d e v o l u t i o n of r e s p o n s i b i l i t y and a u t h o r i t y ; t h e t r a n s i t i o n t o d e v o l u t i o n ; and q u e s t i o n s of p o l i t i c a l f e a s i b i l i t y .
T h i s r e p o r t , which i n c o r p o r a t e s t h e l e s s o n s l e a r n e d from t h e h e a r i n g s , was
adopted by ACIR a t i t s December 1985, meeting.
A C I R voted t o recommend revenue and r e s p o n s i b i l i t y turnbacks a s one
means of d e c e n t r a l i z i n g t h e f e d e r a l system. I t h e l d t h a t t h e i l l u s t r a t i v e
turnback packages developed i n t h i s r e p o r t warranted f u r t h e r development
i n c o n s u l t a t i o n w i t h o t h e r i n t e r e s t e d members of t h e i n t e r g o v e r n m e n t a l
community.
( F u t u r e papers w i l l p r e s e n t t h e a d d i t i o n a l packages.) A C I R
d i d n o t , however, recommend s p e c i f i c l e g i s l a t i o n ; nor d i d i t recommend t h e
d e v o l u t i o n of p a r t i c u l a r f e d e r a l programs o r revenue s o u r c e s .
The ACIR recommendation a l s o f o c u s s e d on t h e changed, d e c e n t r a l i z e d
environment t h a t t u r n b a c k s would b r i n g about and on c u s h i o n i n g t h e change
t o t h e new environment.
An adequate p e r i o d of t r a n s i t i o n ( i n c l u d i n g
a s s u r e d pass-through g r a n t s t o l o c a l governments) may become n e c e s s a r y ,
a s would changes i n s t a t e - l o c a l r e l a t i o n s such a s adjustments i n f i s c a l
a s s i s t a n c e and broadened a u t h o r i t y f o r l o c a l taxing.
A C I R ' s endorsement
of turnbacks i s p a r t of i t s l o n g s t a n d i n g s t u d y
-iii-
of a range of mechanisms f o r d e c e n t r a l i z a t i o n , s u c h a s b l o c k g r a n t s ,
Eorinula-based g e n e r a l r e v e n u e s h a r i n g , o r i g i n - b a s e d t a x s h a r i n g , and t h e
"swapping" of r e s p o n s i b i l f t i e s among t h e v a r i o u s l e v e l s of government.
The p r e s e n t r e p o r t ' s d e t a i l e d s t u d y of p r i n c i p l e s and methods h e l p s t o
a s s e s s t h e r o l e t u r n b a c k s may p l a y i n e n h a n c i n g t h e workings of t h e
f e d e r a l system.
Robert B. Hawkins, Jr.
Chairman
ACKNOWLEDGMENTS
This report was written by Mark David Menchik and Max B. Sawicky,
under the supervision of Lawrence A. Hunter, research director of the
Advisory Commission on Intergovernmental Relations. Roger A. Hanson supplied helpful suggestions. Earlier stages of the research were conducted
by Robert J. Kleine, Mark David Menchik, and Holley Ulbrich. Jim Estep,
Cathy Gust, and Bud Vestal helped the authors develop the computational
procedures that were used. Anita J. McPhaul, along with Mary A. Dominguez and Lori A. O'Bier, provided valuable secretarial and clerical assistance.
Staff research on revenue and responsibility turnbacks was guided by
an ACIR committee headed by State Senator David A. Nething and Mayor
Joseph P. Riley, Jr. County Chairman Gilbert Barrett, State Senator Ross
0. Doyen, and Governor Ted Schwinden served on the committee.
The report benefited from three regional roundtables on the subject
of turnbacks. The Commission and staff are grateful to the private
citizens and public officials who participated at the roundtables. A
list of the participants appears in Appendix A.
Report preparation was greatly aided by a "critics' session," which
discussed an earlier draft. Enid Beaumont, Kathy Collins, Bill Colman,
Alexander Dimitrief, Gerald H. Miller, Richard R. Mudge, Kathy Peroff,
John E. Petersen, Alvin Sokolow, Michael Springer, and Gerald L. Thorpe
all participated.
An early stage of this research, conducted as part of the study
mandated by PL 98-185, received the partial financial support of the U.S.
Department of the Treasury, Office of State and Local Finance, which is
headed by Robert Rafuse.
Full responsibility for the content and accuracy of this report
rests, of course, with the Commission and its staff.
John Shannon
Executive Director
CONTENTS
...........................
Chapter 1 .
.SUMMARY AND POLICY RECOMMENDATION
INTRODUCTION
POLICY RECOMMENDATION..
DISSENTS
F I W I N G S. . . . . . o . . . * . . * ~ o e o . . m . . . o . m ~ . . ~ e ~ . e * m
........................................................
.............................................
............................................................
..
o ~ * o ~ . * e . o e * e ~ ~ * * e e
............................................
.WHY TURNBACKS?
Chapter 2 .
I N T R O D U C T I O N ~ o o. ~. . o. . . . . w . . . . . . . . . * e o e . e o o e o e o e e . e . e e m
CONTEMPORARY P E R S P E C T I V E S ON THE NEED FOR INCREASED P O L I T I C A L
DECENTRALIZATION.
F e d e r a l i s m i n N e e d of R e f o r m
C o n t r a r y Views
F A C I L I T A T I N G D E F I C I T REDUCTION
CONCLUSION
.........
................................................
...................................
.................................................
......................................
..........................................................
........................................
..................................................
.................................................
.....................................
.D E S I G N I N G THE TURNBACK PACKAGES .............................
Chapter 4 .
INTRODUCTION.. ......................................................
PROGRAM TURNBACKS AND AN ECONOMIC THEORY O F F I S C A L DECENTRALIZATION .
TURNING OVER REVENUE SOURCES: A PRAGMATIC APPROACH .................
MAKING REVENUE DEVOLUTION PERMANENT .................................
THE TAX RELINQUISHMENT APPROACH TO TURNING OVER REVENUES ............
REVENUE SOURCES TO ACCOMPANY PROGRAM TURNBACKS ......................
Federal E x c i s e T a x on M o t o r F u e l s ..............................
T o b a c c o T a x ....................................................
A l c o h o l i c B e v e r a g e T a x e s .......................................
T e l e p h o n e E x c i s e T a x ...........................................
P e r s o n a l I n c o m e T a x ............................................
TRANSITIONAL ARRANGEMENTS. P ASS-THROUGH MECHANISMS. AND THE
POST-DEVOLUTION ENVIRONMENT ......................................
Chapter 5 .
.THE I L L U S T R A T I V E TURNBACK PACKAGES ..........................
INTRODUCTION ........................................................
PROGRAMS THAT ARE TURNBACK CANDIDATES ...............................
DESIGNING THE TURNBACK PACKAGES .....................................
TURNBACK P O L I C Y AND F I S C A L EQUALIZATION .............................
HOW TO READ THE TABLES ..............................................
THE $10 B I L L I O N PACKAGE .............................................
$17 B I L L I O N PACKAGE. ............................................
.TURNBACKS I N CONTEXT
Chapter 3 .
INTRODUCTION......
THE NEED FOR THEORY
H I S T O R I C A L MODELS O F FEDERALISM
THE
THE $18 B I L L I O N PACKAGE
THE $ 2 1 B I L L I O N PACKAGE
THE $ 2 2 B I L L I O N PACKAGE
.............................................
.............................................
.............................................
.......................
Appendix B .
.ALTERNATIVE MECHANISMS FOR FISCAL AND PROGRAMMATIC
DEVOLUTION ..............................................
REFERENCES ...............................................................
Appendix A
.
.PARTICIPANTS
I N REGIONAL ROUNDTABLES
FIGURES. GRAPHS. AND TABLES
F i g u r e 2.1
.
.E v a l u a t i o n
of t h e I n t e r g o v e r n m e n t a l System: Criteria f o r
D e t e r m i n i n g Whether Reform i s Required
F i g u r e 3.1
..................
.
.H i s t o r i c a l Nodels of F e d e r a l i s m ............................
Graph 2.1
.
.F e d e r a l
Graph 3.1
.
.F e d e r a l
T a b l e 4.1
.
.The
Aid i n R e l a t i o n t o S t a t e and L o c a l E x p e n d i t u r e s
f r o m Own-Source Revenues i n C o n s t a n t 1972 D o l l a r s .
Aid t o S t a t e and L o c a l Governments i n C o n s t a n t
1972 D o l l a r s . 1970-84
T e s t of V i t a l N a t i o n a l I n t e r e s t : Necessary and
S u f f i c i e n t C o n d i t i o n s f o r A c t i v i t y by t h e N a t i o n a l
Government
T a b l e 5.1
.
.Summary of
T a b l e 5.2
.
.C a n d i d a t e
T a b l e 5.3
T a b l e 5.4
T a b l e 5.5
T a b l e 5.6
T a b l e 5.7
...................................
..............................................
F i v e I l l u s t r a t i v e Turnback Packages .............
Programs f o r Turnback. i n Order of ACIR
F u n c t i o n a l Area and CFDA Number
.........................
.
.$10 B i l l i o n I l l u s t r a t i v e Turnback Package ..................
.
.$17 B i l l i o n I l l u s t r a t i v e Turnhack Package ..................
.
.$18 B i l l i o n I l l u s t r a t i v e Turnhack Package ..................
.
.$21 B i l l i o n I l l u s t r a t i v e Turnback Package ..................
.
.$22 B i l l i o n I l l u s t r a t i v e Turnback Package ..................
69
Chapter 1
SUMMARY AND POLICY RECOMMENDATION
INTRODUCTION
A r e c u r r e n t theme i n American p o l i t i c a l h i s t o r y h a s been t h e g r e a t em-
p h a s i s placed on p o l i t i c a l d e c e n t r a l i z a t i o n a s an e n d u r i n g value.
The Con-
s t i t u t i o n a l d e s i g n r e f l e c t s t h i s value by i t s e f f o r t t o c r e a t e a l i m i t e d nat i o n a l government t h a t i s compatible w i t h s o v e r e i g n and v i b r a n t s t a t e s .
generalization continues
to
command widespread
a l o n g t h e p o l i t i c a l spectrum:
One
a c c e p t a n c e from a l l p o i n t s
"The government c l o s e s t t o t h e people governs
best. "
I n r e c e n t y e a r s a consensus has developed, among c i t i z e n s and p u b l i c o f f i c i a l s a l i k e , t h a t t h e American system of government h a s grown t o o c e n t r a l i z e d , t o o complicated, and t e n d s t o l a c k a c c o u n t a b i l i t y a t c r i t i c a l p o i n t s .
One a r e a of s p e c i a l concern has been t h e e l a b o r a t e system of f e d e r a l g r a n t s i n - a i d t h a t h a s developed over t h e l a s t 30 y e a r s .
I n p r e v i o u s s t u d i e s and p o s i t i o n p a p e r s , t h e Advisory Commission on InIntergovernmental R e l a t i o n s (ACIR) has a f f i r m e d t h e importance of s i m p l i f y i n g
an " e x c e s s i v e l y
intergovernmentalized" federal
The Commission urged
that
the
current
array
system (e. g.
of
,
ACIR,
grant-in-aid
programs
be
and what
is
o b j e c t i v e s were
to
s o r t e d o u t a c c o r d i n g t o what i s a p p r o p r i a t e l y a f e d e r a l t a s k ,
more f i t t i n g l y
a
state
or
local
responsibility.
The
1981~).
e l e v a t e t o t h e n a t i o n a l government t h o s e programs and a c t i v i t i e s t h a t h o l d
s i g n i f i c a n c e f o r t h e n a t i o n a s a whole and t o c l e a r t h e f e d e r a l domestic
agenda of programs t h a t were more a p p r o p r i a t e l y handled by s t a t e - l o c a l governments o r by t h e p r i v a t e s e c t o r .
C r i t e r i a c i t e d f o r program d e v o l u t i o n o r
e l i m i n a t i o n were meager f i n a n c i a l a s s i s t a n c e i n r e l a t i o n t o s t a t e e f f o r t s i n
t h e same a r e a ,
ineffectiveness,
or disproportionately
large administrative
costs.
A v a r i e t y of
s t r a t e g i e s f o r a c h i e v i n g t h e s e g o a l s was i d e n t i f i e d i n a
s t a f f working paper i s s u e d i n December
i n c l u d e d block g r a n t s ,
origin-based
tax
formula-based
sharing,
1981 (ACIR,
s p e c i a l and g e n e r a l
revenue/responsibility
-1-
1981e).
The s t r a t e g i e s
revenue s h a r i n g ,
turnbacks,
and
program
"swaps" designed t o
"sort
completely t o t h e n a t i o n a l
o u t " f u n c t i o n a l r e s p o n s i b i l i t i e s by moving some
government w h i l e devolving o t h e r s t o s t a t e and
l o c a l governments.
The 1981 s t a f f working paper was b a s i c a l l y a t e c h n i c a l p i e c e t h a t examined v a r i o u s ways t o implement d e c e n t r a l i z a t i o n and s o r t i n g out s t r a t e g i e s .
T h i s t e c h n i c a l work was based l a r g e l y upon t h e body of p a s t A C I R r e s e a r c h t h a t
had examined t h e f a i l u r e s
1980b; A C I R ,
1981c; A C I R ,
of
the
current
i n t e r g o v e r n m e n t a l system
(ACIR,
1981d) I n t h i s r e s e a r c h , A C I R a l s o examined,
in
c o n s i d e r a b l e d e t a i l , a number of d e c e n t r a l i z a t i o n s t r a t e g i e s , i n c l u d i n g block
g r a n t s , s p e c i a l and g e n e r a l revenue s h a r i n g ,
summary of
recommendations
t a x s h a r i n g , and "swaps."
r e s u l t i n g from e a r l i e r a s p e c t s of
A
t h i s work i s
c o n t a i n e d i n a 1978 r e p o r t (ACIR, 1978).
Other t h a n t h e t e c h n i c a l work done i n t h e 1981 S t a f f Working Paper, t h e
Commission h a s never examined turnbacks of revenue s o u r c e s and program respons i b i l i t i e s i n depth.
The c u r r e n t r e s e a r c h e f f o r t on t u r n b a c k s i s an a t t e m p t
t o f i l l t h i s gap.
The c u r r e n t
s t u d y develops a d e t a i l e d d i s c u s s i o n
s o r t i n g out programs and r e s p o n s i b i l i t i e s .
of
the c r i t e r i a for
I n t h i s endeavor i t b e n e f i t s from
t h e A C I R ' s own p r e v i o u s work on t h e p o l i t i c a l dimensions of f e d e r a l i s m and a
l a r g e body of l i t e r a t u r e on t h e economics of f i s c a l f e d e r a l i s m .
The c u r r e n t
t h e o r e t i c a l framework f o r e v a l u a t i n g assignments of program r e s p o n s i b i l i t i e s
t o l e v e l s of government encompasses both economic and p o l i t i c a l c o n s i d e r a This framework i s a c o n t i n u a t i o n of t h e e f f o r t s made by t h e Kestnbaum
tions.
Commission, t h e J o i n t F e d e r a l - S t a t e Action Committee, and t h e A C I R i t s e l f , t o
develop a n a n a l y t i c a l approach t o program assignment i s s u e s .
The framework i s a p p l i e d t o t h e e x i s t i n g gamut of f e d e r a l a i d programs
--more
t h a n 400 i n a l l - - i n
o r d e r t o produce
for illustrative
purposes
a
" c a n d i d a t e l i s t " of 177 programs t h a t could be r e t u r n e d t o s t a t e and l o c a l
control.
Because A C I R i s c u r r e n t l y s t u d y i n g means-tested programs ( s e e A C I R
l 9 8 5 a ) , and because t h e s e programs r a i s e p o l i c y i s s u e s d i f f e r e n t from t h o s e
c o n s i d e r e d h e r e , no means-tested programs a r e considered f o r turnback i n t h i s
report.
A p p l i c a t i o n of t h i s framework by d i f f e r e n t a n a l y s t s would c e r t a i n l y produce l o n g e r o r s h o r t e r l i s t s , and no b r i e f i s made h e r e t h a t t h e l i s t p r e s e n t e d i s t h e l a s t word on t h e s u b j e c t .
I t i s , however,
t h e product of
a
s e r i o u s e f f o r t t o apply g e n e r a l c r i t e r i a t o f e d e r a l programs a s a group,
-2-
something t h a t
c l e a r l y has needed doing f o r a long time.
The only u s e f u l
c r i t i c a l r e p l y t o t h e proposed l i s t would be a b e t t e r l i s t .
Having e s t a b l i s h e d t h e c a n d i d a t e s
sents alternative
packages
of
programs
f o r devolution,
and
t h e study then pre-
revenue s o u r c e s f o r
turnback.
Each package i s b u i l t around t h r e e components: a p r e s p e c i f i e d group of revenue
s o u r c e s t o be r e l i n q u i s h e d by t h e f e d e r a l government, a n accompanying s e t of
f e d e r a l a i d programs chosen from t h e c a n d i d a t e l i s t , and a predetermined gap
between t h e t o t a l s of program turnbacks and revenue turnhacks--in
a net reduction i n the federal d e f i c i t .
o t h e r words
Given t h e s e components, t h e v a r i a b l e
i n t h e procedure becomes t h e s e t of programs chosen.
S e l e c t i o n of programs i s done by computer a c c o r d i n g t o s p e c i f i e d c r i t e r i a f o r reducing t h e g a i n s and l o s s e s of s t a t e s .
A r i c h l e v e l of f l e x i b i l i t y
i s p o s s i b l e i n d e f i n i n g t h e s e g a i n s and losses--known
a s " f i s c a l mismatchw--
and a d j u s t i n g t h e p a t t e r n i n which they a r e s p r e a d o v e r s t a t e s .
It i s p o s s i -
b l e , f o r i n s t a n c e , t o p l a c e a b s o l u t e l i m i t s on t h e l e v e l of p e r c a p i t a g a i n s
and/or l o s s e s s u s t a i n e d by any p a r t i c u l a r
s t a t e o r s e t of
match t h e p a t t e r n of g a i n s and l o s s e s t o s t a t e s
i.e.,
'
states,
and t o
a b i l i t i e s t o s u s t a i n them--
t o t h e i r f i s c a l capacity.
F i v e i l l u s t r a t i v e packages a r e o f f e r e d r e f l e c t i n g d i f f e r e n t magnitudes
of turnback programs a s a whole, d i f f e r e n t l e v e l s of d e f i c i t r e d u c t i o n , and
d i f f e r e n t t y p e s of c o n s t r a i n t s .
For example, t h e amount of program r e s p o n s i -
b i l i t i e s t u r n e d o v e r t o s t a t e s ranges from $10 t o $ 2 2 b i l l i o n .
A s i n any
endeavor, t h e more c o n s t r a i n t s p l a c e d on t h e outcome, t h e fewer s o l u t i o n s a r e
possible.
Such c o n s t r a i n t s e x a c t
" c o s t s " t o o t h e r g o a l s of t h e procedure,
making c o n s i d e r a t i o n of t r a d e o f f s n e c e s s a r y .
do n o t i n c r e a s e p r o p o r t i o n a l l y
The l e v e l s of mismatch, however,
a s package s i z e grows.
The l a r g e r packages
p r o v i d e more scope f o r t a i l o r i n g t h e mix of programs t o t h e e x c i s e t a x e s t u r n e d
o v e r , reducing mismatch.
It should be emphasized t h a t , because t h e c u r r e n t s t u d y i s a s t a r t i n g
p o i n t f o r f u r t h e r work,
i t s s u b j e c t i s a s much t h e method a s t h e r e s u l t s .
D e t a i l e d and s p e c i f i c a n a l y s i s of both t h e p r i n c i p l e s and s p e c i f i c s of turnback
d e s i g n a l l o w s t h i s p o l i c y a l t e r n a t i v e t o be debated i n t h e p o l i t i c a l forum.
The i l l u s t r a t i v e packages o f f e r e d a r e l e g i t i m a t e p r o p o s a l s f o r c o n s i d e r a t i o n
by p o l i c y makers, but t h e method a f f o r d s t h e p o s s i b i l i t y of developing new
p r o p o s a l s should t h e s p e c i f i c packages
t h e p o l i t i c a l arena.
o f f e r e d h e r e prove u n s a t i s f a c t o r y i n
Furthermore, t h e turnback method need n o t he c o n s i d e r e d
-3-
in isolation from other decentralization strategies cited at the outset.
POLICY RECOMMENDATION
The Use of Turnbacks to
Achieve Increased Political Decentralization in
The American Federal Svstem
PREAMBLE. A recurrent theme in American political history has been the
great emphasis placed on decentralization as an enduring value. The Constitutional design reflects this value by its effort to create a limited national
government that is compatible with sovereign and vibrant states. And, one
generalization continues to command widespread acceptance from all points
along the political spectrum: "the government closest to the people governs
best. "
The Commission finds that turnbacks (simultaneous repeal of federal aid
programs and relinquishment of tax bases) are a promising approach to achieving increased political decentralization in the American federal system. The
Commission finds further that any turnback package should be based upon the
following principles:
o Turnback legislation should provide for an adequate transition period
to allow state and local governments to adjust to the new environment
of increased political decentralization.
o Turnback legislation should provide for an adequate pass-through of
state funds to local governments during the transition period to minimize fiscal dislocation and uncertainty as local governments adjust
to the new environment of political decentralization.
o Turnback legislation should provide a mechanism during the transition
period to facilitate any state legislative or constitutional changes
necessarv to adiust
the ~olitical and fiscal relations hi^ between
-,
states and their local governments, such as adjustments in local financial aid and changes in laws affecting local taxing authority.
Finally, the Commission finds that the attached turnback packages warrant further development; the Commission recommends that Congress, the President, and state and local officials use the attached ACIR report as a departure point for serious consideration of the turnback concept; and the
Commission directs the ACIR staff to continue to develo~additional alternative packages at the request of interested parties.
DISSENTS
Mayor Joseph P. Riley, Jr.,
Governor Ted Schwinden, and Mayor William Hudnut
A 1980 ACIR report stated "the federal government's influence has become
more pervasive, more intrusive, more unmanageable, more inefficient, more
costly, and above all, more unaccountable." While perhaps overstated, that
was a more o r l e s s a c c u r a t e c r i t i c i s m a t t h e time, and t h e r e s u b s e q u e n t l y
ensued a r e e v a l u a t i o n of t h e r o l e of t h e n a t i o n a l government i n t h e f e d e r a l
s y s tem.
Y e t , i f t h e p r o l i f e r a t i o n of c a t e g o r i c a l g r a n t s - i n - a i d d u r i n g t h e 1960s
and 1970s r e s u l t e d i n e x c e s s i v e c e n t r a l i z a t i o n of government, t h e n t h e s i n of
e x c e s s i v e d e c e n t r a l i z a t i o n i s l i k e w i s e committed i n t h i s Commission recommend a t i o n . A s t h e pendulum may have swung t o o f a r t o t h e l e f t when t h e n a t i o n a l
government sought t o remedy every p e r c e i v e d problem, t h e " t u r n b a c k " of programs and f i n a n c i a l r e s p o n s i b i l i t i e s t o s t a t e s and l o c a l i t i e s would swing t h e
It would r e s u l t i n a d e r e l i c t i o n of r e s p o n s i pendulum t o o f a r t o t h e r i g h t .
b i l i t i e s by Washington, p a r t i c u l a r l y toward t h e n a t i o n ' s c i t i e s .
T h i s recommendation i s not s o much a n e f f o r t t o decongest t h e f e d e r a l
system a s i t i s a p h i l o s o p h i c a l d e s i r e by some t o have our n a t i o n a l governIt i s a
ment wash i t s hands of any concern f o r l o c a l needs and problems.
philosophy t h a t p u b l i c t r a n s p o r t a t i o n , t h e hungry, t h e homeless, bad h o u s i n g ,
economic underdevelopment, p o v e r t y , e t a l . , a r e not n a t i o n a l c o n c e r n s , but
l o c a l i z e d inconveniences t o be borne s o l e l y by t h e s t a t e s and c i t i e s . It i s
a philosophy t h a t would i n j e c t a f a t a l dose of a n t i h i s t a m i n e i n t o a system
of government where t h e r e i s s c a n t e v i d e n c e t h a t c o n g e s t i o n even e x i s t s .
Urban Development Action Grants a r e not p e r v a s i v e ; they a r e t a r g e t e d t o
our most d i s t r e s s e d c e n t e r c i t i e s .
P o l l u t i o n c o n t r o l g r a n t s a r e not i n t r u s i v e ; they h e l p p r e s e r v e our n a t i o n a l environment.
Community Development
Block Grants a r e n o t unmanageable; t h e program r e p l a c e d s c o r e s of c a t e g o r i c a l
programs and h a s s p i r i t e d t h e r e v i t a l i z a t i o n of hundreds of c i t i e s and commun i t i e s a c r o s s our country.
General Revenue S h a r i n g i s n o t i n e f f i c i e n t ; i t
has complete r e s p e c t f o r l o c a l autonomy and i s a l l o c a t e d a t t h e l e v e l of
government c l o s e s t t o t h e people.
And t h e s e programs--along
w i t h s c o r e s of
others--are c o s t l y and unaccountable only t o t h e e x t e n t t h a t Congress imposes
e x c e s s i v e r e s t r i c t i o n s . What i s needed i s n o t t u r n b a c k s , but more f l e x i b i l i t y
i n e x i s t i n g programs.
The r a t i o n a l e f o r t h i s A C I R recommendation r e l i e s on u n s u b s t a n t i a t e d gene r a l i z a t i o n s which few s t a t e and l o c a l e l e c t e d o f f i c i a l s and c i v i l s e r v a n t s
would endorse:
o
I t s c r i t i c i s m of t h e grants-in-aid system f o r n o t e q u a l i z i n g t h e d i s p a r i t i e s i n w e a l t h of t h e v a r i o u s j u r i s d i c t i o n s i s i l l o g i c a l s i n c e
most of t h e programs a r e not designed f o r t h a t purpose.
The I n t e r s t a t e Highway program, f o r example, was e n a c t e d t o c o n s t r u c t a nat i o n a l highway network, not t o a l l o c a t e funds e q u a l l y t o a l l s t a t e s .
S i m i l a r l y , t h e purpose of Superfund i s t o e l i m i n a t e hazardous waste
s i t e s , n o t e q u a l i z e e x p e n d i t u r e s among t h e s t a t e s o r r e g i o n s .
o
The i m p l i c a t i o n t h a t f e d e r a l g r a n t - i n - a i d programs c o n t i n u e t o grow
i s erroneous. There was a d e f i n i t e peaking i n 1978 of d o l l a r s a l l o c a t e d t o s t a t e and l o c a l governments.
Between 1980 and 1985, t o t a l
f e d e r a l e x p e n d i t u r e s i n c r e a s e d by 2 3 . 3 % , w i t h d e f e n s e i n c r e a s i n g by
33.9% and i n t e r e s t on t h e d e b t i n c r e a s i n g 86%. During t h i s same
p e r i o d , f e d e r a l g r a n t s t o s t a t e and l o c a l governments d e c r e a s e d by
8.3%. Local
governments have
s h a r e of f e d e r a l budget c u t s .
a l r e a d y t a k e n more
than t h e i r
fair
o
The l i n k i n g of turnbacks w i t h d e f i c i t r e d u c t i o n c a r r i e s s c a n t cogency
because our c o u n t r y ' s b a s i c d e f i c i t problem i s caused by a f a i l u r e of
p o l i t i c a l w i l l t o d e a l a t t h e f e d e r a l l e v e l w i t h i t s r o o t causes-i.e. , c o n t i n u i n g e s c a l a t i n g e n t i t l e m e n t programs t h a t a r e i n e x o r a b l y
h i t c h e d t o COLAS, and a l a c k of f i s c a l d i s c i p l i n e i n d e f e n s e spending.
