Shift-and-Shaft Federalism

April 23, 1991|By NEAL R. PEIRCE

Shaken by the national recession, the fiscal foundations ofone state government after another are starting to crumble.

The estimate of California's combined 1991 and 1992 budget deficits has now soared to $12.6 billion -- more than the total general fund of all but four other states. Lay off every state employee, shut down all California universities and prisons, and still the budget wouldn't be balanced, says Gov. Pete Wilson.

Connecticut's $2.4 billion deficit is proportionally even greater -- 37 percent of the state's general fund budget.

To fill a $6 billion budget hole, Gov. Mario Cuomo is talking of the biggest spending cuts in New York's history, including $3.3 billion in aid to local governments. The hit for New York City, facing its own $3.1 billion deficit, would range from $400 million to $600 million.

Are these fiscal nightmares to end soon, when economic recovery comes? Perhaps, to a degree. It's unlikely 30 states will face quite such deep deficits a year or two from now.

But now there is growing concern that many will. Take California. It may not experience another welfare-case rise of 47,000, as it has this past year. But the year's 235,000-student increase, fed by the state's vast immigration, will likely be repeated. The prisons will likely add 12,000 more inmates in a year. Medicaid expenditures are expected to continue going through the roof.

California would need an economic recovery beyond anyone's wildest dreams to cover its constantly escalating costs. The state may now face a ''structural deficit'' that even good times can't cure.

Across the 50 states, the ebullient era of the '80s has come to a halt. No longer will year-in, year-out revenue increases keep states on Easy Street. The fresh cash to take over social programs Washington forsakes, or to experiment boldly in education, housing and economic development, is gone.

Their backs against the fiscal wall, governors and state legislators are starting to do just what Washington did in the Reagan years -- shove off responsibilities to the next level down. State aid to counties, cities and towns is on the chopping block in half the states this year, says Hal Hovey, editor of State Policy Reports.

And when ''shift-and-shaft'' federalism reaches the grassroots level, the only potential victims are local taxpayers, critical local service budgets -- or both. Localities have neither the broad taxing authority, nor the diversified tax base, of states. And they operate in a world of nuts-and-bolts reality far removed from a federal government that keeps running up scandalous deficits, notwithstanding Gramm-Rudman-Hollings trickery and budget summit bravado.

As the vise tightens in state capitols and town halls, officials soon exhaust the ''easy'' economies: shedding of luxury services, forcing layoffs of excess personnel, tightening accounting practices.

Taxes are starting to take off, too. Last year, 30 states enacted some $10.3 billion in new taxes. Governors and legislators elected in last fall's ''anti-politician'' atmosphere at first tried to duck the tax bogeyman. But by the time the dust settles this year, says Mr. Hovey, there may well be $15 billion in state tax increases.

Indeed, without near miracles in some states, the new tax figure could go even higher. Sadly, new taxes won't launch initiatives in criminal justice, child care, infrastructure replacement or any other area. They're just to keep the ship of government afloat.

The unsavory outcome may be higher taxes for less services -- and not just in 1991, but for some years to come.

The insidious thought arises: Are we seeing America start to slip as a high-income nation? Will increasing government parsimony translate, soon, into a lower quality of life for millions of us?

This is not a crisis from which state lotteries, riverboat gambling, or fiscal gimmicks will save us. It makes you think ex-Sen. Paul Tsongas has a sound point when he says America won't hit the recovery road until it starts manufacturing the hard goods that the rest of the world wants.

The hard times of 1991 -- the seeming impossibility of making ends meet for so many states and localities -- ought to lead to some hard rethinking of what government does, and which levels of government should do it. How can we effect stem-to-stern redesign of our ''mega-systems'' -- in health, welfare, education, public works -- to make them produce the same or greater benefit for an affordable cost?

In states like California and New York, the faintest early rumblings of those kinds of basic debates can be heard. Such ''lead'' states ought to be designing systems and then starting to sell the reform models to their own populations. And the states ought to be engaging the attention of a federal government that constantly postpones its own fiscal reckoning and, today, seems to think the Middle East matters more than the Midwest, and Latvia more than Los Angeles.

It shouldn't take a fiscal Armageddon to focus our attention. But now we're down to the bottom of the fiscal food chain, facing crisis in the states and localities that can't print money or run up trillion-dollar deficits. It is time to stop trivializing public policy and get to work on reconstructing a country.

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

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