This h a s p r e c i o u s l i t t l e t o do w i t h i n t e r g o v e r n m e n t a l r e l a t i o n s and
turnbacks.
o
The recommendation f a i l s t o r e c o g n i z e t h e c o n s t r a i n t s w i t h i n t h e Cong r e s s i o n a l p r o c e s s which s e v e r e l y l i m i t t h e u s e of t u r n b a c k s : t h e
o v e r l a p p i n g j u r i s d i c t i o n of committees; t h e competing i n t e r e s t groups
and t h e i r r e l u c t a n c e t o s e e t h e i r programs changed o r g i v e n t o a n o t h e r
l e v e l of government ; and t h e r e l u c t a n c e of e l e c t e d o f f i c i a l s , having
e n a c t e d t a x e s and been c r i t i c i z e d f o r i t , t o hand t h e revenue over t o
another j u r i s d i c t i o n .
o
I n terms of t u r n i n g back revenues t o l o c a l i t i e s , many l o c a l governmental u n i t s do n o t have t h e authority--and p o s s i b l y n o t t h e c a p a c i t y
--to p i c k up t h e funding of t u r n e d back programs, even though such
programs a r e needed.
There a r e s t a t e c o n s t i t u t i o n a l and s t a t u t o r y
b a r r i e r s t o any l e g i t i m a t e p a s s through of t h i s t a x i n g a u t h o r i t y .
o
Many
F i n a l l y , t h e c l a i m t h a t turnbacks a r e e f f i c i e n t i s s p e c i o u s .
f e d e r a l programs can be run f a r more e f f e c t i v e l y , a t f a r l e s s c o s t ,
by smaller n a t i o n a l s t a f f s t h a n by 50 s t a t e s t a f f s o r s e v e r a l hundred
local staffs.
I n comparison w i t h almost a l l o t h e r world democracies, t h e United S t a t e s
i s a l r e a d y a genuinely d e c e n t r a l i z e d system of government.
We should be
proud, not a p o l o g e t i c , f o r t h e l a s t g e n e r a t i o n ' s e f f o r t s t o a d d r e s s i s s u e s
n a t i o n a l i n s c o p e , but through s t a t e and l o c a l e n t i t i e s c l o s e s t t o t h e people.
T h i s e f f o r t has made our country g r e a t e r .
A s we approach t h e 200th a n n i v e r s a r y of t h e C o n s t i t u t i o n , we a l l need t o
be reminded t h a t t h i s country i s no l o n g e r a c o n f e d e r a t i o n . Ye a r e a l l c i t i zens of t h e same c o u n t r y , and have e v e r y reason t o e x p e c t t h a t t h e n a t i o n a l
government, a s w e l l a s s t a t e and l o c a l governments, w i l l a c c e p t t h e r e s p o n s i b i l i t y t o a d d r e s s our n e e d s , wherever we may r e s i d e . The e r r o r of t h i s mass i v e turnback recommendation i s t h a t i t f o r g e t s t h a t we a r e one n a t i o n and
should cherish t h a t h e r i t a g e .
Because of our e x p e r i e n c e s i n t h e 50s, 60s and 70s, f u t u r e Administrat i o n s and Congress w i l l be l e s s l i k e l y t o develop a heavy-handed c a t e g o r i c a l
approach, and w i l l be more l i k e l y t o i n v o l v e t h e s t a t e s and l o c a l i t i e s t o
every extent possible.
Washington w i l l be f a r more a l e r t t o t h e e x c e s s e s of
a n a t i o n a l r e s p o n s e , but not o b l i v i o u s t o n a t i o n a l need.
For t h i s r e a s o n , we b e l i e v e t h a t i n y e a r s t o come t h i s A C I R r e p o r t w i l l
be considered a benchmark--the benchmark of when t h e pendulum had swung t o o
f a r t o the right.
S e n a t o r David Durenberger
I have l o n g encouraged p r i n c i p l e d and r a t i o n a l i n q u i r i e s t o determine
t h e a p p r o p r i a t e d i v i s i o n of program a d m i n i s t r a t i o n and f i n a n c i a l r e s p o n s i b i l i t i e s among n a t i o n a l , s t a t e , and l o c a l governments. Like a l l who p a r t i c i p a t ed i n t h e 1982 d e b a t e s on swaps and t u r n b a c k s , 1 am w e l l aware of t h e d i f f i c u l t y of e n a c t i n g and implementing any major changes i n t h e i n t e r g o v e r n m e n t a l
system of a i d . The N e w F e d e r a l i s m i n i t i a t i v e s , a s w e l l a s t h e o t h e r a t t e m p t s
a t major reform, have demonstrated t h e complex i n t e r r e l a t i o n s h i p s of programs,
v a l u e s , and g o a l s t h a t make up our c u r r e n t system of i n t e r g o v e r n m e n t a l programs. These i n t e r r e l a t i o n s h i p s complicate t h e t a s k bef o r e us. For example,
i f w e only look a t winners and l o s e r s of a turnback package and i g n o r e t h e
i m p l i c a t i o n s f o r t h e e x i s t i n g p a t t e r n of f i s c a l c a p a c i t i e s , we may end up i n c r e a s i n g r a t h e r t h a n minimizing t h e f i s c a l d i s p a r i t i e s among s t a t e s and l o c a l
governments. S i m i l a r l y , i f we c o n s i d e r non-means t e s t e d and means t e s t e d
programs s e p a r a t e l y , we w i l l overlook t h e sometimes complementary, sometimes
conf l i c t i n g r e l a t i o n s h i p s t h a t e x i s t among g r a n t programs--relationships t h a t
c a n p l a y a n i n t e g r a l p a r t i n t h e outcome of programs.
While I s u p p o r t A C I R ' s e f f o r t s t o c o n s i d e r p r o g r a m and revenues t h a t
might be a p p r o p r i a t e l y t u r n e d back t o t h e s t a t e s , t h i s r e s e a r c h s h o u l d n o t be
undertaken i n i s o l a t i o n from t h e ongoing s t u d y of w e l f a r e reform. For i s s u e s
of t h i s magnitude, I b e l i e v e i t i s t h e r e s p o n s i b i l i t y of t h e Commission t o
c o n s i d e r t h e i n t e r g o v e r n m e n t a l system a s a whole.
Only t h e n can we be s u r e
t h a t t h e changes w e a r e proposing a r e c o n s i s t e n t with t h e p r i n c i p l e s we a l l
a g r e e on: f a i r n e s s t o t h e s t a t e s and l o c a l i t i e s , e f f i c i e n c y , and f i s c a l r e s p o n s i b i l i t y . The commission s h o u l d not make recommendations on t u r n b a c k s
u n l e s s i t is c o n s i d e r i n g w e l f a r e programs a t t h e same time.
I am a l s o concerned t h a t t h e turnback packages proposed i n t h e r e p o r t
t e n d t o h e i g h t e n , r a t h e r t h a n l e s s e n , f i s c a l d i s p a r i t i e s between t h e s t a t e s .
The f i v e s t a t e s w i t h t h e h i g h e s t f i s c a l c a p a c i t y under RTS ( e x c l u d i n g t h e extreme c a s e of A l a s k a ) r e c e i v e b e n e f i t s under t h e t h r e e turnback packages t h a t
average 2.5 t o 14 times h i g h e r t h a n t h e f i v e s t a t e s w i t h t h e lowest f i s c a l
c a p a c i t y . Thus, t h e s e turnback p r o p o s a l s would s e r i o u s l y e x a c e r b a t e f i s c a l
i n e q u i t i e s i n our f e d e r a l system, r a t h e r t h a n reduce them.
Given t h e Commiss i o n ' s landmark work i n measuring f i s c a l c a p a c i t y and a s s e s s i n g t h e r o l e of
t h e n a t i o n a l government i n m i t i g a t i n g f i s c a l d i s p a r i t i e s , I t h i n k i t would be
improvident f o r u s t o move h a s t i l y on a recommendation t h a t c o u l d have such
f a r - r e a c h i n g consequences f o r our f e d e r a l system.
F i n a l l y , I would l i k e t o remind t h e Commission of o u r e x i s t i n g p o l i c y
s u p p o r t i n g block g r a n t s . Because many of t h e turnback packages i n c l u d e block
g r a n t s , Commission s u p p o r t of t h e s e p r o p o s a l s would o v e r t u r n e x i s t i n g p o l i c y
which i s based on y e a r s of Commission r e s e a r c h and, t h e r e f o r e , should not be
considered l i g h t l y .
Given t h e s e r e s e r v a t i o n s , 1 cannot s u p p o r t t h i s f a r - r e a c h i n g recommendat i o n f a v o r i n g t u r n b a c k s i n t h e absence of c o n s i d e r i n g i t s b r o a d e r i m p l i c a t i o n s
f o r our system of f e d e r a l i s m and t h e p r i n c i p l e s on which i t is founded.
R e p r e s e n t a t i v e Ted Weiss a l s o d i s s e n t e d from t h e recommendation, but d i d
n o t j o i n i n a formal d i s s e n t .
FINDINGS
The p o l i c y recommendation adopted by t h e Commission i s based upon t h e
following findings:
is overloaded with more t h a n 400
o The c u r r e n t f e d e r a l domestic budget
i n t e r g o v e r n m e n t a l a i d programs imposing l a r g e a d m i n i s t r a t i v e expense and
e v i d e n c i n g l i t t l e a b i l i t y t o implement n a t i o n a l p o l i c y g o a l s .
t h e most l e n i e n t
impossible t o
criteria for
justify
o Although t h e long-run
many
establishing
existing
p a t t e r n of
By even
" n a t i o n a l purpose, " i t i s
intergovernmental
aid
programs.
s t a t e and l o c a l spending may not
be
a l t e r e d s u b s t a n t i a l l y by many f e d e r a l a i d programs ( i t s e l f b r i n g i n g i n t o
q u e s t i o n t h e purpose and value of t h e i n t e r g o v e r n m e n t a l a i d ) , t h e cumulative effect
of
financial reliance
on t h e n a t i o n a l government and t h e
many c o n d i t i o n s and requirements a t t a c h e d t o t h e f e d e r a l a i d i s t o e r o d e
t h e a u t h o r i t y of
s t a t e and l o c a l o f f i c i a l s .
return authority
and
responsibility
to
Turnbacks a r e a means t o
state
and
local
officials.
o F e d e r a l a i d programs g r e a t l y reduce t h e f l e x i b i l i t y of s t a t e and l o c a l
o f f i c i a l s i n program d e s i g n and implementation.
The long-run
effect is
t o r e t a r d i n n o v a t i o n and d i v e r s i t y a t t h e s t a t e and l o c a l l e v e l s . Turnbacks a r e a means t o f o s t e r p o l i c y e x p e r i m e n t a t i o n and t o accommodate
p u b l i c s e r v i c e s t o l o c a l p r e f e r e n c e s and needs.
o Turnbacks can be a n e f f e c t i v e means t o undo some of t h e d i s e q u a l i z i n g
e f f e c t s of t h e c u r r e n t g r a n t -in-aid
system.
o Turnbacks p r o v i d e a means t o permanently augment t h e t a x bases of s t a t e
and l o c a l governments, which would improve t h e c e r t a i n t y and p r e d i c t a b i l i t y of s t a t e and l o c a l revenues.
o The e x c i s e t a x e s c o n s i d e r e d f o r r e l i n q u i s h m e n t i n t h i s s t u d y a r e not a s
r e s p o n s i v e t o economic growth and p r i c e i n f l a t i o n a s o t h e r f e d e r a l t a x e s
l a r g e l y because t h e former a r e not
basis.
c u r r e n t l y l e v i e d on a n ad valorem
S t a t e s may choose t o i n c r e a s e t h e r e s p o n s i v e n e s s of c o l l e c t i o n s
from t h e s e e x c i s e t a x e s by making them ad valorem, as some have a l r e a d y
done.
o Turnbacks, i f d e s i r e d , provide a way t o reduce t h e f e d e r a l d e f i c i t i n a
manner t h a t minimizes t h e f i s c a l e f f e c t s on s t a t e and l o c a l governments.
Chapter 2
WHY TURNBACKS?
INTRODUCTION
Whether measured i n d o l l a r s o r a s numbers of programs, f e d e r a l g r a n t s - i n a i d t o s t a t e s and l o c a l i t i e s have s k y r o c k e t e d i n t h e l a s t 30 y e a r s .
ACIR's
r e p o r t s , a l o n g w i t h o t h e r s t u d i e s i n i n t e r g o v e r n m e n t a l r e l a t i o n s , have r e p e a t e d l y p o i n t e d o u t t h a t t h i s change i n t h e r o l e of t h e f e d e r a l government h a s
a c t e d t o unbalance t h e f e d e r a l system, i n c r e a s i n g t h e f i s c a l and p o l i t i c a l
power of t h e n a t i o n a l government r e l a t i v e t o i t s s t a t e and l o c a l p a r t n e r s ;
b r i n g i n g about a n i n t r i c a t e accumulation of program c o n s t r a i n t s and r e q u i r e ments; sometimes impeding o f f i c i a l s ' r e s p o n s i v e n e s s and a c c o u n t a b i l i t y t o t h e
c i t i z e n r y ; and o f t e n d i s t o r t i n g t h e p u b l i c c h o i c e s made by t h e s e v e r a l p o l i t i e s involved i n i n t e r g o v e r n m e n t a l programs (ACIR,
A C I R and i t s p r e d e c e s s o r
terms a s
"overload,
"
1980a-e;
ACIR,
1981a-d).
( t h e Kestnbaum Commission), u s i n g s u c h s h o r t h a n d
" c o n g e s t i o n , " and " i n t r u s i v e r e q u i r e m e n t s , " have l o n g
urged changes i n t h e system of f e d e r a l g r a n t s , i n o r d e r t o a c h i e v e s i m p l i f i c a t i o n and d e c e n t r a l i z a t i o n (ACIR, 1978; 1 9 8 1 ~ ) . More r e c e n t l y , t h e p r e s s u r e
of huge f e d e r a l budget d e f i c i t s has occasioned cutbacks i n g r a n t funding t h a t
have l e d t o a k i n d of de f a c t o d e c e n t r a l i z a t i o n wherein s t a t e and l o c a l governments a r e now Einancing program r e s p o n s i b i l i t i e s f o r m e r l y funded by Washington.
T h i s r e p o r t c o n s i d e r s a s y s t e m a t i c mechanism f o r d e v o l u t i o n by examining
turnbacks of
revenues and r e s p o n s i b i l i t i e s .
t h e f e d e r a l government's
t i e s and
by
T h i s would be accomplished by
withdrawing from a number of program r e s p o n s i b i l i -
simultaneously
relinquishing
s e l e c t e d f e d e r a l revenue b a s e s .
Turnbacks, however, a r e only one mechanism f o r a c h i e v i n g f i s c a l and programmatic d e c e n t r a l i z a t i o n .
Appendix 3
approaches t o decent r a l i z a t i o n ,
contains
a
discussion
of
alternative
comparing and c o n t r a s t i n g t h e s t r e n g t h s and
weaknesses of each.
This r e p o r t contemplates t h e r e t u r n oE t h r e e k i n d s nE r e s p o n s i b i l i t i e s
t o t h e s t a t e am1 l o c a l l e v e l s :
o
t h e r e s p o n s i h i l i t y of d e c i d i n g whether and i n what amounts t o provide
-9
-
c e r t a i n goods and s e r v i c e s t h a t c u r r e n t l y a r e f e d e r a l l y s u p p o r t e d ;
o
t h e r e s p o n s i b i l i t y of d e c i d i n g how t o p r o v i d e them; and
o
t h e r e s p o n s i b i l i t y f o r r a i s i n g t h e revenue t o f i n a n c e any i n c r e a s e i n
s t a t e and l o c a l government a c t i v i t y n e c e s s i t a t e d by t h e s e s t a t e and
l o c a l decisions.
I n o r d e r t o f a c i l i t a t e t h e r e t u r n of t h e s e r e s p o n s i b i l i t i e s and t o provide
s t a t e s and l o c a l i t i e s a c c e s s t o t h e revenue s o u r c e s n e c e s s a r y t o assume them,
t h e r e p o r t s u g g e s t s a l t e r n a t i v e ways f o r t h e n a t i o n a l government simultaneo u s l y t o disengage i t s e l f from, o r reduce i t s l e v e l of a c t i v i t y i n a v a r i e t y
of d i f f e r e n t spending and t a x i n g a r e a s .
These a l t e r n a t i v e c o u r s e s of a c t i o n
a r e r e f e r r e d t o a s "turnback" o p t i o n s .
CONTEMPORARY PERSPECTIVES ON THE
NEED
FOR INCREASED DECENTRALIZATION
Federalism i n Need of Reform
Underlying t h e d e c i s i o n t o pursue turnback o p t i o n s a r e two p r o p o s i t i o n s
related t o federalism:
o
The n a t i o n a l government over time has a c q u i r e d a n a r r a y of f u n c t i o n a l
and f i n a n c i a l r e s p o n s i b i l i t i e s t h a t a r e more a p p r o p r i a t e l y assumed by
c i t i z e n s a t t h e s t a t e and l o c a l l e v e l s through o t h e r i n s t i t u t i o n s - e i t h e r by d e l e g a t i n g t h e s e r e s p o n s i b i l i t i e s t o t h e i r s t a t e and l o c a l
p u b l i c s e c t o r s o r by l e a v i n g them t o be assumed by s o c i e t y ' s p r i v a t e
s e c t o r o r by v o l u n t e e r s ;
o
Regarding t h e set of r e s p o n s i b i l i t i e s t o be devolved: c i t i z e n s ' choic e s on whether t h e y a r e b e t t e r assumed i n t h e p u b l i c s e c t o r , a s opposed t o t h e p r i v a t e s e c t o r o r by v o l u n t e e r s , can b e t t e r be a r t i c u l a t ed through t h e s t a t e and l o c a l p o l i t i c a l p r o c e s s t h a n i n Washington.
These p r o p o s i t i o n s d e r i v e from a view t h a t t h e c u r r e n t f e d e r a l system
e x h i b i t s s e v e r a l u n d e s i r a b l e a t t r i b u t e s . I n p a s t work, A C I R h a s c h a r a c t e r i z e d
t h e present
federal
system a s
"congested"
1 9 8 1 ~ ) . Such a system, i n t h e view of
and
"overloaded"
t h e Commission,
(e.g.,
contributes
ACIK,
t o an
unmanageable n a t i o n a l p o l i t i c a l agenda, promotes undue f e d e r a l i n t e r f e r e n c e
i n t h e o p e r a t i o n of s t a t e and l o c a l governments, weakens p o l i t i c a l and f i s c a l
a c c o u n t a b i l i t y a t a l l l e v e l s of government, and f r e q u e n t l y produces incongrue n c e a t t h e s t a t e and l o c a l l e v e l s between c i t i z e n p r e f e r e n c e s and t h e goods
and s e r v i c e s provided by t h e i r governments.
This perspective implies t h a t a
major r e o r d e r i n g of governmental r e s p o n s i b i l i t i e s i s i n o r d e r .
-10-
Although t h e Commission has long embraced t h i s view, i t h a s never a r t i c u l a t e d i n c o n c i s e form t h e c r i t e r i a it a p p l i e d t o come t o t h i s conclusion.
It i s p o s s i b l e , however, t o s y n t h e s i z e p a s t A C I R work t o s p e c i f y t h e i m p l i c i t
c r i t e r i a t h e Commission has looked t o o v e r t h e y e a r s t o e v a l u a t e t h e t n t e r g o v Such a s y n t h e s i s i s provided below i n F i g u r e 2.1 i n t h e
ernmental system.
form of
a t e s t t o determine whether t h e i n t e r g o v e r n m e n t a l system s t a n d s i n
need of reform.
Contrary Views
Not everyone a g r e e s with t h e Commission t h a t t h e i n t e r g o v e r n m e n t a l s y s tem i s i n need of i n c r e a s e d p o l i t i c a l d e c e n t r a l i z a t i o n .
of t h e
c u r r e n t system would hold t h a t ,
f o r a l l of
A contrary appraisal
its flaws,
the current
system i s working about a s w e l l a s could be hoped, given t h e c o m p l e x i t i e s of
T h i s view would most l i k e l y s t a n d by t h e maxim " i f i t
American f e d e r a l i s m .
a i n ' t broke, d o n ' t f i x i t . "
Some o b s e r v e r s , l e s s sanguine b u t s t i l l p o s i t i v e ,
view t h e c u r r e n t f e d e r a l system a s b a s i c a l l y sound, r e q u i r i n g only increment a 1 , program-by-program
adjustments t o improve upon economic e f f i c i e n c y , ad-
m i n i s t r a t i v e e f f e c t i v e n e s s , and polf t i c a l a c c o u n t a b i l i t y (e.g.
, Nathan, 1981).
Turnbacks and o t h e r s i m i l a r comprehensive reforms a r e s e e n a s sweeping s o l u tions t o a set
of
problems
that
a r e amenable
t o incremental
adjustment.
S t i l l a n o t h e r p e r s p e c t i v e a s s e r t s t h a t t h e system needs reform but f o r
e n t i r e l y d i f f e r e n t reasons.
Proponents of t h i s view would a s s e r t t h a t t h e
r e a l problem w i t h t h e c u r r e n t i n t e r g o v e r n m e n t a l system i s t o o l i t t l e , n o t t o o
much, f e d e r a l c o n t r o l (Anton, 1985).
The system f a i l s t o a c h i e v e t h e n a t i o n a l
purposes f o r which i t gas c o n s t r u c t e d , because much of t h e p r e s e n t g r a n t - i n a i d money is i n e f f e c t used by s t a t e s and l o c a l i t i e s t o s h i f t t h e i r own f i n a n c i a l burdens t o a l a r g e r n a t i o n a l t a x base.
O f more concern t h a n a n i n -
congruence l o c a l l y between c i t i z e n s ' p r e f e r e n c e s and s e r v i c e s provided i s a
l a c k of congruence between t h e n a t i o n a l o b j e c t i v e s of g r a n t programs and t h e
e f f e c t s of
f e d e r a l f u n d i n g on s t a t e and l o c a l f i s c a l b e h a v i o r , which some
s t u d i e s have found t o be s l i g h t (Gramlich, 1985; U.S.
1985).
This group of
Department of T r e a s u r y ,
c r i t i c s a r g u e s t h a t t h e a d m i n i s t r a t i v e d i f f i c u l t y of
i n d i r e c t f i n a n c i n g and t h e d e f i c i e n c i e s i n g r a n t d e s i g n combine t o produce a
grant-in-aid
system t h a t , t a k e n a s a whole, has e f f e c t s s i m i l a r t o a g i a n t
g e n e r a l f i s c a l a s s i s t a n c e program,
a l b e i t a system t h a t l a c k s
designed t a r g e t i n g c r i t e r i a and t h a t
consciously
c o s t s v a s t l y more t o a d m i n i s t e r t h a n
does t h e e x i s t i n g General Revenue S h a r i n g program.
-1 1-
F i g u r e 2.1
EVALUATION OF THE INTERGOVERNMENTAL SYSTEM:
CRITERIA FOR DETERMINING WHETHER REFORM I S R E Q U I R E D
Reform i s c a l l e d f o r i f t h e e x i s t i n g i n t e r g o v e r n m e n t a l system
t h e following general condition:
Condition of Reform:
meets
Taken t o g e t h e r , t h e a c t i v i t i e s of t h e n a t i o n a l
government combine t o encumber t h e f e d e r a l s y s tem unduly, o r i f they combine t o o v e r l o a d t h e
n a t i o n a l p o l i t i c a l process.
(The C o n d i t i o n of Reform i s s a t i s f i e d i f any one of t h e f o l l o w i n g
c r i t e r i a i s met.)
C r i t e r i o n A:
Taken t o g e t h e r , t h e a c t i v i t i e s of t h e n a t i o n a l
government s i g n i f i c a n t l y weaken s t a t e o r l o c a l
governments' p o l i t i c a l and f i s c a l a c c o u n t a b i l i t y
t o t h e i r c i t i z e n s by d r i v i n g a wedge between
t a x i n g and spending choices.
C r i t e r i o n B:
O v e r a l l , t h e n a t i o n a l government 's a c t i v i t i e s
work broadly and u n j u s t i f i a b l y t o t h w a r t t h e
w i l l of l o c a l m a j o r i t i e s .
C r i t e r i o n C:
Taken t o g e t h e r , t h e n a t i o n a l government 's a c t iv i t i e s burden s u b n a t i o n a l governments w i t h i n t r u s i v e requirements and onerous demands o r procedures; i . e . , t h e a u t h o r i t y of s t a t e s o r l o c a l i t i e s i s s o c i r c u m s c r i b e d a s t o hamper e f f e c t i v e
governance and r e s p o n s i v e n e s s t o t h e i r c i t i z e n s .
C r i t e r i o n D:
Taken t o g e t h e r , t h e i n t e r g o v e r n m e n t a l a c t i v i t i e s
of t h e n a t i o n a l government weaken t h e a b i l i t y of
s t a t e and l o c a l governments t o a c h i e v e f i s c a l
discipline within t h e i r p o l i t i c a l processes.
C r i t e r i o n E:
An i n t r i c a t e accumulation of a c t i v i t i e s by t h e
n a t i o n a l government, c o n s i d e r e d a s a whole, i m pedes improvement of f e d e r a l l y funded programs
o r t h r e a t e n s t h e o v e r a l l e f f i c i e n c y of t h e i n tergovernmental system.
C r i t e r i o n F:
O v e r a l l , t h e n a t i o n a l government's
intergovernmental a c t i v i t i e s e s t a b l i s h such e x t e n s i v e e n t i tlement p r i v i l e g e s o r p r o h i b i t i o n s t h a t they
s t i m u l a t e s u b n a t i o n a l governments, p r i v a t e i n s t i t u t i o n s o r c i t i z e n s c o n t i n u a l l y t o s e e k comparable entitlements or r e l i e f i n reaction.
The c r i t i c s d i v i d e on t h e s o l u t i o n t o t h e problems t h e y i d e n t i f y .
At
one end of t h e s p e c t r u m , some would c o n t e n d t h a t t h e a d m i n i s t r a t i v e and g r a n t
d e s i g n problems w i t h t h e c u r r e n t s y s t e m c a n be c o r r e c t e d , and t h e y u r g e i n cremental o r wholesale
grant
r e f o r m r a t h e r t h a n d e v o l u t i o n (Anton,
1985).
Those who occupy t h e o p p o s i t e end of t h e s p e c t r u m w o u l d s e e t h e a d m i n i s t r a t i v e
and g r a n t d e s i g n problems a s endemic t o t h e p o l i t i c a l p r o c e s s , a n d t h e y would
a r g u e f o r d e v o l u t i o n and revenue t u r n o v e r s a s a "second b e s t " s o l u t i o n t o
Between t h e two extremes i s a group who would
increased federal control.
a r g u e t h a t t h e e x i s t i n g s y s t e m i s s o g r o s s l y i n e f f i c i e n t t h a t major d e v o l u t i o n
and revenue t u r n o v e r s may be a c h i e v e d w i t h s u f f i c i e n t r e s o u r c e s " l e f t o v e r "
t o p e r m i t t h e n a t i o n a l government t o r e d e s i g n a v e r y few i n t e r g o v e r n m e n t a l
programs t o
achieve
what
Congress
considers
the
most
important
national
objectives.
To a d d r e s s t h e s e d i f f e r i n g p e r s p e c t i v e s would r e q u i r e n o t h i n g s h o r t of a
d e t a i l e d e x a m i n a t i o n of t h e c u r r e n t s t a t e of American f e d e r a l i s m , which i s
c l e a r l y beyond t h e s c o p e of
t h i s report.
about t h i s debate i s p e r t i n e n t here.
Rut one i n t e r e s t i n g o b s e r v a t i o n
A s u b s t a n t i a l number of c r i t i c s of t h e
c u r r e n t i n t e r g o v e r n m e n t a l s y s t e m may f i n d t u r n b a c k s a common s o l u t i o n t o t h e
problems t h e y p e r c e i v e ,
differently.
e v e n though
they
characterize
t h e problems
quite
Given t h i s f a c t and t h e r e a l i t y t h a t a s i g n i f i c a n t number of
policymakers b e l i e v e t h e s y s t e m i s i n need of
f a i r l y e x t e n s i v e reform,
an
e x a m i n a t i o n of how such a r e f o r m might be d e s i g n e d and implemented is warranted.
FACILITATING DEFICIT REDUCTION
There i s
another
important
rationale
f o r examining t u r n b a c k s a t t h i s
time. The f i s c a l r e a l i t y of c u r r e n t i n t e r g o v e r n m e n t a l r e l a t i o n s i s t h a t t h e
f e d e r a l grant-in-aid
t h e mid-70s,
s y s t e m h a s been under c o n s t a n t b u d g e t a r y p r e s s u r e s i n c e
and, g i v e n t h e impetus b e h i n d t h e r e c e n t law e n f o r c i n g d e f i c i t
r e d u c t i o n (PL 99-177)
t h e r e is every reason t o expect t h a t f e d e r a l g r a n t s
w i l l c o n t i n u e t o be s u b j e c t t o i n c r e a s e d p r e s s u r e s i n t h e f u t u r e .
Graph 2.1
c o n t a i n s two s e t s of b a r s , showing two s o u r c e s of s t a t e - l o c a l s p e n d i n g : owns o u r c e revenues and i n t e r g o v e r n m e n t a l a i d .
S i n c e 1978 t h e combined h e i g h t of
t h e two s e t s of b a r s h a s been s u b s t a n t i a l l y c o n s t a n t , i n d i c a t i n g t h a t i n r e a l
t e r m s , o v e r a l l s p e n d i n g of s t a t e s and l o c a l i t i e s has s t a y e d unchanged.
Rut
t h e r e l a t i v e i m p o r t a n c e oE s o u r c e s of s p e n d i n g h a s a l t e r e d d r a m a t i c a l l y . Owns o u r c e revenues have i n c r e a s e d a t t h e same time t h a t i n t e r g o v e r n m e n t a l a s s i s -13-
tance has declined.
I n 1978 i n t e r g o v e r n m e n t a l g r a n t s were e q u a l t o 36.7% of
own-source s p e n d i n g , d e c r e a s i n g t o 26.9% i n 1984.
To d i m i n i s h d e f i c i t s t h a t some p r o j e c t i n t h e $200 b i l l i o n r a n g e , i t i s
certain that
Congress w i l l c o n t i n u e t o s e e k s p e n d i n g r e d u c t i o n s f r o m t h a t
p o r t i o n of t h e d o m e s t i c budget t h a t f i n a n c e s g r a n t s - i n - a i d
governments.
t h e mandate
t o s t a t e and l o c a l
The Commission b e l i e v e s t h a t t u r n b a c k s o f f e r a way t o h e l p meet
for
deficit
reduction
i n an e f f i c i e n t
and e q u i t a b l e manner.
CONCLUSION
Turnbacks t h e n may s e r v e a d u a l p u r p o s e : ( 1 ) t o improve t h e o v e r a l l o p e r a t i o n of t h e f e d e r a l s y s t e m by a c h i e v i n g s i g n i f i c a n t p o l i t i c a l d e c e n t r a l i z a t i o n , and ( 2 ) t o a l l e v i a t e some of t h e F i s c a l p r e s s u r e on t h e n a t i o n a l budget
i n a way d e s i g n e d t o impose mlnimal f i s c a l burdens on s t a t e and l o c a l governments.
Chapter 3
TURNBACKS I N CONTEXT
INTRODUCTION
Before examining how turnback o p t i o n s might be d e s i g n e d , i t i s u s e f u l t o
s e t t h e c o n t e x t i n which t h e s e p r o p o s a l s a r i s e .
cerns i t s e l f
A t i t s c o r e , f e d e r a l i s m con-
w i t h t h e c o n s t i t u t i o n a l d e s i g n of m u l t i l e v e l government--what
James Madison c a l l e d a "compound r e p u b l i c " ( s e e Ostrom,
1971).
The c e n t r a l
concern of f e d e r a l i s m i s how t h e p e o p l e w i l l d e l e g a t e power and a u t h o r i t y
I n t e r g o v e r n m e n t a l r e l a t i o n s i s t h e pro-
among s e p a r a t e l e v e l s of government.
c e s s by which v a r i o u s l e v e l s of government i n t e r a c t i n t h e e x e r c i s e of t h e i r
delegated authority.
THE NEED FOR THEORY
U n f o r t u n a t e l y , a t r u l y coherent t h e o r y of f e d e r a l i s m cannot be s a i d t o
exist.
A t h e o r y e n t a i l s a s e t of i n t e r r e l a t e d p r o p o s i t i o n s t h a t , t a k e n t o -
g e t h e r , have
t h e power
p o l i c y makers--to
t o d e s c r i b e , t o e x p l a i n and--most
predict.
importantly f o r
Given t h e s e t h r e e c a p a b i l i t i e s , a t h e o r y p r o v i d e s
t h e a b i l i t y t o e v a l u a t e a l t e r n a t i v e means t o a c h i e v e a s p e c i f i e d end.
these standards,
extant
theories
of
federalism
are
severely
By
deficient.
I d e a l l y , t h e o r i e s of f e d e r a l i s m would i n f o r m t h e s t u d y of i n t e r g o v e r n mental r e l a t i o n s .
c o s t s of
They would i n c r e a s e our u n d e r s t a n d i n g of t h e b e n e f i t s and
t h e i n e v i t a b l e c o n f l i c t t h a t emerges when independent governments
and p u b l i c o f f i c i a l s compete--because
t h e y compete,
w i t h i n t h e same p o l i t y f o r v o t e s and r e s o u r c e s .
a s w e l l a s cooperate--
Such a t h e o r y would,
for
example, p r e d i c t when t h e c o n f l i c t of c o m p e t i t i o n among governments i s economically e f f i c i e n t ,
e q u i t a b l e , and p r o t e c t i v e of i n d i v i d u a l l i b e r t i e s , and
when such c o m p e t i t i o n i s l i k e l y t o be c o u n t e r p r o d u c t i v e .
Should t h e n a t u r a l
c o m p e t i t i o n of f e d e r a l i s m l e a d t o u n d e s i r a b l e r e s u l t s , a t h e o r y would s u g g e s t
how i n t e r g o v e r n m e n t a l c o o p e r a t i o n and c o o r d i n a t i o n might p r o v i d e a remedy. A t
t h e same time, a w e l l developed t h e o r y would h e l p u s u n d e r s t a n d t h e d u a l t e n dency f o r i n t e r g o v e r n m e n t a l c o o p e r a t i o n and c o o r d i n a t i o n t o d e g e n e r a t e i n t o
c o l l u s i o n among governments a t t h e c i t i z e n s ' expense and a l s o i n t o unintended
c o n c e n t r a t i o n s of power i n t h e hands of t h e s t r o n g e r of t h e f e d e r a l p a r t n e r s .
-1 7-
It would e x p l a i n how i n t e r g o v e r n m e n t a l c o l l u s i o n can prove d e s t r u c t i v e
individual liberty,
of
economic e f f i c i e n c y , and e q u i t y , and how c o n c e n t r a t i o n s
of power i n t h e hands of one p a r t n e r can prove d e s t r u c t i v e t o a b a l a n c i n g of
p o l i t i c a l d e c e n t r a l i z a t i o n and c e n t r a l i z a t i o n , which i s t h e e s s e n c e of f e d e r alism.
F i n a l l y , a t h e o r y would inform u s on how b e s t t o d e s i g n i n s t i t u t i o n s
i n a f e d e r a l system t o r e a p t h e b e n e f i t s of i n t e r g o v e r n m e n t a l c o o p e r a t i o n and
c o o r d i n a t i o n without f a l l i n g prey t o t h e dangers of i n t e r g o v e r n m e n t a l c o l l u s i o n and e x c e s s i v e concent r a t i o n s of power (Brennan and Buchanan, 1980, 19 82).
The l a c k of t h e o r y t h e r e f o r e i s of concern f o r more t h a n academic r e a sons.
Lacking a t h e o r y t h a t p r o v i d e s t h e a b i l i t y t o e x p l a i n and p r e d i c t , i t
i s d i f f i c u l t t o f o r m u l a t e and e v a l u a t e p o l i c y on o t h e r t h a n a n ad hoc b a s i s .
The world, however, does n o t s t a n d s t i l l w h i l e t h e o r i s t s s e e k e x p l a n a t i o n s .
For many, both i n t u i t i o n and p r a c t i c a l e x p e r i e n c e a t governance i n d i c a t e a
need f o r f e d e r a l i s m reform.
O t h e r s , who a r e n o t s o convinced t h a t reform p e r
s e i s r e q u i r e d a g r e e t h a t c e r t a i n changes may be t h e b e s t way f o r a l l p a r t i e s
i n t h e f e d e r a l p a r t n e r s h i p t o cope with t h e c o n t i n u i n g budget p r e s s u r e on
grants-in-aid
t o s t a t e and l o c a l governments.
In short,
the p o l i t i c a l process
may now be p o i s e d
for a significant
change i n d i r e c t i o n w i t h regard t o f e d e r a l spending f o r g r a n t s t o s t a t e and
l o c a l governments, but w i t h l e s s t h a n adequate t h e o r e t i c a l guidance t o d i r e c t
it.
Without a more comprehensive t h e o r y of
federalism, i t is necessary t o
t u r n f o r guidance t o t h e next b e s t t h i n g s - - t h e o r i e s
of f i s c a l and a d m i n i s t r a -
t i v e d e c e n t r a l i z a t i o n and v a r i o u s h i s t o r i c a l "models" of federalism--to
vide a benchmark a g a i n s t which t o compare t h e c u r r e n t s i t u a t i o n .
pro-
Historical
models a r e t a k e n up i n t h e f o l l o w i n g s e c t i o n t o p l a c e t u r n b a c k s i n perspective.
An economic t h e o r y of f i s c a l d e c e n t r a l i z a t i o n i s d i s c u s s e d a s t h e p r i -
mary b a s i s f o r d e s i g n i n g turnback o p t i o n s i n t h e f o l l o w i n g c h a p t e r .
HISTORICAL MODELS OF FEDERALISM
One r e c e n t t a b u l a t i o n has compiled o v e r 300 "models" of f e d e r a l i s m , i t s e l f a n i n d i c a t i o n of
For purposes of
t h e t h e o r e t i c a l d i s a r r a y i n t h e a r e a ( S t e w a r t , 1984).
providing an h i s t o r i c a l perspective, t h i s report
collapses
t h e s u b t l e t y and r i c h n e s s of a l l t h e s e models i n t o t h r e e b a s i c models, one of
which has s e v e r a l v a r i a n t s .
t h e scient-lfi c sense.
These h i s t o r i c a l c o n s t r u c t i o n s a r e not models i n
They a r e ,
rather, heuristic--general
t h e American f e d e r a l system a t d i f f e r e n t p o i n t s i n time.
t h e t h r e e models of f e d e r a l i s m .
-18-
descriptions
of
F i g u r e 3.1 p r e s e n t s
Figure 3.1
HISTORICAL MODELS OF FEDERALISM
Confederation
Federalism
A r t i c l e s of
Confederation
(1777-89)
U.S.
Constitution
( 1789-Present )
Dual F e d e r a l i s m
(1789-Civil War)
I s o l a t e d instances of n a t i o n a l
government i n volvement i n
s t a t e aff a l r s
Source: ACTR s t a f f .
I
Highly l i m i t e d nat i o n a l government
involvement i n
state affairs;
v i r t u a l l y no i n volvement i n l o c a l
af f i a r s
( C i v i 1 WarNew D e a l )
Cooperative F e d e r a l i s m
( C i v i l War-Present)
Centralized
Federalism
Fairly extensive
n a t i o n a l government involvement
i n state affairs;
v i r t u a l l y no i n volvement i n l o cal affairs
(New Deal-?lid 60s)
S t a t e and l o c a l
governments a c t
as adminis t r a t i v e a g e n t s of
the national
government
(Presently i n
certain areas,
e.g., s t a t e p r i s o n s , mental
health facil t t i e s
c l e a n a i r , OSHA)
Extensive n a t i o n a l
government involvement i n both s t a t e
and l o c a l a f f a i r s
(Mid 60s-Present)
S i n c e t h e fundamental c o n c e r n of f e d e r a l i s m i s t h e d i s t r i b u t i o n of aut h o r i t y among l e v e l s of
government, a u s e f u l way t o a n a l y z e t h e h i s t o r i c a l
models is t o examine t h e most i m p o r t a n t ways t h e n a t i o n a l government e x t e n d s
i t s own a u t h o r i t y
and how t h a t e x t e n s i o n i n t u r n a E f e c t s t h e e x e r c i s e
of
s t a t e and l o c a l a u t h o r i t y . The broad c h a r a c t e r i z a t i o n s of f e d e r a l i s m found i n
F i g u r e 3.1 can be a n a l y z e d i n terms of f e d e r a l involvement and i n t e r v e n t i o n
i n s t a t e and l o c a l a f f a i r s a l o n g e a c h of
t h e f o l l o w i n g t h r e e dimensions:
1.
The D e f i n i t i o n and D e l i m i t a t i o n of Each Level of Government's Scope
of A u t h o r i t y . Over time. d e f i n i n g and d e l i m i t i n g t h e scoDe of aut h o r i t y of a l l t h r e e l e v e l s of government h a s become i n c r e a s i n g l y
t h e p r e r o g a t i v e of t h e n a t i o n a l government. I n g e n e r a l , Congress and
t h e c o u r t s have determined t h e s c o p e of a u t h o r i t y of t h e n a t i o n a l
government t o be n e a r l y u n l i n i t e d , w i t h t h e n o t a b l e e x c e p t i o n of
t h o s e s p e c i f i c r e s t r i c t i o n s found i n t h e C o n s t i t u t i o n (e.g. t h e B i l l
of R i g h t s ) . I n a landmark d e c i s i o n ( G a r c i a v. San Antonio Metropoli t a n T r a n s p o r t a t i o n A u t h o r i t y , e t a l . , 105 S.Ct.
1005, 1985) t h e
Court h a s now removed i t s e l f from t a k i n g any r o l e a s a r b i t e r i n t h e
i n e v i t a b l e c o n f l i c t s o v e r t h e a p p r o p r i a t e d i s t r i b u t i o n of a u t h o r i t y
among government a 1 l e v e l s , l e a v i n g t h i s f u n c t i o n t o Congress. The
e f f e c t of such a r e a d i n g of t h e C o n s t i t u t i o n i s t o r e d u c e f e d e r a l i s m
t o a p o l i t i c a l arrangement t o be hammered o u t i n t h e C o n g r e s s i o n a l
Over t i m e , t h e f e d e r a l government h a s
p r o c e s s ( s e e A C I R , 1985b).
a l s o i n c r e a s i n g l y narrowed t h e s c o p e of a u t h o r i t y of s t a t e and l o c a l
governments. Numerous a c t i o n s by Washington h a v e a l t e r e d t h e b a l a n c e of n a t i o n a l , s t a t e , and l o c a l a u t h o r i t y . Among t h e most o b v i o u s
a r e i n t e r p r e t a t i o n s of t h e n e c e s s a r y and p r o p e r c l a u s e and of t h e
1 4 t h Amendment ; s t a t u t o r y e n a c t m e n t s and j u d i c i a l i n t e r p r e t a t i o n s
t h a t preempt s t a t e and l o c a l a u t h o r i t y ; and s t a t u t o r y p r o v i s i o n s
t h a t s e t u n i f o r m n a t i o n a l s t a n d a r d s f o r a wide range of p u b l i c o r
p r i v a t e a c t i v i t y t h a t p r e c l u d e a c o n s c i o u s d e c i s i o n by s t a t e and l o c a l governments t o s e t more o r l e s s s t r i n g e n t o r even no s t a n d a r d s .
2.
The E x e r c i s e of F e d e r a l A u t h o r i t y t h r o u g h L e g i s l a t i o n and S t a t u t o r y
I n t e r p r e t a t i o n i n a Manner That Has a D i r e c t l y P r o s c r i p t i v e o r Pres c r i p t i v e E f f e c t on S t a t e s and T h e i r Local Governments.
Over t i m e
Congress, t h e c o u r t s , and a d m i n i s t r a t i v e a g e n c i e s have s t e a d i l y i n c r e a s e d t h e u s e of o u t r i g h t d i r e c t i v e s t o e x t e n d f e d e r a l a u t h o r i t y
i n t o more and more s t a t e and l o c a l a f f a i r s .
I n t h e p a s t , ACIR has
r e f e r r e d t o t h e s e a s "mandates," a l t h o u g h t h e u s e of j u d i c i a l and
a d m i n i s t r a t i v e d i r e c t i v e s goes w e l l beyond t h e s t a t u t o r y mandates
I l l u s t r a t i v e of t h e s e o t h e r t e c h n i q u e s
on which A C I R h a s f o c u s e d .
a r e j u d i c i a l s t a n d a r d s f o r s t a t e - o p e r a t e d i n s t i t u t i o n s (e.g., p r i s o n s ) and a d m i n i s t r a t i v e r u l e s t h a t implement a s t a t u t e o r c o u r t
d e c i s i o n by h i g h l y p r e s c r i p t i v e o r p r o s c r i p t i v e r e g u l a t i o n s ( t h e
i n t r i c a t e a d m i n i s t r a t i o n of w e l f a r e programs, f o r example).
3.
The Use of t h e Spending Power by Congress I n d i r e c t l y t o Get S t a t e s
and L o c a l Governments To Do What t h e F e d e r a l Government D e s i r e s . Unt i l t h e mid-1970s, i t was s a f e t o conclude t h a t Congress had c o n t i n -
-
-
u a l l y i n c r e a s e d i t s i n d i r e c t c o n t r o l of s t a t e and l o c a l governments '
a c t i v i t i e s by u s e of grants-in-aid--both
a s a c a r r o t t o purchase
t h e i r c o o p e r a t i o n and a s a s t i c k when t h r e a t s of withdrawal of t h e
of t h e a i d could persuade compliance with f e d e r a l wishes.
Since the
mid-70s t h e l e v e l of f e d e r a l a i d h a s t a p e r e d o f f (hence t h e a b i l i t y
t o purchase s t a t e and l o c a l governments' compliance may have dec r e a s e d ) a l t h o u g h t h e r e i s no evidence t h a t t h e u s e of withdrawal
t h r e a t s has diminished.
I n f a c t , a p p l i c a t i o n of t h i s approach i n
c o e r c i n g s t a t e s t o adopt a 21 year-old d r i n k i n g age and t o e n f o r c e a
uniform n a t i o n a l speed l i m i t s u g g e s t t h a t t h i s t e c h n i q u e i s as popul a r a s e v e r among f e d e r a l o f f i c i a l s from a l l p o i n t s a l o n g t h e p o l i t i c a l spectrum.
I n terms of t h e t h r e e dimensions s p e c i f i e d above, a t t e m p t i n g t o l o c a t e
t h e p o s i t i o n of t h e c u r r e n t f e d e r a l system p r e c i s e l y i n F i g u r e 3.1 i s a r i s k y
undertaking.
Most, however, would a g r e e t h a t on a l l t h r e e dimensions t h e cur-
r e n t s y s tem r e s i d e s somewhere between c o o p e r a t i v e f e d e r a l i s m ( c h a r a c t e r i z e d
by p e r v a s i v e n a t i o n a l involvement) and c e n t r a l i z e d f e d e r a l i s m .
For purposes
What i s important
of t h i s r e p o r t , a p r e c i s e l o c a t i o n need not be pinpointed.
i s t o recognize t h a t wherever t h e system may e x a c t l y be a l o n g t h e f i r s t two
dimensions (scope of a u t h o r i t y and d i r e c t f e d e r a l i n t e r v e n t i o n ) , i t seems t o
be c o n t i n u i n g t o move i n t h e d i r e c t i o n of c e n t r a l i z e d f e d e r a l i s m .
Although
i t a l s o i s not easy t o s p e c i f y where t h e system c u r r e n t l y i s with r e s p e c t t o
t h e t h i r d dimension ( i n d i r e c t i n t e r v e n t i o n v i a g r a n t s ) , i t i s apparent t h a t
t h e d i r e c t i o n of movement has a t l e a s t s t a b i l i z e d f o r t h e p r e s e n t .
(Graph 3.1
p o r t r a y s t h e p a s t 14-year t r e n d i n f e d e r a l a i d t o s t a t e and l o c a l governments
i n c o n s t a n t 1972 d o l l a r s . The lower b a r , l i m i t e d t o a i d t o i n d i v i d u a l s , shows
a s t e a d i e r p a t h t h a n t h e upper l i n e , which adds a i d t o governments.
1982 a t
l e a s t , the
r e l a t i v e l y constant
.
a r e a between
t h e two--grants
Some would go f a r t h e r and contend t h a t
t o governments--has
i n terms of
Since
been
federal financial
a i d , t h e movement toward c e n t r a l i z e d f e d e r a l i s m has i n f a c t r e v e r s e d i t s e l f
and i s now running back toward c o o p e r a t i v e f e d e r a l i s m .
q u e n t l y c h a r a c t e r i z e d a s "de f a c t o new f e d e r a l i s m . "
r e c e n t a i d cutbacks a r e misleading:
This t r e n d i s f r e -
Others would a r g u e t h a t
t h e r a p i d i n c r e a s e s of t h e 1970s repre-
s e n t e d a d e v i a t i o n from a long-term t r e n d t o which t h e system i s now r e t u r n ing.
Moreover, many s t a t e and l o c a l o f f i c i a l s p o i n t
out t h a t t h e c o e r c i v e
t h r e a t of fund withdrawal i s a s e f f e c t i v e a s e v e r , even with reduced l e v e l s
of f e d e r a l a i d .
An e l a b o r a t i o n of t h i s debate i s beyond t h e scope of t h e c u r r e n t r e p o r t .
-2 1-
What can be s a i d w i t h some c e r t a i n t y i s t h a t t h e adoption of
significant
turnback packages would begin a r e a l r e v e r s a l of f e d e r a l involvement through
t h e grant-in-aid
mechanism ( i f
t h a t r e v e r s a l has not a l r e a d y o c c u r r e d ) o r
a c c e l e r a t e any new t r e n d i n grants-in-aid
f u n d i n g t h a t might a l r e a d y e x i s t
.
While not r i g o r o u s , t h i s c h a p t e r ' s d i s c u s s i o n may be h e l p f u l i n o r i e n t i n g p o l i c y makers a s they begin t o d e l i b e r a t e on t h e i s s u e of turnbacks.
The
d i s c u s s i o n i s designed t o p l a c e t h e s i g n i f i c a n c e of turnbacks i n p e r s p e c t i v e .
C l e a r l y , i n terms of t h e t h r e e dimensions of f e d e r a l involvement and i n t e r v e n t i o n examined h e r e , turnbacks r e p r e s e n t only a f i r s t s t e p toward more fundamental p o l i t i c a l d e c e n t r a l i z a t i o n .
And t h i s f a c t
c o n s t i t u t e s turnbacks'
g r e a t e s t v i r t u e o r t h e i r most obvious shortcoming, depending on one's view of
t h e need f o r a r e d u c t i o n i n f e d e r a l involvement i n s t a t e and l o c a l a f f a i r s
and t h e d e s i r a b i l i t y of s i g n i f i c a n t i n c r e a s e s i n p o l i t i c a l d e c e n t r a l i z a t i o n .
Chapter 4
DESIGNING THE TURNBACK PACKAGES
INTRODUCTION
T h i s c h a p t e r i s based upon t h e i m p o r t a n t a s s u m p t i o n s d i s c u s s e d above:
t h a t increased
is
decentralization
desirable
w o r t h w h i l e approach t o a c h i e v e t h i s g o a l .
and
that
turnbacks
a
offer
Turnbacks a r e viewed a s a means t o
h e l p r e v e r s e t h e t r e n d toward c e n t r a l i z e d f e d e r a l i s m n o t e d i n t h e p r e c e d i n g
chapter.
PROGRAM TURNBACKS
AND
ECONOMIC THEORY
AN
OF
FISCAL DECENTRALIZATION
I n c h o o s i n g t h e f e d e r a l programs t h a t might l e g i t i m a t e l y be c o n s i d e r e d
c a n d i d a t e s f o r d e v o l u t i o n t o s t a t e and l o c a l governments, ACIR developed and
applied a stringent
v i t a l national
interest
test.
This t e s t
derives,
in
l a r g e p a r t , from a w e l l developed t h e o r y of f i s c a l d e c e n t r a l i z a t i o n t h a t i s
f r e q u e n t l y and m i s l e a d i n g l y
f e d e r a l i s m " (e. g.
,
referred
O a t e s , 19 72).
to
as
an
The t h e o r y 's
f o r m u l a t e d and p r o v i d e u s e f u l - - i f
"economic t h e o r y
proposit ions
limited--guidance
of
Fiscal
are precisely
i n making d e t e r m i n a t i o n s
r e g a r d i n g t h e a p p r o p r i a t e l e v e l of government t o p r o v i d e p a r t i c u l a r goods and
services efficiently.
I t s g r e a t e s t limitation--and
t h e o r y of f i s c a l d e c e n t r a l i z a t i o n ,
system--is
why i t r e p r e s e n t s o n l y a
n o t of a u t h o r i t y a l l o c a t i o n i n a f e d e r a l
t h a t t h e t h e o r y does n o t d i s t i n g u i s h between t r u e f e d e r a l s y s t e m s
(where s o v e r e i g n t y
resides
i n more t h a n one
u n i t a r y systems of government.
government) and d e c e n t r a l i z e d
I t h a s l i t t l e t o s a y r e g a r d i n g how t h e d i s t r i -
b u t i o n of t h e power t o t a x i n a f e d e r a l s y s t e m a f f e c t s t h e d i s t r i b u t i o n of
p o l i t i c a l power.
Moreover,
it
has
been pointed
out
that
many p o l i t i c a l
phenomena ( s u c h a s l o b b y i n g by i n t e r e s t g r o u p s and l e g i s l a t i v e l o g r o l l i n g )
t e n d t o u n d e r c u t t h e t h e o r y 's p r e s c r i p t i o n s f o r a c h i e v i n g e f f i c i e n c y (e. g.
Rrennan and Buchanan,
1980, 1982).
,
The t h e o r y i s s i l e n t on t h e q u e s t i o n of
i n d i v i d u a l r i g h t s and l i b e r t i e s .
Although r e s t r i c t e d i n i t s a p p l i c a b i l i t y , a n economic t h e o r y of
d e c e n t r a l i z a t i o n does o f f e r g u i d a n c e i n two g e n e r a l ways.
p r o v i d e s a framework
for
c h o o s i n g (on t h e
-25-
basis
of
fiscal
F i r s t , the theory
allocative
efficiency
c r i t e r i a ) which l e v e l s of government s h o u l d p r o v i d e what p a r t i c u l a r goods and
services--the
assignment of f u n c t i o n s problem--under
s t a t e d conditions.
'hen
e x i s t i n g f e d e r a l programs and a c t i v i t i e s a r e a n a l y z e d w i t h i n t h i s framework,
one of t h r e e p o s s i b i l i t t e s a r i s e s :
The p r o g r a m / a c t i v i t y i s d e t e r m i n e d t o he
more a p p r o p r i a t e l y c a r r i e d on s o l e l y a t t h e n a t i o n a l l e v e l ;
state/local level;
or
it
is determined t h a t
the
national
s t a t e l l o c a l governments s h o u l d s h a r e i n p r o v i s i o n of
solely a t the
government
and
t h e good o r s e r v i c e .
Second, once a c h o i c e on f u n c t i o n a l assignment i s made, t h e t h e o r e t i c a l
framework s u g g e s t s , where a p p r o p r i a t e , how programs of s h a r e d r e s p o n s i b i l i t y
s h o u l d be s t r u c t u r e d t o a c h i e v e e f f i c i e n c y ; i . e . ,
open-ended
matching g r a n t s ,
h i g h l y s p e c i f i c c a t e g o r i c a l g r a n t s , g e n e r a l purpose f i s c a l a s s i s t a n c e , and s o
forth.
This
r e p o r t does n o t ,
however,
concern i t s e l f
programs deemed t o be a s h a r e d r e s p o n s i b i l i t y .
with the design
of
O t h e r p r e v i o u s and ongoing
work by A C I R on a l l o c a t i o n f o r m u l a s a d d r e s s many of t h e s e d e s i g n y r 2 b l e n s as
does a c u r r e n t p r o j e c t on w e l f a r e r e f o r m (ACIR, 1964; X C I K , 1985a).
The cur-
r e n t r e p o r t concent r a t e s e x c l u s i v e l y on app Lying a n economic t h e o r y of f i s c a l
d e c e n t r a l i z a t i o n t o s e l e c t t h o s e e x i s t i n g f e d e r a l programs t h a t might l e g i t i m a t e l y be
returned
in
their
entirety
to
state
and
local
governments.
The p o l i c y a p p l i c a t i o n of any s o c i a l s c i e n c e t h e o r y i s i n h e r e n t l y subj e c t t o debate.
Even two economists i n p e r f e c t agreement on t h e b a s i c t h e o r y
may f i n d t h e m s e l v e s i n s u b s t a n t i a l d i s a g r e e m e n t on t h e i r t h e o r y ' s a p p l i c a t i o n .
The a p p l i c a t i o n t o t u r n b a c k s i s no d i f f e r e n t .
Some w i l l Eind t h e l i s t of pro-
grams s e l e c t e d h e r e f o r d e v o l u t i o n t o be t o o i n c l u s i v e .
Some w i l l f i n d i t
t o o r e s t r i c t i v e , while s t i l l o t h e r s w i l l argue t h a t t h e theory suggests t h a t
some of t h e programs on t h e l i s t are now p o o r l y d e s i g n e d and t h a t t h e y s h o u l d
be r e d e s i g n e d p r o p e r l y as s h a r e d r e s p o n s i b i l i t i e s , n o t devolved.
The u s e of
a t h e o r y , even a w e l l developed t h e o r y , does n o t g u a r a n t e e t o t a l agreement on
which l e v e l s of government s h o u l d have r e s p o n s t b i l i t y f o r which programs.
d o e s , however,
It
e s t a b l i s h a common framework i n which t o conduct t h e d e b a t e
o v e r which programs
s h o u l d be
The v i t a l n a t i o n a l
r e a s s i g n e d t o s t a t e and l o c a l
i n t e r e s t test,
a s developed by A C I Q ,
governments.
consists
of
t h r e e g e n e r a l c o n d i t i o n s a g a i n s t which f e d e r a l g r a n t programs were - t e s t e d . I n
o r d e r f o r programs t o be c o n s i d e r e d a p p r o p r i a t e l y t h e s o l e o r p a r t i a l p r o v i n c e
of t h e f e d e r a l government, t h e governmental a c t i v i t i e s performed had t o meet
a l l three conditions.
If not,
t h e program w a s p l a c e d on t h e l i s t of c a n d i -
d a t e s t o be r e t u r n e d t o s t a t e s and l o c a l i t i e s .
-26-
An o u t l i n e of t h e v i t a l n a t i o n a l i n t e r e s t t e s t appears i n F i g u r e 4.1.
A PRAGMATIC APPROACH
TURNING OVER REVENUE SOITRCES:
The d i s t r i b u t i o n of
revenue s o u r c e s i n a f e d e r a l s y s t e m c o n s t i t u t e s a
t o p i c i n i t s e l f a l t h o u g h i t i s a t o p i c i n a d e q u a t e l y a d d r e s s e d by an economic
t h e o r y of d e c e n t r a l i z a t i o n ( b u t s e e McLure, 1983).
r e p o r t t o improve t a x policy--although
turnback approach.
Rather,
It i s not covered i n t h i s
t h i s may be a s i d e - b e n e f i t
revenue s o u r c e s
a r e considered
of
the
f o r devolution
based on t h e assumption t h a t c u r r e n t l y , i n p r o v i d i n g t h e a r r a y of goods and
s e r v i c e s t o be t u r n e d back, t h e n a t i o n a l government t a x e s a t a l e v e l g r e a t e r
t h a n i t would, ceteris p a r i b u s , i f such goods and s e r v i c e s were n o t provided
by t h e n a t i o n a l government.
Hence, i t i s reasoned, when program r e s p o n s i b i l -
i t i e s a r e devolved t o s t a t e and l o c a l governments,
s o t o o s h o u l d a revenue
s o u r c e used by t h e n a t i o n a l government t o f i n a n c e t h o s e r e s p o n s i b i l i t i e s be
devolved i n
a manner
that
a v o i d s unduly
A p p l i c a t i o n of t h e t h e o r y of
increasing overall
tax
burdens.
f i s c a l d e c e n t r a l i z a t i o n r e f e r r e d t o above
does not n e c e s s a r i l y r e q u i r e t h e r e t u r n of revenue s o u r c e s t o s t a t e and l o c a l
governments.
To a c h i e v e
the type
of
decentralization
it
concerns
itself
w i t h , i t may be a p p r o p r i a t e t o f i n a n c e l o c a l l y d e l i v e r e d s e r v i c e s c e n t r a l l y
through block g r a n t s , revenue s h a r i n g , or o t h e r means.
grams could
simply be
r e p e a l e d without
concomitant
A l t e r n a t i v e l y , pro-
revenue
returns.
The
premise of t u r n b a c k s , a s developed h e r e , however, s t a t e s t h a t what i s being
sought i s t r u e p o l i t i c a l d e c e n t r a l i z a t i o n , n o t merely f i s c a l and a d m i n i s t r a tive decentralization.
Therefore,
the
only
w i t h t h i s g o a l i s t o t u r n over t o s t a t e - l o c a l
i t y t o tax,
along with
the responsibility
long-term
solution
consistent
governments t h e enhanced a b i l t o make e x p e n d i t u r e d e c i s i o n s .
Such t r u e d e c e n t r a l i z a t i o n r e q u i r e s devolving c u r r e n t f e d e r a l revenue s o u r c e s
a s a component of a comprehensive turnback package.
MAKING REVENUE DEVOLUTION PERMANENT
I n t h e o r y , t h e turnback approach o f f e r s a way t o i n c r e a s e p o l i t i c a l dec e n t r a l i z a t i o n by a simultaneous s h i f t i n g of t a x bases and r e s p o n s i b i l i t i e s
from t h e n a t i o n a l t o t h e s t a t e and l o c a l l e v e l s .
U n f o r t u n a t e l y , such a s h i f t
may be viewed a s temporary by v o t e r s and by s t a t e and l o c a l o f f i c i a l s .
l e g i t i m a t e concern a r i s e s t h a t ,
without
some g u a r a n t e e of
permanency,
i n i t i a l s h i f t may r e s u l t i n an u n d e s i r a b l e outcome i n t h e f u t u r e .
-2 7-
A
the
Figure
I
THE TEST OF VITAL NATIONAL INTEREST: NECESSARY AND SUFFICIENT
( S a t i s f a c t i o n of each of t h e f o l l o w i n g c o n d i t i o n s i s r e q u i r e d t o
j u s t i f y n a t i o n a l government a c t i v i t y . A c o n d i t i o n i s s a t i s f i e d
only i f t h e a p p r o p r i a t e c r i t e r i a a r e met under e a c h . )
Condition 1
(Constitutionality)
I
II
The a c t i v i t y i s , under c u r r e n t i n t e r p r e t a t i o n s of t h e
C o n s t i t u t i o n , w i t h i n t h e c o n s t i t u t i o n a l a u t h o r i t y of
t h e n a t i o n a l government.
(Condition 1 i s s a t i s f i e d i f t h e f o l l o w i n g c r i t e r i o n i s met.)
C r i t e r i o n 1.1:
Condition 2
(~arrantability)
There e x i s t s no p r o v i s i o n i n t h e U.S. C o n s t i t u t i o n
t h a t s p e c i f i c a l l y p r o h i b i t s t h e n a t i o n a l government
from u n d e r t a k i n g t h e a c t i v i t y .
The a c t i v i t y i s w a r r a n t e d by t h e p r e s e n c e of a probl e m of n a t i o n a l s c o p e , o r s i g n i f i c a n t l y l a r g e regiona l scope, t h a t r e q u i r e s f o r i t s s o l u t i o n some measure
of n a t i o n a l c o n t r o l o v e r , s t i m u l a t i o n o f , o r coordin a t i o n among subnat i o n a l governments, p r i v a t e i n s t i tutions, or citizens.
(Condition 2 i s s a t i s f i e d i f a t l e a s t one of t h e f o l l o w i n g c r i t e r i a i s met.)
C r i t e r i o n 2.1:
I n t h e absence of a c t i v i t y by t h e n a t i o n a l government, a c t i v i t i e s of s u b n a t i o n a l governments, p r i v a t e
i n s t i t u t i o n s o r c i t i z e n s would produce s i g n i f i c a n t
i n t e r s t a t e e x t e r n a l i t i e s ( i . e. , s p i l l o v e r e f f e c t s ).
C r i t e r i o n 2.2:
Absent a c t i v i t y by t h e n a t i o n a l government, c e r t a i n
goods and s e r v i c e s a t n a t i o n a l s c a l e would be subs t a n t i a l l y underproduced because of t h e i r " p u b l i c
good" p r o p e r t i e s o r because such goods and s e r v i c e s
s e r v i c e s a r e subject t o declining marginal costs.
C r i t e r i o n 2.3:
Absent a c t i v i t y by t h e n a t i o n a l government, t h e a c t i v i t i e s of s u b n a t i o n a l governments, p r i v a t e i n s t i t u t i o n s o r c i t i z e n s would weaken t h e o p e r a t i o n s of nat i o n a l markets.
C r i t e r i o n 2.4:
Absent a c t i v i t y by t h e n a t i o n a l government, subnat i o n a l governments would v i o l a t e t h e c o n s t i t u t i o n a l
r i g h t s of i n d i v i d u a l s .
C r i t e r i o n 2.5:
Absent a c t i v i t y by t h e n a t i o n a l government, t h e r e
would be s i g n i f i c a n t h o r i z o n t a l i n e q u i t i e s among r e s i d e n t s of d i f f e r e n t s t a t e s ; i . e . , i n s t a t e s w i t h r e l a t i v e l y low f i s c a l c a p a c i t y , t a x p a y e r s would have t o
bear i n o r d i n a t e l y high t a x burdens t o f i n a n c e s t a t e l o c a l s e r v i c e s deemed e s s e n t i a l .
CONDITIONS FOR ACT L V I T Y BY THE NATIONAL GOVERNMENT
Condition 3
(Economic and
Programmatic
Efficiency)
The b e n e f i t s ( b o t h economic and noneconomic) d e r i v e d
from a c t i v i t y by t h e n a t i o n a l government exceed t h e
a c t i v i t y ' s costs--not o n l y t h e b u d g e t a r y c o s t t o government h u t a l s o a l l o t h e r c o s t s l i k e l y t o r e s u l t t o
s o c i e t y a s a whole.
F u r t h e r , i t can be e s t a b l i s h e d
t h a t a c t i o n by t h e n a t i o n a l government d e s i g n e d t o
c o r r e c t t h e problem w i l l r e p r e s e n t , i n f a c t , t h e most
eEf i c i e n t a v a i l a b l e s o l u t i o n , i n c l u d i n g no governmental a c t i o n .
( C o n d i t i o n 3 i s s a t i s f i e d o n l y i f each of t h e f o l l o w i n g c r i t e r i a i s met.)
is a t
C r i t e r i o n 3.1:
No workable a l t e r n a t i v e
l e a s t as efficient.
Criterion 3.2:
The o v e r a l l n a t i o n a l b e n e f i t s w a r r a n t e d by C o n d i t i o n
2 must exceed t h e o v e r a l l n a t i o n a l c o s t s oE c a r r y i n g
out the activity.
C r i t e r i o n 3.3:
O t h e r t h a n s p e c i f i c a l l y w a r r a n t e d by C o n d i t i o n 2 , t h e
a c t i v i t y of t h e n a t i o n a l government does n o t a r t i f i c i a l l y induce i n c r e a s e d t a x i n g and s p e n d i n g by subnat i o n a l . governments, p r i v a t e i n s t i t u t i o n s o r c i t i z e n s .
A polity's
capacity t o achieve f i s c a l d i s c i p l i n e is
n o t weakened.
Criterion 3.4:
Without good r e a s o n , t h e a c t i v i t y of t h e n a t i o n a l
government does n o t make u n c e r t a L n t h e f i n a n c i a l s i t u a t i o n s o r o t h e r c i r c u m s t a n c e s of s u b n a t i o n a l governments, p r i v a t e i n s t i t u t i o n s o r c i t i z e n s .
Criterion 3.5:
An a c t i v i t y of t h e n a t i o n a l government does n o t burden s u b n a t i o n a l governments w i t h i n t r u s i v e r e q u i r e ments and onerous demands o r p r o c e d u r e s .
The a u t h o r i t y of s t a t e s and l o c a l i t i e s i s not s o c i r c u m s c r i b e d
a s t o hamper e f f e c t i v e governance and r e s p o n s i v e n e s s
t o their citizens.
C r i t e r i o n 3.6:
The a c t i v i t y by t h e n a t i o n a l government does n o t s i g n i f i c a n t l y weaken any government's p o l i t i c a l and f i s c a l a c c o u n t a b i l i t y t o i t s c i t i z e n s hy d r i v i n g a wedge
between t a x i n g and s p e n d i n g c h o i c e s .
C r i t e r i o n 3.7:
An a c t i v i t y of t h e n a t i o n a l government
t o national
activity
does n o t work
b r o a d l y and u n j u s t i f i a b l y t o t h w a r t t h e w i l l of l o c a l
majorities.
-29-
I n l i g h t of a c o n t i n u i n g d e f i c i t problem a t t h e n a t i o n a l l e v e l , v o t e r s
and s t a t e and l o c a l o f f i c i a l s may f e a r t h a t r e l i n q u i s h m e n t of p a r t o r a l l of
s e l e c t e d f e d e r a l t a x b a s e s may a c t u a l l y l e a d Washington t o move i n t o a new
t a x base i n t h e f u t u r e ; e.g.,
a v a l u e added t a x (VAT) o r a n a t i o n a l s a l e s t a x .
F o r t h i s r e a s o n , i t may be n e c e s s a r y t o p r o v i d e v o t e r s and s t a t e and l o c a l
o f f i c i a l s w i t h a g u a r a n t e e a g a i n s t f u t u r e f e d e r a l encroachment on t r a d i t i o n a l
s t a t e and l o c a l t a x b a s e s o r f e d e r a l r e a s s u m p t i o n of r e l i n q u i s h e d t a x b a s e s .
R a t h e r t h a n s t a t u t o r i l y r e s t r i c t i n g t h e f e d e r a l government's
a b i l i t y t o levy
a g a i n s t s p e c i f i c t a x b a s e s , a more e f f e c t i v e g u a r a n t e e might be a n i r o n c l a d
l i m i t on o v e r a l l t a x c o l l e c t i o n s .
F o r example,
a C o n s t i t u t i o n a l amendment
c o u l d limit t h e p r o p o r t i o n of GNP t h a t t h e n a t i o n a l government may t a k e i n
taxes.
Such a p r o v i s i o n was adopted by t h e U.S.
S e n a t e i n 1982.
THE TAX RELINQUISHMENT APPROACH TO TURNING OVER REVENUES
The approach s e l e c t e d h e r e f o r d e v o l v i n g revenue s o u r c e s i s f o r t h e f e d e r a l government t o r e l i n q u i s h a l l o r p a r t oE a t a x b a s e i t c u r r e n t l y u s e s .
T h i s approach d i f f e r s from t h a t t a k e n i n p a s t A C I R work where a c t u a l new f e d e r a l g r a n t programs were c r e a t e d and dubbed "revenue t u r n b a c k s " (1981e). Othe r t h a n on a t e m p o r a r y , t r a n s i t i o n b a s i s ,
a v o i d e d i n t h e c u r r e n t work.
c r e a t i o n of new g r a n t programs was
For one t h i n g , o n l y t h o s e programs deemed t o be
s o l e l y t h e r e s p o n s i b i l i t y of s t a t e and l o c a l governments were c o n s i d e r e d e l i g i b l e f o r r e t u r n i n t h e f i r s t p l a c e . That b e i n g t h e c a s e , i t i s c o n t r a d i c t o r y
t o t u r n around and c r e a t e a new f e d e r a l g r a n t program, a l b e i t a broad b l o c k
g r a n t o r g e n e r a l p u r p o s e f i s c a l a s s i s t a n c e g r a n t , a s a way of f i n a n c i n g t h e
returned responsibilities.
D e s i g n i n g new f e d e r a l g r a n t s c e r t a i n l y would be l e g i t i m a t e a s a means of
a c h i e v i n g i n t e r g o v e r n m e n t a l g r a n t r e f o r m f o r t h o s e a c t i v i t i e s deemed t o be
a p p r o p r i a t e l y s h a r e d a c t i v i t i e s and t h u s a p p r o p r i a t e f o r f i n a n c i n g t h r o u g h
grants-in-aid.
It i s assumed, however, t h a t t h e programs c o n s i d e r e d h e r e a r e
p r o p e r c a n d i d a t e s f o r t o t a l d e v o l u t i o n t o t h e s t a t e and l o c a l l e v e l .
p r o p r i a t e way,
then,
t o ensure t h a t
The ap-
s t a t e and l o c a l governments have t h e
a b i l i t y t o f i n a n c e t h e s e new r e s p o n s i b i l i t i e s i s t o f r e e up t a x b a s e s , n o t
r e t u r n t h e revenue i t s e l f i n t h e form of a new f e d e r a l g r a n t .
Horeover, t h e
way t o g u a r a n t e e t h a t t r u e a u t h o r i t y and r e s p o n s i b i l i t y , n o t mere a d m i n i s t r a t i v e f l e x i b i l i t y , a r e r e t u r n e d i s t o t u r n o v e r t a x b a s e s unencumbered by t h e
p o l i t i c a l s h i e l d of f e d e r a l t a x c r e d i t s .
-30-
Intergovernmental g r a n t reform i s hoth l a u d a b l e and needed.
programs deemed t o
be a p p r o p r i a t e l y
s h a r e d r e s p o n s i b i l i t i e s , much work
g r a n t and formula reform remains t o be done.
qualitatively different
For t h o s e
Such work, however,
on
i s of a
n a t u r e and s e e k s d i f f e r e n t g o a l s From t h i s r e p o r t .
REVENUE SOURCES TO ACCOMPANY PROGRAM TURNBACKS
Chief among t h e p o s s i b l e
revenue
sources
that
s t a t e s (and i n some c a s e s d i r e c t l y t o l o c a l i t i e s )
could
be
are the
devolved t o
federal excise
t a x e s on motor f u e l s , t h e c i g a r e t t e e x c i s e t a x , t h e e x c i s e t a x on a l c o h o l i c
beverages, t h e t e l e p h o n e e x c i s e t a x ,
income t a x .
and a p o r t i o n of t h e f e d e r a l p e r s o n a l
Each has advantages and disadvantages.
t a g e s can be m i t i g a t e d , however.
l e v i e d i n rem ( i . e . ,
For example,
valorem g a s o l i n e
and
excise taxes a r e frequently
p e r g a l l o n o r p e r pack of
valorem, a s a p e r c e n t a g e of t h e s a l e s p r i c e .
other excise taxes,
Sometimes t h e disadvan-
c i g a r e t t e s ) r a t h e r than ad
Many s t a t e s have moved t o ad
making
collections
responsive t o
changes i n p r i c e l e v e l s .
A responsive revenue system i s d e s i r a b l e t o hard-
p r e s s e d budget
t r y i n g t o keep up w i t h
services.
officers,
Automatic t a x
increases,
however,
demands
are less
f o r more p u b l i c
a t t r a c t i v e t o hard-
pressed taxpayers.
F e d e r a l E x c i s e Tax on Motor Fuels
Washington c o l l e c t e d an e s t i m a t e d $13.3 b i l l i o n i n FY 1985 p r i m a r i l y from
t h e f e d e r a l t a x on motor f u e l s hut a l s o from o t h e r highway-related
excises.
The i l l u s t r a t i v e turnback packages of t h e next c h a p t e r each t u r n back a s h a r e
of t h i s t o t a l , which i s expressed a s r e l i n q u i s h i n g a s t a t e d amount from t h e
$.09/gallon t a x on g a s o l i n e .
TJnique among t h e t a x e s considered h e r e f o r d e v o l u t i o n ,
f u e l s is a benefit-based
a t a x on motor
t a x used t o f i n a n c e f e d e r a l programs.
Those u s e r s
who tend t o d e r i v e t h e most b e n e f i t from highway spending ( o r who cause t h e
most wear on t h e r o a d s ) a l s o pay t h e most t o d e f r a y such c o s t s .
r e l a t e d t a x f o r an a c t i v i t y l i k e highway use not
A benefit-
only seems f a i r t o many
p e o p l e , i t a l s o h e l p s impose f i s c a l d i s c i p l i n e , d i s c o u r a g i n g t h e c o n s t r u c t i o n
of expensive b u t r a r e l y used roads.
S e v e r a l f e a t u r e s of f e d e r a l (and many s t a t e s ' ) motor f u e l t a x a t i o n highl i g h t the relationship t o benefits
received.
Refunds
or
credits f o r off-
highway fuel. u s e a r e common, a s a r e a d d i t i o n a l charges f o r t r u c k s , e i t h e r ex-
-31-
c i s e taxes or r e g i s t r a t i o n fees.
on w e i g h t ,
r e l a t e t o trucks
'
These a d d i t i o n a l c h a r g e s , f r e q u e n t l y based
causing more road wear p e r m i l e t h a n a u t o s .
A circumstance t h a t may make i t p o l i t i c a l l y f e a s i b l e t o i n c r e a s e combined motor f u e l t a x e s even above c u r r e n t l e v e l s i s d e c l i n i n g petroleum p r i c -
es.
(i.e.,
Nationwide,
g a s o l i n e averaged
$1.22
per
gallon i n
i n c l u d i n g a l l t a x e s ) , i n c r e a s i n g t o $1.35 i n 1981.
have d e c l i n e d , t o $1.20 p e r g a l l o n f o r 1984.
1980 a t
t h e pump
Thereafter, prices
Although p r e d i c t i n g petroleum
p r i c e s i s p r o b l e m a t i c , O i l S t a t i s t i c s B u l l e t i n i n d i c a t e s a continued d e c l i n e ,
f o r a 1985 average of $1.05.
Tobacco Tax
I n 1984, t h e f e d e r a l government c o l l e c t e d $4.7 b i l l i o n i n tobacco t a x e s .
The major advantage of t h i s t a x from t h e p e r s p e c t i v e of
t h a t p o l i t i c a l l y i t is r e l a t i v e l y easy t o increase.
s t a t e officials is
S t a t e budget o f f i c e r s ,
however, a r e l i k e l y t o be d i s a p p o i n t e d i n t h e l i m i t e d p o t e n t i a l f o r a u t o m a t i c
growth of c i g a r e t t e and o t h e r tobacco t a x a t i o n .
From t h e t a x p a y e r s ' perspec-
t i v e t h i s may be a d e s i r a b l e a t t r i b u t e , though.
Our c a l c u l a t i o n s assume t h e
permanent r a t e of $.08 p e r package of c i g a r e t t e s .
A l c o h o l i c Beverage Taxes
Like t h e tobacco t a x , t h i s revenue s o u r c e does n o t have much a u t o m a t i c
growth p o t e n t i a l . C o l l e c t i o n s f o r 1984 were $5.3 b i l l i o n a t t h e t h e n - e x i s t i n g
rate.
Telephone E x c i s e Tax
This revenue s o u r c e has been c o n s i d e r e d a l o g i c a l c a n d i d a t e f o r t u r n o v e r
t o state-local
governments s i n c e t h e 1950s when t h e J o i n t F e d e r a l - S t a t e
t i o n Committee recommended i t s d e v o l u t i o n .
Ac-
The telephone e x c i s e t a x a l s o h a s
a c o n s i d e r a b l e p o t e n t i a l f o r a u t o m a t i c growth, which should make i t a t t r a c t i v e i n t h e eyes of s t a t e o f f i c i a l s , i f n o t c i t i z e n s .
The major disadvantage
of t h i s revenue s o u r c e i s t h a t i t amounts t o no more t h a n $2 b i l l i o n annuall y , l i m i t i n g i t s u s e f u l n e s s a s a replacement f o r f e d e r a l g r a n t s .
P e r s o n a l Income Tax
I n s e e k i n g t o a c h i e v e g r e a t e r p o l i t i c a l d e c e n t r a l i z a t i o n , t h i s i s prohab l y t h e b e s t t a x t o devolve i n p a r t t o s t a t e and l o c a l governments.
By i n -
t e n t i o n a l l y r e d u c i n g t h e f e d e r a l income t a x burden on t a x p a y e r s and coupling
-32-
t h a t r e d u c t i o n w i t h t h e d e c r e a s e d f e d e r a l e x p e n d i t u r e s t h a t r e s u l t Erom p r o gram t u r n b a c k s ,
the federal
government
automatically strengthens a l l s t a t e
and l o c a l t a x b a s e s .
With i n d i v i d u a l s r i c h e r by t h e amount
of
the federal
income t a x r e d u c t i o n ,
s t a t e s and l o c a l governments would be a b l e t o p i c k up
t h i s i n c r e a s e d w e a l t h throug?l e i t h e r a s t a t e o r l o c a l income t a x , s a l e s t a x e s , p r o p e r t y t a x e s , e x c i s e t a x e s , o r u s e r c h a r g e s and f e e s .
T h e r e would be
no n e c e s s i t y t o i n c r e a s e t h e a g g r e g a t e t a x burden on t a x p a y e r s i n t h e s t a t e s ;
b u t u n l e s s s p e c i f i c a l l y d e s i g n e d t o a v o i d i t , t h e d i s t r i b u t i o n of
the tax
burden w i t h i n s t a t e s would l i k e l y change depending upon t h e t a x e s s t a t e and
l o c a l governrwnts employed t o p i c k up t h e r e t u r n e d income t a x base.
The l a r g e f e d e r a l income t a x c u t s s i n c e 1981 have p r o v i d e d s t a t e s a r e v enue r e t l l r n of t h i s s o r t .
The s i g n i f i c a n t t 3 x i n c r e a s e s a t t h e s t a t e and l o -
cal. l e v e l s i n c e t h a t t i m e h a v e t h e r e f o r e not i n c r e a s e d c i t i z e n s
burden as much a s tiley would have i n t h e a 5 s e n c e of
tions.
'
overall tax
such f e d e r a l t a x redilc-
The p r e c i s e e x t e n t t o which t h i s f a c t made s t a t e and l o c a l t a x p a y e r s
more r e c e p t i v e t o t a x i n c r e a s e s o v e r t h i s p e r i o d d e s e r v e s e m p i r i c a l i n v e s t i g a t ion.
T J n f o r t u n a t e l y , r e v e n u e r e t u r n by c u t t i n g E e d e r a l income t a x a t i o n i s pol i t i c a l l y t h e most d i f f i c u l t t o a c h i e v e . It would r e q u i r e a c a r e f u l e d u c a t i o n
e f f o r t t o make c i t i z e n s aware t h a t t h e p u r p o s e of t h e f e d e r a l income t a x c u t
was not t o p r o v i d e t a x r e l i e f t o t a x p a y e r s ,
but r a t h e r t o t r a n s f e r p a r t
t h e f e d e r a l g o v e r n m e n t ' s income t a x b a s e t o s t a t e and l o c a l governments.
of
Re-
c a u s e t h e r e c e n t f e d e r a l i.ncome t a x c u t s were b i l l e d a s r e a l t a x r e l i e f , n o t
t a x s h i f t s from one l e v e l of government t o a n o t h e r , s t a t e and l o c a l t a x i n c r e a s e s t h a t came i n t h e i r x a k e may n o t h a v e been a s r e a d i l y a c c e p t e d a s i f
t h e s t a t e d i n t e n t i o n had been t o s h i f t p a r t
of
t h e income t a x b a s e t o t h e
s t a t e level.
I n c o n t e m p l a t i n g a p a r t i a l t.1rnover of t h e income t a x b a s e , i t would be
e s p e c i a l l y i m p o r t a n t t o p r o v i d e v o t e r s ~ i t ha n i r o n c l a d g ~ a r a n t e ~( ?s u c h a s a
C o n s t i t u t i o n a l amendment) t h a t a f t e r t h e i n i t i a l t a x s h i f t , t h e n a t i o n a l government would n o t r e c l a i m t h e t a x by f u t u r e income t a x i n c r e a s e s o r by a d d i n g
a n e n t i r e l y new l e v y , such a s a VAT.
I n a d d i t i o n , s t a t e and l o c a l governments
would be o b l i g e d t o p r o v i d e c i t i z e n s advance n o t i c e of how e x a c t l y t h e y i n t e n d e d t o move i n t o t h e
" t a x room" p r o v i d e d by t h e f e d e r a l income t a x c u t .
Based upon t h e r e a c t i o n s of p a r t i c i p a n t s of t h e 4 C I R r e g i o n a l r o u n d t a b l e s on t h e t u r n o v e r of
revenues and r e s p o n s i b i l i t i e s , t h e Commission judged
-33-
t h a t d e v o l u t i o n of a p o r t i o n of t h e p e r s o n a l income t a x was n o t p o l i t i c a l l y
f e a s i b l e a t t h i s time.
T h e r e f o r e , t h e remainder of t h i s r e p o r t c o n s i d e r s t h e
e x c i s e t a x e s a s p o t e n t i a l revenue s o u r c z s t o be t u r n e d o v e r t o t h e s t a t e s .
TRANSITIONAL ARRANGEMENTS, PASS-THKOUGH YXCHAVISMS, AN0 'IXE
POST-DEVOLUTION ENVIKONMEN'I
Having d i s c u s s e d t h e b a s i s f o r c h o o s i n g revenues and p r j g r a m s ( o r t u r n t u r n o v e r can now he
back, two key p r a c t i c a l q u e s t i o n s i n t h i s
considered.
These a r e (1) mechanisms t o c u s h i o n t h e p r o c e s s of d e v o l u t i o n ( t h e problem of
(2)
t r a n s i t i o n ) and
the
pass-through
of
funds
from s t a t e s
to localities.
To be s u c c e s s f u l , d e v o l u t i o n must be d e s i g n e d t o minimize d i s r u p t i o n
the operation
of
s t a t e and
Local
p e r i o d and o v e r t h e l o n g run.
dislocation a t
governments,
Of
the l o c a l level.
particular
Two key
therefore, a r e the transition period
and
both
iq
during the t r a n s i t i o n
concern i s t h e p o t e n t i a l f o r
components of
any tllrrlback p l a n ,
arrangements
f o r the
state-local
p a s s - t h r o u g h of f u n d s from devolved revenue s o u r c e s .
T r a n s i t i o n mechanism
should
not
he
thought
of
merely a s a means
g a i n i n g p o l i t i c a l a c c e p t a n c e of a d e v o l u t i o n p r o p o s a l .
anism s h o u l d e n s u r e t h a t
of
The t r a n s i t i o n mech-
change i s o r d z r l y and p r e d i c t a b l e ;
i n v o l v e d s h o u l d be a b l e t o a d j u s t t o t h e environment of
a l l the a c t a r s
increased p o l i r i c s l
d e c e n t r a l i z a t i o n d u r i n g t h e t r a n s i t i o n pe r i o l ,
The e x c i s e tart b a s e s c o n s i d e r e d i n t h i s r e p o r t t o accompany t?le programs
r e t u r n e d a r e seldom amenable t o d i r e c t l o c a l assumption.
Following t h e re-
p e a l of f e d e r a l g r a n t s t h a t d i r e c t l y b e n e f i t l o c a l s3vertlmerlts ,
l o c a l o f f i-
c i a l s w i l l r e q u i r e some r e a s s u r a n c e a b o u t f i s c a l s u p p o r t d a r i n g t h e t r a n s i t i o n period.
L o c a l o f f i c i a l s n u s t a l s o be convinced t h a t a t t h e end o f t h e
t r a n s i t i o n p h a s e t h e new Eis c a l a r r a n g e m e n t s w i l l p r o v i d e them w i t h a d e q u a t e
r e s o u r c e s t o meet t h e demands of t h e i r c i t i z e n s .
The i n c r e a s e d d e c e n t r a l i z a t i o n
brought
about
by t u r n h a c k s w i l l a l m s t
c e r t a i n l y r e q u i r e s t a t e and l o c a l governments t o r e a d j u s t t h e i r p o l i t i c a l and
f i s c a l interrelationships.
t o be i n c r e a s e d ,
S t a t e f i n a n c i a l a i d t o l o c a l governments may have
r e t a r g e t r e d , o r both.
t h o r i t y may a l s o h a v e t o be r e a d j u s t e d .
State-set
l i m i t s on l o c a l t a x i n g
all-
Chapter 5
THE ILLUSTRATIVE TURNBACK PACKAGES
INTRODUCT L O N
This chapter
presents
five
t u r n b a c k pacltages , c o v e r i n g
exploratory
a
wide range of a l t e r n a t i v e a p p r o a c h e s t o (lev3l i l t i o n t h r o u g h t u r n i n g o v e r r e v e n u e s a114 r e s p o n s i b i l i t i e s
to the
r ~ ? s p o n s i b i l i t i e s t:lrned back--the
b i l l i o n per yesr.
states.
The
c ~ i r r e n t Funding of
" s i z e " of t h e p a c k a g e s - - v a r i e s
program
from $10-$22
One of t h e paclcages i s not d e s i g n e d f o r d e f i c i t r e d u c t i o n .
For t h e o t h e r s , t h e d e f i c i t r e d u c t i o n range i s from $1.5-$3.3
T a b l e 5.1 summarizes t h e packages.11
A
b i l l i o n a year.
Each package t : i r n s back $9.6 b i l -
l i o n i n a l c o h o l , t e l e p h o n e , and t o b a c c o e x c i s e s , based on end-user e s t i m a t e s
f o r each
state,
not
the
current collections
from m a n u f a c t l l r e r s .
The f o u r
l a r g e s t paclcages a d d i t i o n a l l y r e l i n q u i s h a s h a r e of t h e f e d e r a l t a x on motor
E l e l s and o t h e r h i g h w a y - r e l a t e d e x c i s e s .
T a b l e 5.1
SIJMMARY !IF 'THE FIVE ILLUSTRA'CTVE TURNRACK PACKAGES
Cllrrent
Fundi. ilg
of
Progr,4ms
Percent
T~~rne-l
Tax
ofPast
Back
Turnback
Funds
----(
i
n
t
h
o
u
s
a
n
d
s
)
-Replaced
4nnua 1
Def i c i t
Reduction (in
t h o u s a n--ds)
Per
Capita
Loss For
Deficit
Reduction
-
Largest
Per
Capita
Loss
Net of
Deficit
Reduc-- t i o n 1 1
Largest
Pe r
Capita
Gain
Net of
Deficit
Reduct i o n 21
11 E x c l u d i n g A l a s k a , w i t ' ? t h e l a r g e s t p e r c a p i t a l o s s i n e a c h package.
2
-1 E x c l u d i n g Wyoming, w i t h t h e l a r g e s t p e r c a p i t a g a i n i n e a c h package.
Solirce:
.4CIR c a l c u l a t i o n s
based
primarily
on
fiscal
data
for
FY
84.
T a b l e 5.1 i n d i c a t e s " f i s c a l m i s m a t c h w - - d i f f e r e n t s t a t e s
and losses--by
'
r e l a t i v e gains
summarizing one of t h e y a r d s t i c k s u s e d i n t h e s t a t e - b y - s t a t e
d e s c r i p t i o n s of each package.
The summary t a b l e shows t h e maximum p e r c a p i t a
g a i n , n e t of d e f i c i t r e d u c t i o n , and t h e s t a t e w i t h t h e maximum g a i n .
Table
5.1 a l s o
-
loss,
shows t h e maximum p e r c a p i t a l o s s and t h e s t a t e w i t h t h i s
a g a i n n e t of d e f i c i t r e d u c t i o n .
Gains and l o s s e s do n o t n e c e s s a r i l y i n c r e a s e
w i t h package s i z e , a f i n d i n g i n c o n t r a s t t o t h a t observed i n t h e 1981 A C I R
work (ACIR, 1981e).
The method used t o assemble t h e packages was d e s i g n e d t o
minimize mismatch and t h e l a r g e r packages p r o v i d e d more s c o p e f o r t h i s . The
h y p o t h e t i c a l even p e r c a p i t a amount of d e f i c i t r e d u c t i o n t h a t was used i n t h e
f i s c a l mismatch
c a l c u l a t i o n assumes
that
whatever t h e s t a t e of
residence,
e a c h c i t i z e n must make t h e same c o n t r i b u t i o n toward t h e t o t a l by which t h e
package trims t h e f e d e r a l budget d e f i c i t .
A l l tables depict s t a t e s ' f i s c a l
s i t u a t i o n a f t e r a p e r i o d of t r a n s i t i o n i s complete t h a t , v e r y l i k e l y , would
c u s h i o n t h e n e t l o s s e s and d e l a y t h e g a i n s . 2-1
PROGRAMS THAT ARE TURNBACK CANDIDATES
Table 5.2 l i s t s t h e 177 c u r r e n t f e d e r a l programs of g r a n t s i n a i d t h a t
were c o n s i d e r e d f o r t u r n b a c k . 3 1
p r e s e n t purposes
heavy
Counts
r e l i a n c e was
of
placed
g r a n t programs d i f f e r ,
on t h e d e f i n i t i o n
e n t r i e s i n t h e C a t a l o g of F e d e r a l Domestic A s s i s t a n c e (CFDA).
of
t h e y p r o v i d e means-tested
distinct
(Some of t h e
programs c o n s i d e r e d f o r turnbaclc a r e p o r t i o n s of CFDA c a t e g o r i e s . )
r o u g h l y 524 g r a n t - i n - a i d
but f o r
Out of
programs, 86 were removed from c o n s i d e r a t i o n because
benefits.
(The l a t t e r programs a r e b e i n g s t u d i e d
i n A C I R r e s e a r c h on t h e w e l f a r e s y s t e m . ) Of t h e r e m a i n d e r , 261 g r a n t programs
were removed under t h e judgment t h a t t h e y were i n a p p r o p r i a t e f o r d e v o l u t i o n .
*
The r e s u l t i n g 177 g r a n t programs were thought t o be i n g e n e r a l a c c o r d w i t h
t h e p r i n c i p l e s and i s s u e s of d e v o l u t i o n a r y f e d e r a l i s m d i s c u s s e d i n Chapter 4
i n t h e t e s t of
v i t a l national interest.
Reasonable d i s a g r e e m e n t about t h e
c o n t e n t s of t h e l i s t of c a n d i d a t e t u r n b a c k programs i s p o s s i b l e . The p r i n c i p l e s v o i c e d e a r l i e r can be d i f f i c u l t t o a p p l y .
n o t unambiguously n a t i o n a l o r l o c a l .
Many government programs a r e
I f a g r a n t program i s c u r r e n t l y working
*Some programs l i k e highways a r e c l o s e l y l i n k e d t o f e d e r a l r e v e n u e bases--in
t h i s c a s e t h e f e d e r a l g a s o l i n e t a x . I f t h e f e d e r a l unemployment i n s u r a n c e t a x
were c o n s i d e r e d f o r t u r n b a c k , t h e n i t might be a p p r o p r i a t e t o c o n s i d e r t h e
d e v o l u t i o n of programs l i n k e d t o t h a t t a x , such a s g r a n t s f o r a d m i n i s t e r i n g
o f f i c e s of s t a t e employment s e r v i c e s .
T a b l e 5.2
CANDIDATE PROGRAMS FOR TURNRACK, I N ORDER O F 4 C I R FUNC'CLONAL AREA AND C F D A NUHRER
CFDA N u m b e r
N a m e of G r a n t P r o g r a m
F'i 84
Dh Li-gat i o n s
(i n tliousands
of d o l l a r s )
Arts a n d H u m a n i t i e s
4 5 . 1 0 4 P r o m o t i o n o f t h e H u m a n i t i e s - - M e d i a Humani t i e s P r o j e c t s
45.116 P r o m o t i o n o f t h e Humanities--Summer S e m i n a r s f o r C o l l e g e T e a c h e r s
45.122 P r o m o t i o n o f t h e H u m a n i t i e s - - F e l l o w s h i p s a t C e n t e r s f o r Advanced S t u d y
45.124 P r o m o t i o n o f t h e Humanities--Research R e s o u r c e s
45.125 P r o m o t i o n o f t h e Humanities--Museums a n d H i s t o r i c a l O r g a n i z a t i o n s
45.127 Promotion of t h e H u m a n i t i e s - - I n s t r u c t i o n i n Elementary and Secondary S c h o o l s
45.128 P r o m o t i o n o f t h e Humanities--Humani t i e s S t u d i e s Program
45.129 Promotion of t h e H u m a n i t i e s - - S t a t e Programs
4 5 . 1 3 0 P r o m o t i o n o f t h e Humani t i e s - - C h a l l e n g e G r a n t s P r o g r a m
45.132 Promotion of, t h e Humanities--Research M a t e r i a l s P u b l i c a t i o n s
45.133 P r o m o t i o n o f t h e Humanities--Human1 t i e s , S c i e n c e a n d Technology
4 5 . 1 3 4 P r o m o t i o n o f t h e Humani t i e s - - R e s e a r c h C o n f e r e n c e s
45.135 Promotion o f t h e Humanities--Youth
Projects
45.137 Promotion o f t h e Humanities--Humanities P r o j e c t s i n L i b r a r i e s
45.140 Promotion of t h e Humanities--Basic Research
4 5 . 1 4 5 P r o m o t i o n o f t h e H u m a n i t i e s - - R e s e a r c h M a t e r i a l s T o o l s a n d R e f e r e n c e Works
45.146 P r o m o t i o n o f t h e H u m a n i t i e s - - R e s e a r c h M a t e r i a l s Ed1 t i o n s
45,147 Promotion of t h e Humanities--Research M a t e r i a l s T r a n s l a t i o n s
45.148 Promotion of t h e H u m a n i t i e s - - 1 n t e r c u l t u r a l Research
45.150 C e n t r a l D i s c i p l i n e s i n U n d e r g r a d u a t e E d u c a t i o n
4 5 . 1 5 1 Summer S e m i n a r s f o r S e c o n d a r y S c h o o l T e a c h e r s
4 5 . 3 0 1 I n s t i t u t e o f Museum S e r v i c e s
Community D e v e l o p m e n t
1 4 . 2 1 8 Community D e v e l o p m e n t B l o c k G r a n t
14.221 Urban Development A c t i o n G r a n t s
1 4 . 2 2 8 Community D e v e l o p m e n t B l o c k G r a n t
Criminal J u s t i c e
16.540
16.541
16.542
16.560
16.601
16.602
16.603
--
Entitlement Grants
--
S t a t e s * Program
J u v e n i l e J u s t i c e Block Grant
J u v e n i l e J u s t i c e and Delinquency Prevention
S p e c i a l Emphasis
National I n s t i t u t e f o r J u v e n i l e J u s t i c e and Delinquency Prevention
J u s t i c e Research (Development P r o j e c t G r a n t s )
C o r r e c t i o n s T r a i n i n g a n d S t a f f Development
Corrections--Research and E v a l u a t i o n and Policy Formulation
Corrections--Technical Assistance
--
Economic Development
11.300 Economic Development
G r a n t s a n d L o a n s f o r P u b l i c Works a n d D e v e l o p m e n t A s s i s t a n c e
11.303 Economic Development
Technical Assistance
P u b l i c Works I m p a c t P r o j e c t s
11.304 Economic Development
11.305 Economic Development
S t a t e a n d L o c a l Economic Development
2 3 . 0 0 3 A p p a l a c h i a n D e v e l o p m e n t Highway S y s t e m
23.004 A p p a l a c h i a n H e a l t h Programs
23.008 A p p a l a c h i a n Local Access Roads
23.009 A p p a l a c h i a n Local Development D i s t r i c t A s s i s t a n c e
----
--
130,440
8,436
33,982
26,137
91,514
4,099
7,486
4,000
P
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m LO
0 0
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c,(AL
u
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0 m r l u
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O W
c o o
L
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a X 0 ) L Pa
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d d
0)
d
L a w
0)
Highways and P u b l i c T r a n s p o r t a t i o n
2 0 . 2 0 5 I n t e r s t a t e Highway C o n s t r u c t i o n
2 0 . 2 0 5 I n t e r s t a t e Highway 4R
2 0 . 2 0 5 U r b a n Highway S y s t e m a n d M e t r o p o l i t a n P l a n n i n g
20.205 S e c o n d a r y Highways
20.205 I n t e r s t a t e T r a n s f e r Grants--Highway s
2 0 . 2 0 5 O t h e r Highway T r u s t Fund P r o g r a m s
2 0 . 2 0 5 P r i m a r y Highways
2 0 . 5 0 0 UMTA C a p i t a l I m p r o v e m e n t G r a n t s
Section 3
2 0 . 5 0 7 UMTA C a p i t a l a n d O p e r a t i n g A s s i s t a n c e F o r m u l a G r a n t s
Section 5
2 0 . 5 0 9 P u b l i c T r a n s p o r t a t i o n f o r N o n u r b a n i z e d A r e a s -- S e c t i o n 1 8
--
--
Libraries
84.034
8 4 .O35
84.039
84.091
84.154
Public Library Services
I n t e r l i b r a r y Cooperation
Library Research and Demonstration
Strengthening Research Library Resources
Public Library Services
Library Construction ( T i t l e 11)
--
Medical Assistance
13.116 P r o j e c t G r a n t s a n d C o o p e r a t i v e Agreements f o r T u b e r c u l o s i s C o n t r o l Programs
13.217 Family P l a n n i n g P r o j e c t s
1 3 . 2 2 4 Community H e a l t h C e n t e r s
13.226 H e a l t h S e r v i c e Research and Development
Grants
13.242 Mental H e a l t h Research G r a n t s
13.244 Mental H e a l t h C l i n i c a l o r S e r v i c e R e l a t e d T r a i n i n g G r a n t s
13.260 Family P l a n n i n g S e r v i c e s
13.263 O c c u p a t i o n a l S a f e t y and H e a l t h
Training Grants
13.268 Childhood Immunization G r a n t s
13.273 Alcohol Research Programs
13.293 S t a t e H e a l t h P l a n n i n g a n d Development Agencies
13.294 H e a l t h P l a n n i n g a n d H e a l t h Systems Agencies
13.298 Nurse T r a i n i n g and T r a i n e e s h i p s
13.361 N u r s i n g R e s e a r c h P r o j e c t G r a n t s
13.379 Grants f o r Graduate T r a i n i n g i n Family Medicine
13.381 H e a l t h P r o f e s s i o n s
Financial Distressed Grants
13.766 H e a l t h F i n a n c i n g R e s e a r c h , D e m o n s t r a t i o n and E x p e r i m e n t s
13.776 P r o f e s s i o n a l S t a n d a r d s Review O r g a n i z a t i o n s
Medicare
13.776 P r o f e s s i o n a l S t a n d a r d s Review O r g a n i z a t i o n s
Medicaid
13.777 S t a t e H e a l t h C a r e P r o v i d e r s S u r v e y C e r t i f i c a t i o n
Medicare
13.777 S t a t e H e a l t h Care P r o v i d e r s Survey C e r t i f i c a t i o n
Medicaid
13.822 H e a l t h C a r e e r s Opportuni t y Program
13.864 P o p u l a t i o n Research
13.865 Research f o r Mothers and C h i l d r e n
13.886 G r a n t s f o r P h y s i c i a n A s s i s t a n t T r a i n i n g Program
13.891 Alcohol R e s e a r c h C e n t e r G r a n t s
1 3 . 9 6 5 B l a c k Lung C l i n i c s
1 3 . 9 7 4 F a m i l y P l a n n i n g -- S e r v i c e s D e l i v e r y I m p r o v e m e n t R e s e a r c h G r a n t s
13.977 P r e v e n t i v e Health Service--Venereal Disease Control G r a n t s
13.978 Venereal D i s e a s e R e s e a r c h , Demonstration, I n f o r m a t i o n and E d u c a t i o n
13.991 P r e v e n t i v e H e a l t h S e r v i c e s Block G r a n t s
13.992 A l c o h o l , Drug Abuse, and M e n t a l H e a l t h B l o c k G r a n t
--
--
--
---
--
--
Miscellaneous
11.550 P u b l i c Telecommunications F a c i l i t i e s
T a b l e 5.2 ( c o n t . )
CANDIDATE PROGRAMS F O R TURNBACK, I N ORDER O F A C I R FUNCTIONAL AREA AND CFDA NUMBER
N a m e of G r a n t P r o g r a m
CFDA N u m b e r
Natural Resources
10.025
10.156
10.500
10.500
10.652
10.664
10.901
10.904
10.904
11.405
11.419
11.420
11.421
11.427
15.600
15.605
15.61 1
15.go4
15.916
15.919
C o n s e r v a t i o n and Development
P l a n t and Animal D i s e a s e a n d P e s t C o n t r o l
F e d e r a l - S t a t e M a r k e t i n g Improvement Program
Cooperative Extension Service
1 8 6 2 Land G r a n t U n i v e r s i t i e s
Tuskegee I n s t i t u t e
F o r e s t r y Research
Cooperative Forestry Assistance
Resource C o n s e r v a t i o n and Development
Watershed P r o t e c t i o n and Flood Prevention--Operations,
Plannlng and
Emergency A s s i s t a n c e
Watershed P r o t e c t i o n and Flood Prevention--Small Watershed Operations
Anadromous a n d G r e a t L a k e s F i s h e r i e s C o n s e r v a t i o n
C o a s t a l Zone Management Program A d m i n i s t r a t i o n
C o a s t a l Zone Management E s t u a r i n e S a n c t u a r i e s
C o a s t a l Energy Impact Program (Formula G r a n t s )
G r a n t s and C o o p e r a t i v e Agreements Program
Anadromous F i s h C o n s e r v a t i o n
F i s h R e s t o r a t i o n ( D i n g e l l - J o h n s o n Program)
W i l d l i f e R e s t o r a t i o n ( P i ttman-Robertson Program)
Historic Preservation Grants
Land a n d W a t e r C o n s e r v a t i o n Fund G r a n t s
Urban Park and R e c r e a t i o n Recovery Program
--
Occupational S a f e t y and Health
15.250 Underground Coal Mining
1 5 . 2 5 0 S m a l l Mine O p e r a t o r s A s s i s t a n c e
1 5 . 2 5 2 Abandoned Mine Land R e c l a m a t i o n P r o g r a m
17.500 Occupational S a f e t y and Health
Statistical Grants
17.500 O c c u p a t i o n a l S a f e t y and H e a l t h
State Operational Grants
--
--
Other T r a n s p o r t a t i o n
20.106 A i r p o r t Improvement Program
20.308 Local R a i l S e r v i c e A s s i s t a n c e
Vocational Education
Basic Grants t o States
84.048 Vocational Education
84.049 Vocational Education
C o n s u m e r a n d Homemaking E d u c a t i o n
84.050 V o c a t i o n a l E d u c a t i o n
Program Improvement and S u p p o r t i v e S e r v i c e
84.052 V o c a t i o n a l E d u c a t i o n
S p e c i a l Programs f o r t h e Disadvantaged
S t a t e Advisory Councils
84.053 Vocational Education
8 4 .O77 B i l i n g u a l V o c a t i o n a l T r a i n i n g
8 4 .O83 Women's E d u c a t i o n a l E q u i t y
84.099 B i l i n g u a l Vocational I n s t r u c t o r T r a i n i n g
84.121 V o c a t i o n a l E d u c a t i o n
S t a t e Planning and Evaluation
84.126 R e h a b i l i t a t i o n S e r v i c e s
Basic Support
84.128 R e h a b i l i t a t i o n S e r v i c e s
Special Projects
-------
--
--
FY 84
Obligations
( i n thousands
of d o l l a r s )
84.129 R e h a b i l i t a t i o n T r a i n i n g
84.132 Centers f o r Independent Living
Volunteer Services
72.002
72.005
72.010
72.01 1
72.012
72.013
R e t i r e d S e n i o r V o l u n t e e r Program
S e r v i c e - L e a r n i n g Programs
Mini-Grant Program
S t a t e O f f i c e of V o l u n t a r y C i t i z e n P a r t i c i p a t i o n
V o l u n t e e r D e m o n s t r a t i o n Program
T e c h n i c a l A s s i s t a n c e Program
Water P o l l u t i o n C o n t r o l
10.418 Water and Waste D i s p o s a l Systems G r a n t s f o r R u r a l Communities
10.418 Water and Waste Loans
6 6 . 4 1 8 W a t e r Q u a l i t y Management G r a n t s t o S t a t e s
6 6 . 4 1 8 C o n s t r u c t i o n G r a n t s f o r W a s t e w a t e r T r e a t m e n t Works
6 6 . 4 1 9 Water P o l l u t i o n C o n t r o l
S t a t e and I n t e r s t a t e (106 G r a n t )
66.432 S a f e Drinking Water
P u b l i c Water Systems S u p e r v i s i o n
6 6 . 4 3 8 C o n s t r u c t i o n Management A s s i s t a n c e
--
S o u r c e : ACIR c a l c u l a t i o n s .
--
w e l l , t h e r e i s a n a t u r a l r e l u c t a n c e t o devolve i t , even though i t s i n a p p r o p r i a t e c e n t r a l i z a t i o n may c a u s e f u t u r e problems. I n a d d i t i o n t o d i s a g r e e m e n t s
a b o u t s p e c i f i c programs, some would p r e f e r t h e l i s t t o be s h o r t e r , r e s t r i c t i n g t h e p o s s i b l e scope of d e v o l u t i o n , w h i l e o t h e r s would expand t h e r o l l of
turnback candidates.
D e s p i t e t h e very r e a l d i f f i c u l t i e s i n s e l e c t i n g grant
programs f o r p o s s i b l e d e v o l u t i o n , however, t h i s l i s t s h o u l d s e r v e a s a worka b l e s t a r t i n g p o i n t f o r c o n s t r u c t i n g t u r n b a c k packages.
DESIGNING THE TURNBACK PACKAGES
A C I R ' s 1981 p a p e r (ACIR, 1981e) i d e n t i f i e d f i s c a l mismatch a s a s e r i o u s
c o n c e r n i n t h e d e s i g n of t u r n b a c k packages.
The packages examined i n t h a t
p a p e r , a s i n o t h e r s , t r i e d d i f f e r e n t ways of f i t t i n g c u r r e n t program s p e n d i n g
t o c u r r e n t t a x r e c e i p t s i n o r d e r t o t r i m t h e l a r g e l o s s e s and g a i n s t h a t some
s t a t e s o t h e r w i s e would e x p e r i e n c e .
Rut,
even g i v e n t h e packages
'
revenue
s o u r c e s , e x p e r i m e n t i n g w i t h a l t e r n a t i v e combinations of g r a n t programs i s a
daunting task.
With 177 c a n d i d a t e programs t h e number of p o s s i b l e combina-
t i o n s is t h e f i g u r e "two" f o l l o w e d by 53 o t h e r d i g i t s .
A n a l y s i s i n t h e e a r l y s t a g e s of t h i s r e s e a r c h used a computerized o p t i m i z a t i o n p r o c e d u r e t o s u g g e s t a l t e r n a t i v e packages t h a t minimized a measure
of f i s c a l mismatch.
Unlike A C I R ' s
( c a u s e d by t h e uneven s t a t e - b y - s t a t e
1981 work, t h e amount of f i s c a l mismatch
a l l o c a t i o n of r e v e n u e s and r e s p o n s i b i l i -
t i e s ) d i d n o t n e c e s s a r i l y i n c r e a s e w i t h t h e s i z e of t h e package.
T h i s i s be-
c a u s e l a r g e r packages p r o v i d e more s c o p e f o r t a i l o r i n g t h e p a t t e r n of program
r e s p o n s i b i l i t i e s t o t h a t of revenues.
Although t h e r e s u l t s were f a r b e t t e r
t h a n comparison packages assembled by hand ( a s was done i n 1 9 8 1 ) , t h e r e was
s t i l l a problem.
S t r i c t adherence t o mismatch m i n i m i z a t i o n i n e f f e c t s e t t h e
f i s c a l s t a t u s quo i n c o n c r e t e .
C u r r e n t f e d e r a l g r a n t f u n d s a r e n o t always
distributed e f f i c i e n t l y or equitably.
And, a s i d e from t h e motor f u e l s t a x ,
t h e p e r c a p i t a d i s t r i b u t i o n of e x c i s e c o l l e c t i o n s i s n o t o n l y v e r y uneven,
b u t i s unconnected w i t h c u r r e n t program f u n d i n g .
Utah and Wyoming a r e neigh-
b o r s , b u t t h e former c o n t r i b u t e s $16 p e r c a p i t a i n f e d e r a l a l c o h o l and t o b a c co e x c i s e s w h i l e t h e l a t t e r c o n t r i b u t e s $185.
More i m p o r t a n t , t h e c u r r e n t d i s t r i b u t i o n of f e d e r a l a i d g i v e s t o o much
f i n a n c i a l a s s i s t a n c e t o r e l a t i v e l y w e l l off
t i v e l y poor s t a t e s .
s t a t e s and t o o l i t t l e t o r e l a -
I f one compares t h e s t a t e s ' p e r c a p i t a g r a n t s f o r a l l of
t h e 177 c a n d i d a t e programs w i t h a measure of t h e f i s c a l c a p a c i t y of e a c h , t h e
-4 2-
r e l a t i o n s h i p i s uneven, b u t one i n which g r a n t r e c e i p t t e n d s t o i n c r e a s e w i t h
F o r example, t h e c o r r e l a t i o n c o e f f i c i e n t i s +0.25 when p e r
f i s c a l capacity.
c a p i t a p e r s o n a l income i s t h e f i s c a l c a p a c i t y i n d i c a t o r . 4-1
C o n s e q u e n t l y , one o b j e c t i v e chosen when d e s i g n i n g t h e i l l u s t r a t i v e t u r n back packages was t o change t h i s g e n e r a l l y c o u n t e r - e q u a l i z i n g d i s t r i b u t i o n of
f e d e r a l g r a n t s t o one t h a t would be e q u a l i z i n g ; i . e . ,
n e t g a i n s i n s t a t e s w i t h low f i s c a l c a p a c i t y .
ever.
t h a t would t e n d t o h a v e
A trade-off
i s i n v o l v e d , how-
The more a t u r n b a c k package changes t h e e x i s t i n g d i s t r i b u t i o n t o i m -
prove i t by a f i s c a l d i s p a r i t i e s c r i t e r i o n , t h e g r e a t e r t h e f i s c a l mismatch
i s l i k e l y t o be r e l a t i v e t o t h e s t a t u s quo.
ages d i d ,
by and l a r g e ,
Despite t h i s trade-off
a c h i e v e a d e g r e e of
t h e pack-
f i s c a l equalization.
For i n -
s t a n c e , p e r c a p i t a g a i n s and l o s s e s i n t h e $22 b i l l i o n package show a negat i v e c o r r e l a t i o n of -0.31 w i t h p e r c a p i t a p e r s o n a l income, s o t h a t t h e s t a t e s
w i t h weak
t a x bases
are significantly
more
l i k e l y than
o t h e r s t o have
a
gain. 51
TURNBACK POLICY AND FISCAL EQUALIZATION
S i n c e t h e packages do n o t e f f e c t p u r e f i s c a l e q u a l i z a t i o n , a comparison
of s t a t e s
'
g a i n s o r l o s s e s r e v e a l s i m p o r t a n t d i s c r e p a n c i e s between t h i s p a t -
t e r n and i n d i v i d u a l s t a t e s
'
a b i l i t i e s t o a b s o r b such l o s s e s through i n c r e a s -
i n g c o l l e c t i o n s of own-source
revenues.
By t h e same t o k e n , some s t a t e s t h a t
may be presumed t o be w e l l o f f i n a r e l a t i v e s e n s e a l s o b e n e f i t d i s p r o p o r t i o n a t e l y u n d e r t h e t u r n b a c k procedure. Thus two f u n d a m e n t a l n o t i o n s of e q u i ty a r e violated:
t i c a l equity, "
" h o r i z o n t a l e q u i t y , " o r e q u a l t r e a t m e n t of e q u a l s , and "veror
appropriately
unequal
treatment
of
states
i n different
circumstances.
Whether mismatch i s f o r m a l l y minimized o r n o t , simply comparing Eunding
l e v e l s b e f o r e and a f t e r t u r n b a c k o v z r l o o k s a n i m p o r t a n t Eact:
Mississippi is
f a r less a b l e t o a b s o r b a l o s s of $10 p e r c a p i t a t h a n i.s C o n n e c t i c u t .
e s p e c i a l l y hurt i n s t a t e s with limited f i s c a l capacity.
Tdosses
And g a i n s i n s t a t e s
w i t h ample t a x b a s e s seem g a l l i n g .
The s e l e c t i o n of g r a n t programs f o r turqbacic packages was s e e n a s an o p portunity to correct, a t least t o a limited extent, the current bias i n the
a l l o c a t i o n of i n t e r g o v e r n m e n t a l a i d ; a t t h e very l e a s t t o a v o i d p r o d u c i n g new
counter-equalizing
t e n d e n c i e s through t u r n b a c k s .
A s d i s c u s s e d i n a forthcom-
i n g t e c h n i c a l p a p e r , t h e o p t i m i z a t i o n p r o c e d u r e was r e d e s i g n e d t o be s e n s i -
-4 3-
tive t o states
'
relative f i s c a l capacities.
I n defining the "equalization-
o r i e n t e d " mismatch measure used h e r e , a l o s s i n a s t a t e w i t h low f i s c a l cap a c i t y g e n e r a t e d a h i g h e r degree of e f f e c t i v e mismatch t h a n a l o s s i n a s t a t e
with high f i s c a l capacity.
S i m i l a r l y , g a i n s produced h i g h e r mismatch f i g u r e s
-
when t h e y occurred i n s t a t e s w i t h s t r o n g t a x bases. 61
A l t e r n a t i v e measures
of f i s c a l c a p a c i t y were u s e d , l e a d i n g t o s i m i l a r r e s u l t s .
A t t h e same time t h e o p t i m i z a t i o n procedure was redesigned t o a l l o w f o r
a n e q u a l i z i n g tendency, i t was enhanced i n a n o t h e r r e s p e c t .
A maximum l o s s
l e v e l was sometimes s p e c i f f e d , t o p r o t e c t s t a t e s from heavy p e r c a p i t a l o s s e s , and t h e maximum a l l o w a b l e g a i n could be r e s t r i c t e d , t o p r e v e n t i n o r d i n a t e
w i n d f a l l s by some s t a t e s .
The enhanced procedure t h u s combined f o u r g o a l s : ( 1) minimizing "pure"
mismatch; ( 2 ) c o r r e c t i n g , t o some d e g r e e ,
the
counter-equalization
of
the
c u r r e n t g r a n t system; ( 3 ) p r o t e c t i n g a l l s t a t e s a g a i n s t heavy l o s s e s ; and ( 4 )
a v o i d i n g a l a r g e w i n d f a l l g a i n f o r any s t a t e .
These f o u r g o a l s m i l i t a t e d
a g a i n s t each o t h e r and were sometimes c o n t r a d i c t o r y .
I n o t h e r words, g i v e n
t h e f i s c a l d i s t r i b u t i o n s of s p e c i f i e d revenue s o u r c e s and c a n d i d a t e programs,
no turnback package t h a t s a t i s f i e d a l l
on occasion t h e r e was proven t o be f o u r g o a l s a s t h e y were s p e c i f i e d .
I n t h e e x p e r i m e n t a t i o n conducted s o f a r ,
a v o i d i n g w i n d f a l l s r a r e l y improved o t h e r a s p e c t s of t h e a l l o c a t i o n of g a i n s
and l o s s e s , probably because t h i s g o a l weakened achievement of o t h e r s .
s e q u e n t l y , none of
t h e packages
shown used t h i s p r o v i s i o n ,
Con-
though f u t u r e
packages might.
P r o t e c t i n g s t a t e s a g a i n s t heavy l o s s e s was g e n e r a l l y p o s s i -
ble--except
Alaska
for
in
the
l a r g e r packages--though
it
detracted
from
e q u a l i z a t i o n and p r o t e c t i n g populous s t a t e s from l o s s e s was o f t e n d i f f i c u l t .
Seemingly, minimizing mismatch and e q u a l i z a t i o n d i d n o t s h a r p l y c o n f l i c t w i t h
each o t h e r .
More e x p e r i e n c e w i t h t h e d e s i g n procedure should s u g g e s t j u s t how w e l l
the oft-conflicting
g o a l s of turnback packages can be balanced a g a i n s t each
o t h e r . A t t h e same t i m e , e f f o r t s a r e c u r r e n t l y underway t o develop a d d i t i o n a l
ways t o measure t h e degree t o which a turnback package i s e q u a l k i n g .
For
t h e p r e s e n t , however, t h e s t a t e - s p e c i f i c l i s t i n g s of g a i n s and l o s s e s can be
compared t o any chosen measure of f i s c a l c a p a c i t y .
HOW TO READ THE TABLES
Tables 5.3 t o 5.7 d e s c r i b e t h e f i v e a l t e r n a t i v e turnback packages.
-44-
The
f i r s t page
of
these tables presents the
state-by-state
e a c h package a f t e r t r a n s i t i o n i s completed.
E i s c a l f e a t u r e s of
Continued pages of t h e t a b l e s
l i s t t h e g r a n t programs t h a t a r e t u r n e d hack i n each package.
In T a b l e s 5.3 t o 5.7:
Column A .
The f i r s t column shows t h e program responsibilities
t u r n e d back t o e a c h s t a t e i n t h o u s a n d s of 1984 d o l l a r s .
F o r t h e $10
h i l l i o n package f o r example ( T a b l e 5.3), Alabama would r e c e i v e programs
t o t a l l i n g j u s t o v e r $132 m i l l i o n .
Column R .
The n e x t column s h o v ~ s t h e t a x r e s o u r c e s tarnecl hack t o
e a c h s t a t e , assuming t h a t t h e p o s t - t r a n s i t i o n l e v y is a t t h e c d r r e n t
n a t i o n a l r a t e . Again r e f e r r i n g t o T a b l e 5.3, Alabama r e c e i v e s t a x b a s e s
t o t a l l i n g $128 m i l l i o n .
Column C .
The s t a t e and l o c a l balance--Column C - - i s program t u r n backs minus t a x t i ~ r n b a c k s . Alabama l o s e s $4 m i l l i o n i n t h e $10 b i l l i o n
package.
Because t h e o t h e r packages i n c l u d e s i g n i f i c a n t deF L c i t reduct i o n , s t a t e e n t r i e s a r e u s u a l l y n e g a t i v e , which i n d i c a t e s a l o s s . The
f o l l o w i n g two columns d i v i d e up t h e t o t a l s t a t e - l o c a l b a l a n c e i n t o : ( 1 )
t h a t a c c o u n t e d f o r by t h e s t a t e ' s e v e n s h a r e of d e f i c i t r e d u c t i o n and
( 2 ) p u r e f i s c a l mismatch, i . e . , t h e i m p e r f e c t matching of r e s o u r c e s and
program f u n d i n g i n e a c h s t a t e .
"Even d e f i c i t r e d u c t i o n " means t h a t e a c h s t a t e a r e a
Column D.
c o r l t r i h u t e s t h e same per c a p i t a amount.
Alabama's s h a r e i s $ 3 m i l l i o n
f o r t h e $10 b i l l i o n package, c o r r e s p o n d i n g t o $.84 p e r c a p i t a .
Column E.
The s t a t e - l o c a l b a l a n c e a f t e r d e f i c i t r e d u c t i o n is one
i n d i c a t o r of f i s c a l mismatch. F o r t h e $10 b i l l i o n p a c k a g e , a r e l a t i v e l y
s l i g h t mismatch c a u s e s Alabama t o l o s e $804,000 more t h a n a n even d e f i c i t r e d u c t i o n would r e q u i r e .
I n t h e same t a b l e A r i z o n a g a i n s from t u r n back, s o i t s e n t r y i s a p o s i t i v e number, namely $31 m i l l i o n . One s t a t e ' s
l o s s caused by p u r e f i s c a l mismatch i s a n o t h e r s t a t e ' s g a i n , s o t h i s
column always t o t a l s z e r o .
Colunn F . Another i n d i c a t o r of t h e consequences of a turnbaclc packa g e i s t h e p e r c e n t a g e of program f u n d i n g r e p l a c e d : t a x t u r n h a c k s d i v i d e d
by program t u r n b a c k s .
Nationwide, t h e $10 b i l l i o n package r e p l a c e s 98%
of program f u n d i n g but Alabama ( w i t h a s l i g h t l o s s a f t e r d e f i c i t reduci t s p a s t r e c e i p t of f u n d s .
t i o n ) g e t s somewhat less--97%--of
Column G.
A l l t h i n g s c o n s i d e r e d , Alabama's l o s s of $4 m i l l i o n i s
e q u i v a l e n t t o a l o s s of 8/100s of 1%of s t a t e - l o c a l own s o u r c e r e v e n u e s ,
f o r a f i g u r e of -0.08% i n t h e n e x t column.
That column r e f l e c t s t h e
t o t a l g a i n o r l o s s , t h a t i s , t h e combined e f f e c t of d e f i c i t r e d u c t i o n
and f i s c a l mismatch.
The l a s t column i s a s t a t e ' s p e r c a p i t a g a i n o r l o s s
Column H.
aEter d e f i c i t r e d u c t i o n and i s t h e b e s t i n d i c a t o r of t h e p a c k a g e ' s
f i s c a l mismatch.
For t h e $10 b i l l i o n package t h e g a i n of t a x b a s e s and
program a u t h o r i t y would " c o s t " Alabamans $.20 p e r c a p i t a .
Because t h e
-45-
Table 5.3
$10 BILLION ILLUSTRATIVE TURNBACK PACKAGE
Relinquishment of Alcohol, Tobacco, and Telephone E x c i s e Taxes:
Turnback of 59 N o n t r a n s p o r t a t i o n Programs, P o s t T r a n s i t i o n , 19 84 Data
STATE
ALABAMA
ALASKA
ARIZONA
ARKANSAS
CALIFORNIA
COLORADO
CONNECTlCUT
DELAWARE
FLORIDA
GEORGIA
HAWA II
IDAHO
ILLINOIS
I N 0 1 ANA
IOWA
KANSAS
KENTUCKV
LOUISIANA
MA INE
MARVLANO
MASSACHUSE T T S
MICHIGAN
MINNESOTA
M l S S l S S I P PI
M I SSOUR I
MONTANA
NEBRASKA
NEVADA
NEW H A M P S H I R E
NEW J E R S E Y
NEW M E X I C O
NEW VORK
NORTH C A R O L I N A
NORTH OAKOTA
OHIO
OKLAHOMA
OREGON
PENNSVLVANIA
RHODE I S L A N D
SOUTH C A R O L I N A
SOUTH OAKOTA
TENNESSEE
TEXAS
UTAH
VERMONT
VIRGINIA
WASH1 NGTON
WEST V I R G I N I A
WISCONSIN
WYOMING
----- - . --- ----
UNITED STATES
PROGRAM
TURNBACK
(SKI
TAX
TURNBACK
(SKI
TOTAL S L L
S L L LOSS S L L BALANCE
D U E T O E V E N AFTER OEF.
BALANCE
OEF.RED(SK)
(SKI
RED. ( S K I
(L O F
PROG. CHANGE A S (L
FUNDS
REPLACED
P.C. B A L .
OWN S W R C E
AFTER OEF.
REVENUE
REOUCTION(S)
FY 84
0 b l i g a t ions
CFDA NUMBER
NAME OF GRANT PROGRAM
Arts a n d H u m a n i t i e s
Promotion of t h e Humanities--Media Humanities P r o j e c t s
P r o m o t i o n o f t h e Humani t i e s - - S u m m e r S e m i n a r s f o r C o l l e g e T e a c h e r s
Promotion o f t h e H u m a n i t i e s - - F e l l o w s h i p s a t C e n t e r s f o r Advanced S t u d y
Promotion o f t h e Humanities--Museums a n d H i s t o r i c a l O r g a n i z a t i o n s
Promotion of t h e Humanities--Instruction i n Elementary and Secondary Schools
Promotion o f t h e Humanities--Humanities S t u d i e s Program
Promotion of t h e Humanities--Challenge G r a n t s Program
Promotion of t h e Humanities--Research M a t e r i a l s P u b l i c a t i o n s
P r o m o t i o n o f t h e Humani t i e s - - H u m a n i t i e s , S c i e n c e a n d T e c h n o l o g y
P r o m o t i o n o f t h e Humani t i e s - - R e s e a r c h C o n f e r e n c e s
Promotion of t h e Humanities--Youth P r o j e c t s
Promotion of t h e Humanities--Basic Research
P r o m o t i o n o f t h e Humani t i e s - - R e s e a r c h U a t e r i a l s E d i t i o n s
Promotion of t h e Humanities--Research M a t e r i a l s T r a n s l a t i o n s
Promotion of t h e Humanities--Intercultural Research
Central Disciplines i n Undergraduate Education
Summer S e m i n a r s f o r S e c o n d a r y S c h o o l T e a c h e r s
Community D e v e l o p m e n t
1
1 4 . 2 1 8 Community D e v e l o p m e n t B l o c k G r a n t
.b
?
--
Entitlement Grants
Criminal J u s t i c e
16.541
16.542
16.560
16.602
--
J u v e n i l e J u s t i c e and Delinquency Prevention
S p e c i a l Emphasis
National I n s t i t u t e f o r J u v e n i l e J u s t i c e and Delinquency Prevention
J u s t i c e Research (Development P r o j e c t Grants)
Corrections--Research
and Evaluation and Policy Formulation
Elementary and S e c o n d a r y E d u c a t i o n
84.003
84.008
84.009
84.010
84.013
84.026
8 4 . 1 58
Bilingual Education
Alcohol and Drug Abuse E d u c a t i o n Program
Program f o r E d u c a t i o n of H a n d i c a p p e d C h i l d r e n i n S t a t e - S u p p o r t e d S c h o o l s
Educationally Deprived Children
Local Education Agencies
Educationally Deprived Children i n I n s t i t u t i o n s Serving Neglected o r Delinquent Children
Handicapped Media S e r v i c e s and C a p t i o n e d F i l m s
Secondary Education and T r a n s i t i o n a l S e r v i c e s
--
Libraries
8 4 .O39 L i b r a r y R e s e a r c h a n d D e m o n s t r a t i o n
84.091 S t r e n g t h e n i n g Research L i b r a r y Resources
84.154 P u b l i c L i b r a r y S e r v i c e s
Library Construction ( T i t l e 11)
--
Medical A s s i s t a n c e
13.116 P r o j e c t G r a n t s and C o o p e r a t i v e Agreements f o r T u b e r c u l o s i s C o n t r o l Programs
13.242 Mental H e a l t h R e s e a r c h G r a n t s
13.260 Family Planning S e r v i c e s
( i n thousands
of d o l l a r s )
T a b l e 5.3 ( c o n t . )
$10 BILLION ILLUSTRATIVE TURNBACK PACKAGE
CFDA NUMBER
NAME OF GRANT PROGRAM
Alcohol Research Programs
Health Planning and Health Systems Agencies
Nursing Research P r o j e c t G r a n t s
H e a l t h F i n a n c i n g R e s e a r c h , D e m o n s t r a t i o n and Experiments
Health C a r e e r s O p p o r t u n i t y Program
Population Research
Research f o r Mothers and C h i l d r e n
Alcohol Research C e n t e r G r a n t s
S e r v i c e s D e l i v e r y Improvement R e s e a r c h G r a n t s
Family P l a n n i n g
--
N a t u r a l Resources C o n s e r v a t i o n and Development
P l a n t and Animal D i s e a s e a n d P e s t C o n t r o l
Anadromous a n d G r e a t L a k e s F i s h e r i e s C o n s e r v a t i o n
C o a s t a l Zone Management Program A d m i n i s t r a t i o n
C o a s t a l Zone Management E s t u a r i n e S a n c t u a r i e s
C o a s t a l Energy Impact Program (Formul a G r a n t s )
G r a n t s and C o o p e r a t i v e Agreements Program
Anadromous F i s h C o n s e r v a t i o n
Urban P a r k a n d R e c r e a t i o n R e c o v e r y P r o g r a m
Vocational Education
84.077
8 4 .O83
84.099
84.129
Bilingual Vocational Training
Women's E d u c a t i o n a l E q u i t y
Bilingual Vocational Instructor Training
Rehabilitation Training
Volunteer S e r v i c e s
72.01 2 Volunteer D e m o n s t r a t i o n Program
7 2 . 0 13 T e c h n i c a l A s s i s t a n c e Program
Water P o l l u t i o n C o n t r o l
6 6 . 4 1 8 C o n s t r u c t i o n G r a n t s f o r W a s t e w a t e r T r e a t m e n t Works
Source: A C I R c a l c u l a t i o n s .
FY 84
Obligations
( i n thousands
of d o l l a r s )
g a i n s and l o s s e s a s s o c i a t e d w i t h p u r e mismatch b a l a n c e e a c h o t h e r o u t ,
t h e n a t i o n w i d e p e r c a p i t a f i g u r e is always z e r o .
THE $10 B I L L I O N PACKAGE
T h i s package
returns
$9.8
billion
s t a t e s and l o c a l i t i e s ( T a b l e 5.3).
i n program r e s p o n s i b i l i t i e s
t o the
4 t t h e same t i m e , s t a t s - l o c a l governments
would g a i n $9.6 b i l l i o n from a l l o f t h e f e d e r a l a l c o h o l , t o b a c c o , and t e l e phone e x c i s e t a x e s .
Replacing
98% of
program r e v e n u e s
on a v e r a g e ,
this
package i n c l u d e s o n l y a r e l a t i v e l y s l i g h t amount of d e f i c i t r e d u c t i o n , $196
m i l l i o n annually.
A s shown i n t h e c o n t i n u a t i o n of T a b l e 5.3,
i n - a i d programs t h a t
t h e 59 g r a n t -
a r e devolved e x c l u d e t h e major t r a n s p o r t a t i o n g r a n t s .
T h i s package d i s p l a y s a tendency t o e q u a l i z a t i o n . A r k a n s a s , Maine, M i s s i s s i p p i , South C a r o l i n a ,
and Tennessee--poor
r e g i s t e r a g a i n i n t h e l a s t column.
s t a t e s by any standard--each
Rut C o n n e c t i c u t a l s o h a s a n e t b e n e E i t
from t h e t u r n b a c k of revenues and r e s p o n s i h i l i t ies.
THE $17 BILLION PACKAGE
The $17 b i l l i o n package ( T a b l e 5 . 4 ) ,
l i k e i t s $18 b i l l i o n c o u s i n , t u r n s
p a r t of t h e f e d e r a l highway e x c i s e s o v e r t o t h e s t a t e s , a l o n g w i t h t h e e x c i s e s on a l c o h o l ,
telephones,
and tobacco.
The s t a t e s r e c e i v e
responsibility
f o r t h e n o n - I n t e r s t a t e highway programs. 71
The package h a s f a r l e s s of a n e q u a l k i n g tendency t h a n i t s $10 b i l l i o n
p r e d e c e s s o r , judged
by t h e p e r c a p i t a l o s s e s ( n e t of d e f i c i t
M i s s i s s i p p i , T e n n e s s e e , and West V i r g i n i a .
r e d u c t i o n ) of
Further experimentation with t h e
d e s i g n of t h i s package m i g h t , however, make i t more e q u a l i z i n g .
THE $18 BILLION PACKAGE
Although t h e r e v e n u e s a r e t h e same a s i n t h e $17 b i l l i o n package, t h e
program r e s p o n s i b i l i t i e s
a r e somewhat
greater,
totalling
$2.9 b i l l i o n i n d e f i c i t r e d u c t i o n a n n u a l l y ( T a b l e 5.5).
c u r r e n t funding f o r
the
turned
back
programs
$18 b i l l i o n ,
Nationwide,
is replaced.
for
84% of
The s h a r e i n
d e f i c i t r e d u c t i o n i s $12.63 p e r person.
THE $21 B I L L I O N PACKAGE
The $21 b i l l i o n package r e d u c e s t h e d e f i c i t by $2.5
which i s $10.66 p e r c a p i t a n a t i o n w i d e ( T a b l e 5.6).
-49-
b i l l i o n annually,
Although t h i s package i s
Table 5.4
$17 BILLION ILLUSTRATIVE TURNBACK PACKAGE
Relinquishment of Alcohol, Tobacco, and Telephone E x c i s e Taxes and
3.9 Cents of t h e G a s o l i n e Tax: Turnback of 84 Programs,
I n c l u d i n g N o n - I n t e r s t a t e Roads, P o s t T r a n s i t i o n , 1984 Data
STATE
ALABAIU
ALASKA
ARIZONA
ARKANSAS
CALIFORNIA
COLORADO
CONNECTICUT
DELAWARE
FLORIDA
GEORGIA
HAWAI I
IDAHO
ILLINOIS
INDIANA
IOU
KANSAS
KENTUCKY
LOUISIANA
MAINE
MARYLAND
MASSACHUSETTS
MICHIGAN
MINNESOTA
UISSISSIPPI
UISSOURI
nomm
NEBRASKA
NEVADA
NEW HAUPSHIRE
NEW JERSEY
NEW UEXICO
NEW YORU
NORTH CAROLINA
NORTH DAKOTA
OHIO
OKLAHOMA
OREGON
PENNSYLVANIA
M O D E ISLAND
SOUTH CAROLINA
SOUTH DAKOTA
TENNESSEE
TEXAS
UTAH
VERMONT
VIRGINIA
WASHINGTON
WEST V I R G I N I A
WISCONSIN
WOnING
(A)
PROGRAM
TURNBACK
(SK)
( B)
TAX
TURNBACK
( $K)
(CZ
(Dl
( E)
TOTAL S h L
S 6 L L O S S S L L BALANCE
BALANCE
DUE TO EVEN AFTER DEF.
($K)
DEF.W($K)
a e ~ .($K)
(F)
(GI
(H)
X O F PROG. CHANGE AS %
P.C. BAL.
FUNDS
OWN SOURCE AFTER DEF.
WMCO
REVENUE
REDUCTION($)
FY 8 4
CFDA NUMBER
NAME OF GRANT PROGRAM
A r t s and H u m a n i t i e s
45.104
45.116
45.122
45.127
45.128
45.130
45.132
45.133
45.140
45.145
45.146
45.147
45.150
45.151
Promotion of the Humanities--Media Humanities Projects
P r o m o t i o n of t h e H u m a n i t i e s - - S u m m e r S e m i n a r s f o r C o l l e g e T e a c h e r s
P r o m o t i o n of t h e H u m a n i t i e s - - P e l l o w s h i p s at C e n t e r s f o r A d v a n c e d S t u d y
P r o m o t i o n of t h e H u m a n i t i e s - - I n s t r u c t i o n in E l e m e n t a r y a n d S e c o n d a r y S c h o o l s
P r o m o t i o n of t h e H u m a n i t i e s - - H u m a n i t i e s S t u d i e s P r o g r a m
P r o m o t i o n of t h e H u m a n i t i e s - - C h a l l e n g e G r a n t s P r o g r a m
Promotion of the Humanities--Research Materials Publications
P r o m o t i o n of t h e Humanities--Humanities. S c i e n c e a n d T e c h n o l o g y
P r o m o t i o n of t h e H u m a n i t ies--Basic R e s e a r c h
Promotion of the Humanities--Research Materials Tools and Reference Works
Promotion of the Humanities--Research Materials Edicions
P r o m o t i o n of t h e H u m a n i t i e s - - R e s e a r c h M a t e r i a l s T r a n s l a t i o n s
C e n t r a l D i s c i p l i n e s in U n d e r g r a d u a t e E d u c a t i o n
Summer Seminars for Secondary School Teachers
Community Development
14.218 C o m m u n i t y D e v e l o p m e n t B l o c k G r a n t
--
Entitlement Grants
C r i m i n a l J u s t ice
I
Cn
c
I
16.541 J u v e n i l e J u s t i c e a n d D e l i n q u e n c y P r e v e n t i o n -- S p e c i a l E m p h a e i s
16.542 N a t i o n a l I n s t i t u t e f o r J u v e n i l e J u s t i c e a n d D e l i n q u e n c y P r e v e n t i o n
16.560 J u s t i c e R e s e a r c h ( D e v e l o p m e n t P r o j e c t G r a n t s )
Economic Development
11.303
11.304
23.003
23.004
2 3 .OO8
23.009
E c o n o m i c D e v e l o p m e n t -- T e c h n i c a l A s s is t a n c e
E c o n o m i c D e v e l o p m e n t -- P u b l i c W o r k s I m p a c t P r o j e c t s
Appalachian Development Highway System
Appalachian Health Programs
Appalachian Local Access Roads
Appalachian Local Development District Assistance
E l e m e n t a r y and S e c o n d a r y E d u c a t i o n
13.600
13.631
84.002
84.008
84.013
84.023
84.027
84.027
A d m i n i s t r a t i o n f o r C h i l d r e n , Y o u t h and F a m i l i e s -- H e a d S t a r t
A d m i n i s t r a t i o n o n D e v e l o p m e n t D i s a b i l i t i e s -- S p e c i a l P r o j e c t s
Adult Education
State Administered Program
Alcohol and D r u g A b u s e E d u c a t i o n P r o g r a m
E d u c a t i o n a l l y D e p r i v e d C h i l d r e n in I n s t i t u t i o n s S e r v i n g N e g l e c t e d o r D e l i n q u e n t C h i l d r e n
H a n d i c a p p e d -- R e s e a r c h a n d D e m o n s t r a t i o n
H a n d i c a p p e d -- S t a t e G r a n t P r o g r a m
H a n d i c a p p e d -- P r e s c h o o l I n c e n t i v e G r a n t s
--
E m p l o y m e n t and T r a i n i n g
17.235 S e n i o r C o m m u n i t y S e r v i c e E m p l o y m e n t
-- N a t i o n a l P r o g r a m
17.246 D i s l o c a t e d W o r k e r A s s i s t a n c e
17.250 Job T r a i n i n g P a r t n e r s h i p G r a n t s t o S t a t e s isad advantaged W o r k e r s )
17.250 S u m m e r Y o u t h E m p l o y m e n t P r o g r a m ( J T P A )
17.646 W o r k I n c e n t i v e P r o g r a m
Obligations
( i n thousands
of d o l l a r s )
.
Table 5.4 ( c o n t )
$17 BILLION ILLUSTRATIVE TURNBACK PACKAGE
CFDA NUMBER
NAME OF GRANT PROGRAM
Higher Education
84.069
State Student Incentive Grants
Highvays and P u b l i c T r a n s p o r t a t i o n
20.205
20.205
20.205
20.205
Urban Highvay S y s t e m and M e t r o p o l i t a n P l a n n i n g
Secondary Highways
O t h e r H i g b v a y T r u s t Fund P r o g r a m s
Primary Highvays
Libraries
84.039 L i b r a r y R e s e a r c h and D e m o n s t r a t i o n
84.091 S t r e n g t h e n i n g R e s e a r c h L i b r a r y R e s o u r c e s
84.154 P u b l i c L i b r a r y S e r v i c e a
L i b r a r y Construction ( T i t l e 11)
--
1
Medical Assistance
I
13.217
13.226
13.242
13.260
13.263
13.273
13.298
13.361
13.379
13.381
13.766
13.776
13.864
13.865
13.886
13.891
13.965
13.974
13.977
13.978
13.991
13.992
Family Planning P r o j e c t s
H e a l t h S e r v i c e R e s e a r c h a n d D e v e l o p m e n t -- G r a n t s
Mental Health Research Grants
Family Planning S e r v i c e s
O c c u p a t i o n a l S a f e t y and H e a l t h
Training Grants
Alcohol Research Programs
Nurse T r a i n i n g and T r a i n e e s h i p s
Nursing Research P r o j e c t Granta
Grants f o r Graduate Training i n Family Medicine
H e a l t h Professions
Financial Distressed Grants
H e a l t h F i n a n c i n g R e s e a r c h , D e m o n s t r a t i o n and Experiments
Professional Standards Reviev Organizations
Medicare
Population Research
Research f o r Mothers and C h i l d r e n
Grants f o r Physician A s s i s t a n t T r a i n i n g Program
Alcohol Research Center Granta
B l a c k Lung C l i n i c s
Family Planning
S e r v i c e s D e l i v e r y Improvement R e s e a r c h G r a n t s
Preventive Health Service--Venereal Disease Control Grants
Venereal D i s e a s e R e s e a r c h . D e m o n s t r a t i o n , I n f o r m a t i o n and E d u c a t i o n
Preventive Health S e r v i c e s Block Grants
A l c o h o l , Drug Abuse, and M e n t a l H e a l t h Block G r a n t
--
--
--
--
N a t u r a l Resources C o n s e r v a t i o n and Development
10.025 P l a n t and A n i m a l D i s e a s e and P e s t C o n t r o l
10.156 F e d e r a l - S t a t e M a r k e t i n g Improvement Program
FY 84
Obligations
( i n thousands
of d o l l a r s )
11.405 Anadromous and G r e a t L a k e s F i s h e r i e s C o n s e r v a t i o n
11.421 C o a s t a l Energy Impact Program ( F o r m u l a G r a n t s )
15.919 Urban P a r k and R e c r e a t i o n R e c o v e r y P r o g r a m
Occupational S a f e t y and H e a l t h
17.500 O c c u p a t i o n a l S a f e t y and H e a l t h
--
S t a t i s t i c a l Grants
Vocational Education
--
Basic Grants t o S t a t e s
Vocational Education
V o c a t i o n a l E d u c a t i o n -- C o n s u m e r a n d Homemaking E d u c a t i o n
Vocational Education
Program Improvement and S u p p o r t i v e S e r v i c e
S p e c i a l Programs f o r t h e Disadvantaged
Vocational Education
Women's E d u c a t i o n a l E q u i t y
S t a t e Planning and E v a l u a t i o n
Vocational Education
Basic Support
Rehabilitation Services
Special Projects
Rehabilitation Services
Rehabilitation Training
----
--
--
Volunteer Services
72.005
72.013
Service-Learning Programs
Technical A s s i s t a n c e Program
Source: ACIR calculations.
Table 5.5
$18 BILLION ILLUSTRATIVE TURNBACK PACKAGE
Relinquishment of Alcohol, Tobacco, and Telephone E x c i s e Taxes and
3.6 Cents of t h e Gasoline Tax: Turnback of 67 Programs,
I n c l u d i n g N o n - I n t e r s t a t e Roads, P o s t T r a n s i t i o n , 1984 Data
(A)
STATE
(B )
PROGRAM
TURNBACK
(SK )
TAX
TURNBACK
18.135.081
15.188.296
($lo
(C
>
(Dl
(El
(F
TOTAL S 6 L
S 6 L LOSS S 6 L BALANCE
BALANCE
D U E T O E V E N A F T E R OEF.
OEF.REO(SK)
RED. ( S K I
(SKI
>
(GI
(H
X OF PROG.
CHANGE A S U
P.C.
BAL.
FUNDS
OWN SOURCE
AFTER DEF.
R E P L A C E D REVENUE
REDUCTION($)
ALABAMA
ALASKA
ARIZONA
ARKANSAS
CALIFORNIA
COLORADO
CONNECTICUT
DELAWARE
FLORIDA
GEORGIA
HAWA 1 I
IOAHO
ILLINOIS
INDIANA
IOWA
KANSAS
KENTUCKV
LOUISIANA
MAINE
MARVLANO
MASSACHUSETTS
MICHIGAN
MINNESOTA
MISSISSIPPI
MISSOURI
MONTANA
NEBRASKA
NEVADA
NEW H A M P S H I R E
NEW JERSEY
NEW M E X I C O
NEW VORK
NORTH C A R O L I N A
NORTH OAKOTA
OHIO
OKLAHOMA
OREGON
PENNSVLVANIA
RHOOE I S L A N D
SOUTH C A R O L I N A
SOUTH OAKOTA
TENNESSEE
TEXAS
UTAH
VERMONT
VIRGINIA
WASHINGTON
WEST V I R G I N I A
WISCONSIN
WYOMING
U N I T E D STATES
-2.946.785
2.946.785
0
83.75
-0.75
0.00
CFDA NUMBER
NAME OF GRANT PROGRAM
Arts a n d H u m a n i t i e s
4 5 . I 04
45.122
45.127
45.130
45 .I 32
45.134
45.145
45.146
45.147
45.150
Promotion of t h e Humanities--Media Humanities P r o j e c t s
Promotion o f t h e H u m a n i t i e s - - F e l l o w s h i p s a t C e n t e r s f o r Advanced S t u d y
P r o m o t i o n o f t h e Humani t i e s - - 1 n s t r u c t i o d i n E l e m e n t a r y a n d S e c o n d a r y S c h o o l s
P r o m o t i o n o f t h e H u m a n i t i e s - - C h a l l e n g e G r a n t s Program
P r o m o t i o n of t h e H u m a n i t i e s - - R e s e a r c h M a t e r i a l s P u b l i c a t i o n s
Promotion of t h e Humanities--Research Conferences
P r o m o t i o n o f t h e H u m a n i t i e s - - R e s e a r c h M a t e r i a l s T o o l s a n d R e f e r e n c e Works
P r o m o t i o n o f t h e Humani t i e s - - R e s e a r c h M a t e r i a l s E d i t i o n s
P r o m o t i o n o f t h e Humani t i e s - - R e s e a r c h M a t e r i a l s T r a n s l a t i o n s
Central Disciplines i n Undergraduate Education
Community D e v e l o p m e n t
1 4 . 2 1 8 Community D e v e l o p m e n t B l o c k G r a n t
--
Entitlement Grants
Criminal J u s t i c e
I
n
;
16.542 N a t i o n a l I n s t i t u t e f o r J u v e n i l e J u s t i c e a n d D e l i n q u e n c y P r e v e n t i o n
16.601 C o r r e c t i o n s T r a i n i n g a n d S t a f f Development
16.603 C o r r e c t i o n s - - T e c h n i c a l A s s i s t a n c e
Economic Development
11.300 Economic Development
--
G r a n t s a n d L o a n s f o r P u b l i c Works a n d Development A s s i s t a n c e
Elementary and Secondary E d u c a t i o n
13.600
13.631
84.003
84.008
84.023
84.027
84.027
--
A d m i n i s t r a t i o n f o r C h i l d r e n , Youth and F a m i l i e s
Head S t a r t
Special Projects
A d m i n i s t r a t i o n on Development D i s a b i l i t i e s
Bilingual Education
A l c o h o l and Drug Abuse E d u c a t i o n Program
Research and Demonstration
Handicapped
Handicapped
S t a t e G r a n t Program
Handicapped
Preschool Incentive Grants
--
----
Employment a n d T r a i n i n g
17.235
17.246
17.250
17.250
17.646
--
N a t i o n a l Program
S e n i o r Community S e r v i c e Employment
D i s l o c a t e d Worker A s s i s t a n c e
Job T r a i n i n g P a r t n e r s h i p G r a n t s t o S t a t e s (Disadvantaged Workers)
Summer Y o u t h E m p l o y m e n t P r o g r a m ( J T P A )
Work I n c e n t i v e P r o g r a m
Higher Education
8 4 . 0 4 7 Upward B o u n d
84.069 S t a t e S t u d e n t I n c e n t i v e G r a n t s
FY 54
Obligations
(in t h o u s a n d s
of d o l l a r s )
84.052
84.077
8 4 .O83
84.121
84.126
84 . I 2 9
--
Vocational Education
S p e c i a l Programs f o r t h e Disadvantaged
Bilingual Vocational Training
Women's E d u c a t i o n a l E q u l t y
Vocational Education
S t a t e Planning and Evaluation
Basic Support
Rehabilitation Services
Rehabilitation Training
--
--
Volunteer Services
72.002 R e t i r e d S e n i o r V o l u n t e e r Program
72.005 S e r v i c e - L e a r n i n g Programs
72.012 V o l u n t e e r D e m o n s t r a t i o n Program
Water P o l l u t i o n C o n t r o l
10.418 Water and Waste D i s p o s a l S y s t e m s G r a n t s f o r R u r a l Communities
10.418 Water and Waste Loans
6 6 . 4 1 8 C o n s t r u c t i o n G r a n t s f o r W a s t e w a t e r T r e a t m e n t Works
Source: ACIR calculations.
Table 5 . 6
$21 BILLION ILLUSTRATIVE TURNBACK PACKAGE
Relinquishment of Alcohol, Tobacco, and Telephone Excise Taxes and
6 . 1 Cents of the Gasoline Tax: Turnback of 63 Programs,
Including Selected Block Grants, Non-Interstate Roads, and M A ,
Post Transition, 1984 Data
(A 1
PROGRAM
TURNBACK
(SKI
ALABAMA
ALASKA
ARIZONA
ARKANSAS
CALIFORNIA
COLORADO
CONNECTICUT
DELAWARE
FLORIDA
CEORGl A
HAWA l I
IOAHO
ILLINOIS
INDIANA
IOWA
KANSAS
KENTUCKY
LOUISIANA
MAINE
MARYLAND
MASSACHUSETTS
MICHIGAN
MINNESOTA
MISSISSIPPI
MISSOURI
MONTANA
NEBRASKA
NEVADA
NEW H A M P S H I R E
NEW J E R S E Y
NEW M E X I C O
NEW VORK
NORTH CAROLINA
NORTH DAKOTA
OHIO
OKLAHOMA
OREGON
PENNSVLVANIA
RHODE I S L A N D
SOUTH C A R O L I N A
SOUTH DAKOTA
TENNESSEE
TEXAS
UTAH
VERMONT
VIRGINIA
WP\P [ NGTON
WEST V I R G I N I A
W I SCONSlN
WVOMI NG
--------------UNITED STATES
(B 1
TAX
TURNBACK
(SKI
(C 1
(Dl
(E1
TOTAL S L L
S L L LOSS S L L BALANCE
DUE TO EVEN
AFTER DEF.
BALANCE
RED. ( S K I
DEF.RED(SK)
(SK)
(F 1
X O F PROG.
(G)
m1
CHANGE A S X
P.C. BAL.
FUNDS
OWN SOURCE
AFTER DEF.
REPLACED
REVENUE
REDUCTION($)
CFDA NUMBER
NAME OF GRANT PROGRAM
Arts a n d H u m a n i t i e s
45.127
45.1 28
45.130
45.133
45.150
45.151
P r o m o t i o n of t h e Humani t i e s - - I n s t r u c t i o n . i n E l e m e n t a r y a n d S e c o n d a r y S c h o o l s
P r o m o t i o n o f t h e Humani t i e s - - H u m a n i t i e s S t u d i e s P r o g r a m
P r o m o t i o n o f t h e Humani t i e s - - C h a l l e n g e G r a n t s P r o g r a m
Promotion of t h e Humanities--Humanities,
Science and Technology
Central Disciplines i n Undergraduate Education
Summer S e m i n a r s f o r S e c o n d a r y S c h o o l T e a c h e r s
Community D e v e l o p m e n t
1 4 . 2 1 8 Community D e v e l o p m e n t B l o c k G r a n t
14.221 Urban Development A c t i o n G r a n t s
1 4 . 2 2 8 Community D e v e l o p m e n t B l o c k G r a n t
--
Entitlement Grants
--
States'
Program
Criminal J u s t i c e
I
rn
rD
I
16.541
16.542
16.560
16.601
16.603
--
J u v e n i l e J u s t i c e and Delinquency P r e v e n t i o n
S p e c i a l Emphasis
National I n s t i t u t e f o r J u v e n i l e J u s t i c e and Delinquency Prevention
J u s t i c e Research (Development P r o j e c t G r a n t s )
C o r r e c t i o n s T r a i n i n g and S t a f f Development
Corrections--Technical Assistance
Economic Development
11.304
23.003
23.008
23.009
--
Economic Development
P u b l i c Works I m p a c t P r o j e c t s
A p p a l a c h i a n D e v e l o p m e n t Highway S y s t e m
Appalachian Local Access Roads
Appalachian Local Development D i s t r i c t A s s i s t a n c e
Elementary and Secondary E d u c a t i o n
13.631
84.013
84.023
84.024
84.026
84.027
--
A d m i n i s t r a t i o n on Development D i s a b i l i t i e s
Special Projects
Educationally Deprived Children i n I n s t i t u t i o n s Serving Neglected o r Delinquent Children
Handicapped
Research and Demonstration
Handicapped E a r l y Childhood A s s i s t a n c e
Handicapped Media S e r v i c e s and C a p t i o n e d F i l m s
Handicapped
Preschool Incentive Grants
--
--
Employment a n d T r a i n i n g
17.235
17.246
17.250
17.646
--
S e n i o r Community S e r v i c e E m p l o y m e n t
D i s l o c a t e d Worker A s s i s t a n c e
Summer Y o u t h E m p l o y m e n t P r o g r a m ( J T P A )
Work I n c e n t i v e P r o g r a m
N a t i o n a l Program
FY 84
Obligations
( i n thousands
of d o l l a r s )
.
T a b l e 5.6 ( c o n t )
$21 BILLION ILLUSTRATIVE TURNBACK PACKAGE
CFDA NUMBER
NAME OF GRANT PROGRAM
Highways a n d P u b l i c T r a n s p o r t a t i o n
20.205
20.205
20.205
20.205
20.500
20.507
20.509
U r b a n Highway S y s t e m a n d M e t r o p o l i t a n P l a n n i n g
Secondary Highways
O t h e r Highway T r u s t F u n d P r o g r a m s
Primary Highways
UMTA C a p i t a l I m p r o v e m e n t G r a n t s
Section 3
Section 5
UMTA C a p i t a l a n d O p e r a t i n g A s s i s t a n c e F o r m u l a G r a n t s
Public T r a n s p o r t a t i o n f o r Nonurbanized Areas
S e c t i o n 18
--
--
--
Medical A s s i s t a n c e
13.224
13.242
13.260
13.263
13.294
13.298
13.361
13.379
13.766
13.864
13.865
13.886
13.891
13.965
13.978
Community H e a l t h C e n t e r s
Mental H e a l t h R e s e a r c h G r a n t s
Family P l a n n i n g S e r v i c e s
Occupational S a f e t y and Health
Training Grants
Health Planning and Health Systems Agencies
Nurse T r a i n i n g and T r a i n e e s h i p s
Nursing Research P r o j e c t Grants
Grants f o r Graduate T r a i n i n g i n Family Medicine
Health F i n a n c i n g Research, Demonstration and Experiments
Population Research
Research f o r Mothers and C h i l d r e n
G r a n t s f o r P h y s i c i a n A s s i s t a n t T r a i n i n g Program
Alcohol Research C e n t e r G r a n t s
B l a c k Lung C l i n i c s
Venereal D i s e a s e R e s e a r c h , D e m o n s t r a t i o n , I n f o r m a t i o n and E d u c a t i o n
--
Miscellaneous
11.550 P u b l i c Telecommunications F a c i l i t i e s
N a t u r a l R e s o u r c e s C o n s e r v a t i o n and Development
10.156 F e d e r a l - S t a t e M a r k e t i n g Improvement Program
10.652 F o r e s t r y Research
15.919 Urban Park a n d R e c r e a t i o n Recovery Program
O c c u p a t i o n a l S a f e t y and H e a l t h
15.250
15.250
15.252
17.500
Underground Coal M i n i n g
S m a l l Mine O p e r a t o r s A s s i s t a n c e
Abandoned Mine L a n d R e c l a m a t i o n P r o g r a m
Occupational S a f e t y and H e a l t h
S t a t i s t i c a l Grants
--
FY 84
Obligations
( i n thousands
of dollars)
L
d
c
c
m
o
0
r l u
o
m
U
L
c
a 4 2 0
E - f i u
o
-
m
o
-
w
Table 5.7
$22 BILLION ILLUSTRATIVE TURNBACK PACKAGE
Relinquishment of Alcohol, Tobacco, and Telephone E x c i s e Taxes and
5.8 Cents of t h e Gasoline Tax: Turnback of 73 Programs,
I n c l u d i n g N o n - I n t e r s t a t e Roads and UMTA, P o s t T r a n s i t i o n , 1984 Data
STATE
ALABAMA
ALASKA
ARIZONA
ARKANSAS
CALIFORNIA
COLORADO
CONNECTICUT
DELAWARE
FLORIDA
GEORGIA
HAWAII
IDAHO
ILLINOIS
INDIANA
IOWA
KANSAS
KENTUCKY
LOUISIANA
MAINE
MARY LAND
MASSACHUSETTS
MICHIGAN
MINNESOTA
MISSISSIPPI
MISSOURI
MONTANA
NEBRASKA
NEVADA
NEW HAMPSHIRE
NEW JERSEY
NEW MEXICO
NEW YORK
NORTH CAROLINA
NORTH DAKOTA
OHIO
OKLAHOMA
OREGON
PENNSYLVANIA
RHODE ISLAND
SOUTH CAROLINA
SOUTH DAKOTA
TENNESSEE
TEXAS
UTAH
VERMONT
VIRGINIA
WASHINGTON
WEST V I R G I N I A
WISCONSIN
WYOMING
(A)
PROGRAM
TURNBACK
(SKI
( B)
TAX
TU[UYBACK
(SKI
(C)
(D)
( E)
TOTALSLL
ShLLOSSShLBALANCE
BALANCE
DUE TO EVEN AFTER DEF.
( $K)
D E F .RED( $K)
RED. ( $K)
(F)
( G)
(HI
XOFPROG.CHANGEAS%
P.C. BAL.
FUNDS
OWN SOURCE AFTER DEF.
REPLACED REVENUE
REDUCTION( $)
NAME OF GRANT PROGRAM
CFDA NUMBER
Arts and Humanities
45.132 Promotion of the Humanities--Research Materials Publications
45.133 Promotion of the Humanities--Humanities. Science and Technology
Community Development
14.218 Community Development Block Grant
14.221 Urban Development Action Grants
14.228 Community Development Block Grant
--
Entitlement Grants
--
States' Program
Criminal Just ice
16.541
16.542
16.601
16.602
16.603
--
Juvenile Justice and Delinquency Prevention
Special Emphasis
National Institute for Juvenile Justice and Delinquency Prevention
Corrections Training and Staff Development
Corrections--Research and Evaluation and Policy Formulation
Correct ions--Technical Assistance
Economic Development
11.300
11.303
11.304
11.305
23.004
23.008
23.009
Economic Development -- Grants and Loans for Public Works and Development Assistance
Economic Development -- Technical Assistance
Public Works Impact Projects
Economic Development
Economic Development -- State and Local Economic Development
Appalachian Health Programs
Appalachian Local Access Roads
Appalachian Local Development District Assistance
--
Economic Opportunity
59.032 Office of Women's
Business Ownership
Elementary and Secondary Education
13.631
84.024
84.026
84.027
84.027
Administrat ion on Development Disabilities -- Special Projects
Handicapped Early Childhood Assistance
Handicapped Media Services and Captioned Films
Handicapped -- State Grant Program
Handicapped -- Preschool Incentive Grants
Employment and Training
13.646 Work Incentive Program - - Child Care and Other Social Services
17.246 Dislocated Worker Assistance
17.250 Summer Youth Employment Program (JTPA)
FY 84
Obligations
( In thousands
of dollars)
.
Table 5 . 7 (cont )
$22 BILLION ILLUSTRATIVE TURNBACK PACKAGE
NAME OF GRANT PROGRAM
CFDA NUMBER
H i g h w a y s and P u b l i c T r a n s p o r t a t i o n
20.205 U r b a n H i g h w a y S y s t e m a n d M e t r o p o l i t a n P l a n n i n g
20.205 S e c o n d a r y H i g h w a y s
20.205 O t h e r H i g h w a y T r u s t F u n d P r o g r a m s
20.205 P r i m a r y H i g h w a y s
20.500 U M T A C a p i t a l I m p r o v e m e n t G r a n t s
Section 3
Section 5
20.507 U M T A C a p i t a l a n d O p e r a t i n g Assistance F o r m u l a G r s n t s
20.509 P u b l i c T r a n s p o r t a t i o n f o r N o n u r b a n i z e d A r e a s
Section 1 8
--
--
--
L i b r a r ies
84.039
84.154
I
L i b r a r y R e s e a r c h and D e m o n s t r a t i o n
Public Library Services
L i b r a r y C o n s t r u c t i o n ( T i t l e 11)
--
Medical Assistance
13.217
13.263
13.361
13.381
13.766
13.965
13.978
Family Planning Projects
Occupational Safety and H e a l t h
Training Grants
Nursing Research Project Grants
Health Professions
Financial Distressed Grants
Health Financing Research, Demonstration and Experiments
B l a c k Lung C l i n i c s
Venereal D i s e a s e Research. Demonstration, Information and Education
--
--
Miscellaneous
11.550
Public Telecommunications Facilities
Natural Resources Conservation and Development
10.156
10.500
10.500
10.652
10.664
10.901
10.904
11.405
11.419
11.420
15.600
15.611
15.919
Federal-State Marketing Improvement Program
Cooperative Extension Service
1862 Land Grant Universities
Tuskegee Institute
Forestry Research
Cooperative Forestry Assistance
Resource Conservation and Development
W a t e r s h e d P r o t e c t i o n and F l o o d P r e v e n t i o n - - S m a l l W a t e r s h e d O p e r a t i o n s
A n a d r o m o u s and G r e a t L a k e s F i s h e r i e s C o n s e r v a t i o n
Coastal Zone Management Program Administration
Coastal Zone Management Estuarine Sanctuaries
Anadromous Fish Conservation
Wildlife Restoration (Pittman-Robertson Program)
U r b a n P a r k and R e c r e a t i o n R e c o v e r y P r o g r a m
--
FY 84
Obligations
( i n thousands
of d o l l a r s )
4 m u o
u B eIC
rnww
B E m
o o w a
> 4
UE
4
up.
m e o w
4 o * a
LLIUp.rn
u u u u p
m o m 4 4
U U U U C
o o o o w
C W C D d
OOmoCVm
.....
*UV\VIN
oooo-t
uu.ru*
a o O a a C O
l a r g e r t h a n i t s p r e d e c e s s o r , t h e r e i s somewhat l e s s d e f i c i t
c a u s e i t r e p l a c e s 88% ( r a t h e r t h a n 8 4 % ) of
c u r r e n t funding.
reduct ion,
be-
Revenues come
from t h e a l c o h o l , t o b a c c o , and t e l e p h o n e e x c i s e s , a s w e l l a s a s h a r e of t h e
f e d e r a l gas
tax.
programs p l u s
The
those
gas t a x funding corresponds t o n o n - I n t e r s t a t e
of
t h e Urban Hass T r a n s i t
Administration
(UMTA).
road
In
a d d i t i o n , t h i s package i s d e s i g n e d t o t e s t f o r i n c l u d i n g c e r t a i n l a r g e blockg r a n t and o t h e r programs.
The package h a s a n e q u a l i z i n g t e n d e n c y , w i t h South C a r o l i n a g a i n i n g $19
per c a p i t a , a f t e r d e f i c i t reduction.
i t s s h a r e of
deficit
West V i r g i n i a s u f f e r s a l o s s (i.ncluding
r e d u c t i o n ) , however, t h a t
i s e q u i v a l e n t t o 3% of
its
own-source revenues.
THE $ 2 2 B I L L I O N PACKAGE
The $ 2 2 b i l l i o n package,
t h e l a r g e s t i n terms
a l s o a t t a i n s t h e most d e f i c i t r e d u c t i o n ,
of program d e v o l u t i o n ,
$3.5 b i l l i o n a n n u a l l y ( T a b l e 5.7).
F u r t h e r work w i l l t a k e a l a r g e package l i k e t h i s and a d j u s t i t s p e r c e n t a g e
d e f i c i t r e d u c t i o n t o be comparable t o t h a t e f f e c t e d by t h e mandatory reduct i o n s under t h e Gramm-Rudman-Hollings
Amendment. I n t h i s way a c r o s s - t h e - b o a r d
cutbaclcs can be compared t o t h o s e t h a t
take the s t a t e s
'
f i s c a l capacities
i n t o account.
FOOTNOTES
C u r r e n t program s p e n d i n g i s d e f i n e d a s FY 84 a c t u a l o b l i g a t i o n s , c o l l e c t ed by F i s c a l P l a n n i n g S e r v i c e s . T o t a l r e v e n u e s , a l s o f o r FY 8 4 , a r e t h o s e
l i s t e d i n t h e FY 86 Budget of t h e U n i t e d S t a t e s Government, e x c e p t i n t h e
c a s e of h i g h w a y - r e l a t e d e x c i s e s .
Because t h e r e was a r a t e i n c r e a s e on
State-by-state allocad i e s a l f u e i du;ing FY 8 4 , FY 85 f i g u r e s a r e used.
t i o n of highway e x c i s e s u s e s FY 83 f i g u r e s from t h e F e d e r a l Highway Admini s t r a t i o n , t h e most r e c e n t a v a i l a b l e when r e s e a r c h began.
A l l o c a t i o n of
a l c o h o l i c b e v e r a g e e x c i s e s u s e s FY 84 d a t a from t h e D i s t i l l e d S p i r i t s
Council. A l l o c a t i o n of t e l e p h o n e e x c i s e t a x e s u s e s 1983 d a t a from t h e
American Telephone and T e l e g r a p h Company and t h e F e d e r a l Communications
Commission. A l l o c a t i o n of t o b a c c o e x c i s e s u s e s 1983 d a t a from t h e
American Tobacco I n s t i t u t e .
The l a s t two columns of T a b l e 5.1 omit A l a s k a and Wyoming. F o r e a c h packa g e shown ( a s w e l l a s f o r t h e a l t e r n a t i v e packages c o n s i d e r e d ) , Alaska
had t h e h i g h e s t p e r c a p i t a l o s s , a f i g u r e t h a t was o f t e n s e v e r a l times
h i g h e r t h a n t h e s t a t e w i t h t h e second h i g h e s t l o s s .
Alaska r e c e i v e s a n
u n u s u a l l y h i g h l e v e l of f e d e r a l g r a n t s p e r c a p i t a . Wyoming, on t h e o t h e r
hand, always r e c e i v e d t h e l a r g e s t p e r c a p i t a g a t n b e c a u s e oE i t s r e l a t i v e l y modest c u r r e n t r e c e i p t of f e d e r a l f u n d s , combined w i t h h i g h p e r
c a p i t a p r o c e e d s from a l c o h o l and t o b a c c o e x c i s e s .
Both Alaska and Wyo-
3/
4/
-
5/
-
-61
71
-
ming, however, f i g u r e d i n package d e s i g n and a p p e a r i n t h e s t a t e - b y - s t a t e
d e t a i l f o r e a c h package.
FY 84 o b l i g a t i o n s i n t h i s t a b l e i n c l u d e Washington, DC.
E l s e w h e r e , howe v e r , t h i s j u r i s d i c t i o n was e x c l u d e d .
P l u s 1 i n d i c a t e s p e r f e c t p o s i t i v e a s s o c i a t i o n ; 0 no a s s o c i a t i o n ; -1 p e r f e c t
n e g a t i v e a s s o c i a t i o n . The t s t a t i s t i c i s 1.78 s o t h e r e l a t i o n s h i p between
f i s c a l c a p a c i t y and g r a n t r e c e i p t i s s t a t i s t i c a l l y s i g n i f i c a n t a t a twot a i l e d s i g n i f i c a n c e l e v e l of 0.10.
A s t a t i s t i c of -2.23 shows t h a t t h e r e l a t i o n s h i p between r e l a t i v e l y low
f i s c a l c a p a c i t y a n d a l o s s ( r a t h e r t h a n a g a i n ) t o be s t a t i s t i c a l l y s i g n i f i c a n t a t a t w o - t a i l e d s i g n i f i c a n c e l e v e l of 0.05.
I n f a c t , e f f e c t i v e mismatch was computed a s t h e sum of f o u r components:
( 1 ) l o s s e s - - r e l a t i v e t o c u r r e n t funding--in s t a t e s w i t h f i s c a l c a p a c i t y
below t h e n a t i o n a l a v e r a g e ; ( 2 ) l o s s e s i n s t a t e s w i t h above-average f i s c a l
c a p a c i t y ; ( 3 ) g a i n s i n s t a t e s w i t h above-average c a p a c i t i e s ; and ( 4 ) g a i n s
i n s t a t e s w i t h below-average c a p a c i t i e s .
Both t h e s i z e of t h e g a i n o r
l o s s and t h e l e v e l of f i s c a l c a p a c i t y ( r e l a t i v e t o t h e n a t i o n a l a v e r a g e )
i n f l u e n c e d e a c h component. P e r c a p i t a g a i n s and l o s s e s were g r o s s ; i . e . ,
n o t n e t of t h e even d e f i c i t r e d u c t i o n amount. Although p a r a m e t e r v a l u e s
v a r i e d from package t o package, i n e a c h c a s e t h e y were d e s i g n e d e s p e c i a l l y
t o a v o i d t h e f i r s t c a t e g o r y of mismatch, l o s s e s i n s t a t e s l e a s t l i k e l y
t o be a b l e t o a b s o r b them.
T h i s and a l l o t h e r packages w i t h t r a n s p o r t a t i o n programs i n c l u d e 60%
of t h e "Other highway t r u s t f u n d programs" l i n e i n T a b l e 5.2, which i s
p r e d o m i n a n t l y t h e b r i d g e replacement and r e h a b i l i t a t i o n program.
The
60% f i g u r e d e r i v e s from u n p u b l i s h e d C o n g r e s s i o n a l Budget O f f i c e d a t a
i n d i c a t i n g t h a t about 60% of f e d e r a l b r i d g e f u n d i n g , n a t i o n w i d e , goes
f o r b r i d g e s on n o n - I n t e r s t a t e r o a d s .
Appendix A
PARTICIPANTS I N REGIONAL ROUNDTABLES
Three r o u n d t a b l e meetings on revenue and r e s p o n s i b i l i t y t u r n b a c k s were
sponsored by ACIR d u r i n g t h e f a l l of 1985, i n Salem (OR), P h i l a d e l p h i a , and
Chicago.
P a r t i c i p a n t s i n t h e s e meetings were very h e l p f u l i n developing t h e
i d e a s c o n t a i n e d i n t h i s r e p o r t , f o r which t h e Commission i s g r a t e f u l .
Their
names and o r g a n i z a t i o n s a r e l i s t e d below.
Salem (OR) Roundtable, October 2 , 1985
Mary Van Den Bos ch, Mayor of D a l l a s , OR
P a t Engen, s t a f f member, League of Oregon C i t i e s
Melburn H a l l , Mayor of Newberg, OR, P r e s i d e n t - e l e c t of t h e League of
Oregon C i t i e s
J e r r y J u s t i c e , D i r e c t o r of P u b l i c A f f a i r s , Clackamas County, OR
J e r r y M a r t i n , s t a f f m e m b e r , Oregon School Boards A s s o c i a t i o n
J e r r y O r i c k , E x e c u t i v e D i r e c t o r , O r g a n i z a t i o n of Oregon Counties
J u d i t h Tegger, S p e c i a l A s s i s t a n t t o t h e Attorney-General
f o r Labor
R e l a t i o n s , S t a t e of Oregon
Ken T o l l e n a a r , D i r e c t o r , Bureau of Governmental Research and
S e r v i c e , U n i v e r s i t y of Oregon
Dick Townsend, A c t i n g Executive D i r e c t o r , League of Oregon C i t i e s
P h i l a d e l p h i a Roundtable, October 16, 1985
Ed Baker, U n i v e r s i t y of Pennsylvania Law School
Michael B i r d , s t a f f d i r e c t o r , Government O p e r a t i o n s and R e g u l a t i o n
Committee, N a t i o n a l Conference of S t a t e L e g i s l a t u r e s
Bob Connor, New J e r s e y C i v i l S e r v i c e Commission
C h r i s D a n i l o , New J e r s e y C i v i l S e r v i c e Commission
Curt Kiser, S t a t e S e n a t o r , C l e a r w a t e r , FL
A u s t i n Lee, E x e c u t i v e D i r e c t o r , B i p a r t i s a n Management Commit tee,
Pennsylvania House of R e p r e s e n t a t i v e s
J i m N e l l i g a n , Deputy S e c r e t a r y of Revenue, S t a t e of P e n n s y l v a n i a
Rose Marie Swanger, County Commissioner, Lebanon County, PA
J e f f r e y T e i t z , S t a t e R e p r e s e n t a t i v e i n Rhode I s l a n d , Chairman of
House J u d i c i a r y Committee
Bob Thompson, Chairman of County Commissioners, C h e s t e r County, PA
William D. V a l e n t e , Villanova U n i v e r s i t y Law School
Dave Wynne , Pennsylvania Economy League
Chicago Roundtable, November 4 , 19 85
John Amberger, S o u t h e a s t Michigan C o u n c i l of Governments
Roland W. B u r r i s , C o m p t r o l l e r , S t a t e of I l l i n o i s
Henry N. B u t l e r , U n i v e r s i t y of Chicago Law School
J e f f r e y E s s e r , Government F i n a n c e O f f i c e r s A s s o c i a t i o n
J i m F r e c h , Washington O f f i c e , I l l i n o i s G e n e r a l Assembly
Douglas W. Kmiec, U n i v e r s i t y of N o t r e Dame Law School
P a u l McCarron, Chairman, Minnesota Governor's Advisory C o u n c i l on S t a t e Local Relations
E a r l Mackey , E x e c u t i v e D i r e c t o r , N a t i o n a l Conference of S t a t e
Legislatures
John M a r t i n , S p e a k e r , Maine House of R e p r e s e n t a t i v e s
"rank M i l l e r , C h a i r , m n of t h e Board, Kane County, IL
Lloyd Omdahl, Bureau of Governmental A f f a i r s , U n i v e r s i t y of North Dakota
Vincent Ostrom, Department of P o l i t i c a l S c i e n c e , I n d i a n a U n i v e r s i t y
S c h r a e d e r , D i r e c t o r of Labor R e l a t i o n s , S t a t e of M i s s o u r i
I v a n L.
Thomas S o l b e r g , Bureau of L o c a l Government S e r v i c e s , Wisconsin
Department of Revenue
Y4ary E l e a n o r W a l l , E l m h u r s t , IL
Appendix B
ALTERNATIVE MECHANISMS FOR FISCAL AND PROGRAMATIC DEVOLUTION
The chief
alternatives
revenue s h a r i n g ;
origin-based
t o turnbacks
are
block
grants;
formula-based
s h a r i n g of t a x e s c o l l e c t e d by Washington; and
"swaps" of program r e s p o n s i b i l i t i e s among t h e l e v e l s of government.
BLOCK GRANTS
A s an a l t e r n a t i v e t o c a t e g o r i c a l o r p r o j e c t g r a n t s , with t h e i r i n t r i c a t e
requirements, b l o c k g r a n t s o f f e r f i n a n c i a l a s s i s t a n c e t o s t a t e - l o c a l governments w i t h f a r fewer s t r i n g s a t t a c h e d .
notably the
Rut t h e r e a r e some s t r i n g s a t t a c h e d ,
cross-cut t i n g requirements
grant recipients
(ACIR,
p r o c e s s , block-grant
1984).
And,
that
subject
Congress has
on i t a
t o t h e annual appropriation
funding has not been a s l a r g e ,
been t h e c a s e i n p r i o r y e a r s .
mandated
o r a s r e l i a b l e , a s had
C e r t a i n major block grants, such a s t'lose f o r
community development, a l r e a d y have been s h a r p l y c u t ; most a r e a t r i s k of
f u r t h e r cutback.
Block g r a n t s a r e a compromise, combining f e d e r a l f u n d i n g w i t h l e s s fed-
A s a compromise,
they
have weaknesses a s w e l l a s s t r e n g t h s , a s shown by r e c e n t f u n d i n g c u t s .
The
e r a l c o n t r o l than e x i s t s w i t h most g r a n t programs.
n a t i o n a l p o l i t i c a l consensus t h a t e s t a b l i s h e s a block g r a n t f o r a p a r t i c u l a r
purpose may not succeed i n m a i n t a i n i n g i t s funding o r i t s o r i g i n a l goals.
I n contrast t o categorical grants supporting, say, c u l t u r a l f a c i l i t i e s
or fisheries,
d i f f u s e group.
the ultimate beneficiaries
any block
grant
constitute a
They may s e e l i t t l e reason t o lobby f o r a program t h a t might
n o t b e n e f i t them.
c u t t i n g time.
of
Consequently, block g r a n t s may n o t f a r e w e l l a t budget-
By t h e same token,
b e n e f i c i a r y groups c o n t i n u a l l y p r e s s t o
" r e - c a t e g o r i z e " block g r a n t s (undermining t h e f l e x i b i l i t y they were designed
t o g i v e s t a t e and l o c a l
o f f i c i a l s ) i n hopes
of
d i r e c t i n g program funding
toward t h e p a r t i c u l a r a c t i v i t i e s of i n t e r e s t t o them.
-71-
FORMULA-BASED REVENUE SHARING AND ORIGIN-BASED TAX SHARING
Tax d o l l a r s c o l l e c t e d by Washington may be d i s t r i b u t e d by formula ( a s i n
General Revenue S h a r i n g g r a n t s ) o r by p o i n t of o r i g i n .
Formula-based d i s t r i -
b u t i o n i s i d e a l f o r t a r g e t i n g funds on j u r i s d i c t i o n s w i t h weak t a x bases.
If
t h e y had t o r e l y wholly on t h e i r own revenue s o u r c e s ( t h a t i s , were deprived
of a l l i n t e r g o v e r n m e n t a l g r a n t s ) some s t a t e s o r t h e i r communities would have
t o t a x a t r a t e s s u b s t a n t i a l l y h i g h e r t h a n average t o p r o v i d e even minimal
public services.
S t a t e and l o c a l p u b l i c o f f i c i a l s l i k e revenue and tax-shar-
i n g g r a n t s p a r t i c u l a r l y because t h e money can be used a s g e n e r a l purpose f i s c a l
a s s i s t a n c e , i d e a l l y r e l i e v i n g p r e s s u r e s t o r a i s e t a x e s . A s w i t h block g r a n t s ,
however, t h e unearmarked c h a r a c t e r of
spending from s h a r e d t a x d o l l a r s de-
p r i v e s t h e s e g r a n t s of a v i d s u p p o r t e r s among s e r v i c e r e c i p i e n t s .
Origin-based t a x s h a r i n g might g a i n f a v o r among t h o s e j u r i s d i c t i o n s t h a t
pay more i n t a x e s t o Washington than they g e t back. This approach c o n t r a d i c t s
t h e t a r g e t i n g of a s s i s t a n c e t o p l a c e s w i t h low f i s c a l c a p a c i t y .
Taxing c i t i -
zens i n o r d e r t o send t h e c o l l e c t i o n s t o Washington and t h e n back t o t h e i r
own communities may seem u n n e c e s s a r i l y c i r c u i t o u s , but n a t i o n a l l y uniform t a x
r a t e s avoid i n t e r j u r i s d i c t i o n a l c o m p e t i t i o n f o r low t a x e s .
t h e i n a b i l i t y of
A t t h e same t i m e ,
s t a t e and l o c a l governments t o s e t t h e r a t e s of Congres-
s i o n a l l y s h a r e d t a x e s , means t h a t they cannot choose between lower t a x e s and
h i g h e r l e v e l s of p u b l i c s e r v i c e s .
SWAPPING PROGRAMS AMONG LEVELS OF GOVERNMENT
Governments a t d i f f e r e n t l e v e l s may swap program r e s p o n s i b i l i t i e s amongst
themselves i n o r d e r t o
"sort
out" authority for
given types
of
programs,
g r e a t l y s i m p l i f y i n g a d m i n i s t r a t i o n and enhancing a c c o u n t a b i l i t y and responsiveness.
Such a s o r t i n g out
of
government f u n c t i o n s was c e n t r a l t o t h e
Reagan A d m i n i s t r a t i o n ' s u n s u c c e s s f u l New F e d e r a l i s m p r o p o s a l of
1982.
p r o p o s a l foundered
the
when
the
administration
attempted t o
give
That
states
funding r e s p o n s i b i l i t y f o r c e r t a i n e x i s t i n g w e l f a r e programs, programs t h a t ,
unaided, some s t a t e s probably cannot fund a t c u r r e n t l e v e l s .
ASSESSING ALTERNATIVE MECHANISMS FOR DEVOLUTION
Five c r i t e r i a a r e
mechanisms.
In
the
c e n t r a l t o any a n a l y s i s of
long r u n ,
a full
appraisal
a l t e r n a t i v e devolution
depends
on t h e
uncertain
i n t e r g o v e r n m e n t a l p o l i t i c a l environment of t h e f u t u r e but each c r i t e r i o n i s
important enough f o r d i s c u s s i o n .
The c r i t e r i a a r e :
- 72-
1)
2)
3)
4)
5)
t h e e x t e n t of d e c e n t r a l i z a t i o n achieved (which i s r e l a t e d t o f i s c a l
and p o l i t i c a l a c c o u n t a b i l i t y ) ;
t h e s i m p l i c i t y of any r e s u l t i n g p l a n ( i n t u r n encouraging e a s e and
q u a l i t y of implementation) ;
c e r t a i n t y of funding;
f u t u r e revenue adequacy, g i v e n hard-pressed budgets a t a l l l e v e l s of
government; and
e f f e c t s on f i s c a l d i s c i p l i n e , g i v e n s i m i l a r p r e s s u r e s t o a v o i d t a x
increases.
Extent of D e c e n t r a l i z a t i o n
Governmental decentralization--which
is d i f f i c u l t t o d e f i n e and measure--
n e v e r t h e l e s s may u s e f u l l y be subdivided . i n t o a d m i n i s t r a t i v e , f i s c a l , and programmatic d e c e n t r a l i z a t i o n .
Loosening up
t h e f e d e r a l r e g u l a t i o n s used t o
a d m i n i s t e r a c a t e g o r i c a l program a c h i e v e s some degree of a d m i n i s t r a t i v e dec e n t r a l i z a t i o n because t h e s t a t e - l o c a l o f f i c i a l s who run t h e intergovernmenta l program w i l l have a f r e e r hand t o change i t s o p e r a t i o n s .
administrative f l e x i b i l i t y
does
not
achieve
programmatic
But adding some
decentralization
because i t does n o t make fundamental changes i n t h e program's g o a l s o r even
i n how i t a t t e m p t s t o achieve t h o s e g o a l s .
These a r e m a t t e r s of l e g i s l a t i v e
d e s i g n o r r e d e s i g n , which i s i n Congress 's b a i l i w i c k .
And because a d m i n i s t r a -
t i v e f l e x i b i l i t y has n o t h i n g t o do w i t h program f i n a n c e i t does not i n f l u e n c e
f i s c a l d e c e n t r a l i z a t i o n , which i s i n c r e a s e d when t h e s u b n a t i o n a l government
t h a t a d m i n i s t e r s t h e program a l s o funds i t .
The g r e a t e s t
extent
decentralization--occurs
of
governmental
when s t a t e - l o c a l
decentralization--full
political
c i t i z e n s and o f f i c i a l s have simul-
taneous c o n t r o l of governmental a c t i v i t i e s and t h e i r f i n a n c i n g .
By c o n t r a s t ,
o n l y a d m i n i s t r a t i v e d e c e n t r a l i z a t i o n may be p o s s i b l e i n a s t r i c t u n i t a r y system of
government.
But i n a f e d e r a l system, where s u b n a t i o n a l governments
and c i t i z e n s have broad powers, t r u e d e c e n t r a l i z a t i o n demands much more. F u l l
p o l i t i c a l d e c e n t r a l i z a t i o n i s achieved only under swaps and t u r n b a c k s , f o r
only w i t h
these
devolutionary
mechanisms
do
administrative,
programmatic powers s h i f t t o s t a t e - l o c a l governments.
fiscal,
and
A l l other alternatives
c e r t a i n l y provide more f i s c a l f l e x i b i l i t y t h a n does t h e e x i s t i n g grant-in-aid
system, which i s h e a v i l y dependent on c a t e g o r i c a l a s s i s t a n c e , but t h e o t h e r
a l t e r n a t i v e s do not o f f e r f u l l f i s c a l d e c e n t r a l i z a t i o n .
D e c e n t r a l i z a t i o n provides both t h e circumstances and t h e r e s p o n s i b i l i t y
f o r s t a t e and l o c a l governments t o be accountable t o t h e i r c i t i z e n s .
Mal-
f u n c t i o n i n g programs cannot be blamed on Congress o r on b u r e a u c r a t s i n f a r -
-73-
away Washington.
Similarly,
does d e c e n t r a l i z a t i o n .
the pressures
for
responsiveness
increase as
Taxing and spending choices n o t consonant with t h e
v o t i n g community w i l l be punished a t t h e b a l l o t box.
Again, swaps and t u r n -
backs g e n e r a l l y s c o r e h i g h e r on t h i s measure than do a l t e r n a t i v e s .
Simplicity
C e r t a i n l y , any of t h e d e v o l u t i o n a r y mechanisms would s i g n i f i c a n t l y s i m p l i f y the current
i n t e r g o v e r n m e n t a l system,
when they
a r e i n place.
Rut
a l o n g w i t h s i m p l i c i t y , c e r t a i n t y of t r a n s i t i o n i s a l s o i m p o r t a n t , and t h e r e
t h e mechanisms d i f f e r .
The n a t i o n has e x p e r i e n c e w i t h block g r a n t s and rev-
enue s h a r i n g . Not s o w i t h swaps and t u r n b a c k s , which--depending
on t h e i r de-
sign--may
conceivably l e a d t o r a t h e r d i f f e r e n t p o s t - t r a n s i t i o n f i s c a l circum-
stances.
S t a t e and l o c a l officials who a r e r e l u c t a n t t o embark on major
changes, however, could be r e a s s u r e d by a w e 1 1 designed p r o c e s s of t r a n s i t i o n .
F u t u r e Revenue Adequacy
Long-term revenue adequacy i s a s d i f f i c u l t t o f o r e c a s t a s i t is import a n t t o hard-pressed
budget o f f i c e r s .
tergovernmental revenues
comparison.
considered
But t h a t assumes t h e
F r e q u e n t l y t h e c u r r e n t funding of i n f o r d e v o l u t i o n i s used a s a b a s i s f o r
c o n t i n u a t i o n of
t h e f e d e r a l s t a t u s quo,
which i s h i g h l y u n l i k e l y given t h e f o r c e s behind t h e passage of t h e GrammRudman-Hollings
Amendment, which
mandates a
balanced
budget
by
1991.
An
a d d i t i o n a l b a s e l i n e f o r comparison i s t h u s t h e a u t o m a t i c f u n d i n g c u t s t h a t
would o c c u r were t h e amendment's p r o v i s i o n s t o be put i n t o e f f e c t .
t h e b a s e l i n e used,
Whatever
any d e v o l u t i o n a r y mechanism can be designed t o m a i n t a i n
t h e funding t h a t would o c c u r a b s e n t d e v o l u t i o n , t o c u t funding ( f o r d e f i c i t
r e d u c t i o n ) o r even t o i n c r e a s e funding.
Another a s p e c t of long-term
revenue adequacy i s whether f u t u r e f u n d i n g
w i l l i n c r e a s e t o keep up w i t h c i t i z e n demands f o r i n c r e a s e d government spending.
From t h i s p e r s p e c t i v e t h e i d e a l revenue s o u r c e i s one t h a t i s h i g h l y
" e l a s t i c , " t h a t i s , i n c r e a s e s a u t o m a t i c a l l y ( a d j u s t i n g f o r i n £l a t i o n ) w i t h o u t
t h e need f o r r a t e h i k e s .
E l a s t i c t a x e s grow w i t h i n c r e a s e d p o p u l a t i o n , eco-
nomtc a c t i v i t y , and p r i c e l e v e l s .
The f e d e r a l t a x on p e r s o n a l incomes h a s
l o n g been c o n s i d e r e d t h e most e l a s t i c t a x , but i t s y i e l d s have been s t i f f e n e d
by i n d e x a t i o n .
Block g r a n t s , revenue s h a r i n g and t a x s h a r i n g t h a t a r e l i n k e d
t o t h e f e d e r a l income t a x a r e guaranteed a u t o m a t i c growth only i f they can
-74-
win o u t over o t h e r c o m p e t i t o r s f o r income t a x revenues.
A f t e r swaps, t h e devolved programs w i l l ,
state-local taxation.
of
c o u r s e , be f i n a n c e d from
Because of t h e g r e a t e r r e l i a n c e on s a l e s and income
taxation, the state-local
revenue base i s f a r more e l a s t i c t h a n i t once was,
b u t s t i l l less s o t h a n f e d e r a l l e v i e s .
I n t h e l a s t f i v e y e a r s (when f e d e r a l
c o l l e c t i o n s have d e c r e a s e d ) many s t a t e t a x p a y e r s have a c c e p t e d t a x h i k e s .
E l a s t i c i t y i s n o t t h e only component i n revenue adequacy; p r e s s u r e f o r t a x
c u t s and w i l l i n g n e s s t o a c c e p t t a x i n c r e a s e s a r e important a l s o .
The e x c i s e t a x s o u r c e s c o n s i d e r e d f o r turnback i n Chapter 4 a r e less
e l a s t i c t h a n most
taxes.
T h e i r e l a s t i c i t y may be i n c r e a s e d , however,
l e v y i n g them a s a p e r c e n t a g e of
p e r pack
of
s a l e s r a t h e r t h a n a f i x e d number of
c i g a r e t t e s or g a l l o n of
gasoline.
Parenthetically,
by
cents
t h o s e two
e x c i s e s f r e q u e n t l y have been i n c r e a s e d by s t a t e s .
Fiscal Discipline
The g o a l of f i s c a l d i s c i p l i n e i s i t s e l f m u l t i f a c e t e d and g e n e r a l l y m i l i t a t e s a g a i n s t t h a t of revenue adequacy; only one a s p e c t of t h e former w i l l
be c o n s i d e r e d a t t h i s t i m e .
F i s c a l d i s c i p l i n e i s weakened by p o l i c i e s t h a t
u n j u s t i f i a b l y and a r t i f i c i a l l y
Matching g r a n t s
(though
reducing the s t a t e - l o c a l
g r a n t , f o r example,
stimulate
of t e n d e s i r a b l e
state-local
t a x i n g and spending.
from o t h e r v i e w p o i n t s )
" t a x p r i c e s " of p u b l i c s e r v i c e s .
when Washington u s e s
three
of
do
s o by
In a categorical
i t s d o l l a r s t o match a
s i n g l e s t a t e d o l l a r , t h e s t a t e s must pay o n l y $.25 of each a d d i t i o n a l d o l l a r
devoted t o t h a t
service.
T h i s may w e l l
increase the s t a t e ' s
t a x i n g and
spending f o r t h e s e r v i c e .
None of t h e d e v o l u t i o n a r y mechanisms c o n s i d e r e d have a matching compon e n t , removing a n i n c e n t i v e t o a d d i t i o n a l t a x i n g and spending.
Although each
mechanism funds a c e r t a i n l e v e l of spending, s t a t e - l o c a l governments must pay
a d o l l a r f o r each a d d i t i o n a l d o l l a r s p e n t .
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Public
Press
of
F i s c a l Relations.
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An Agenda for American Federalism:
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Significant Features of Fiscal Federalism, 1985-86 Edition, M-146,
1985, 264 pp., $10.00.
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A Catalog of Federal Grant-in-Aid Programs to State and Local Governments:
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25th Anni-
1983 Tax Capacity of the States, M-148, March 1986, $10.00.
Reflections on Garcia and Its Implications for Federalism, M-147,
1986, 56 pp., $3.00.
The States and Distressed Communities, A-101, November 1985,
February
290 pp., $5.00.
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1985 Changing Public Attitudes on Government and Taxes, S-14, October 1985, 40
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