A Raw Deal

President Reagan’s call for a “New Federalism” deserves better than automatic praise by Republicans and equally reflexive criticism by Democrats. State-federal relations have been a subject of concern to local officials for years, and a national program to sort out those relationships is overdue. The fact that the administration’s program appears to have serious flaws should not detract from the fact that there is a need for change. It does, however, mean that serious, dispassionate examination should be made of the program.

Any proposal as far-reaching as President Reagan’s obviously starts off with the inertia of the status quo working against it. Its chances for success or failure will depend as much on the timing of the proposal as on its substance. And the timing is very bad indeed. The dismal performance of the economy, together with last year’s tax and budget cuts, has created enormous fiscal pressures on local governments in practically all but the energy-producing regions of the country. The state of Ohio, which recently passed a tax increase of $1.3 billion together with budget cuts in order to close its budget gap, now faces an additional deficit of about $1 billion as a result of the recession.

New York City, with a $250 million surplus in the current fiscal year, is raising taxes and freezing employment to deal with a potential $800 million gap next year. The state of New York is proposing similar actions for the same reason. Whereas four years ago, the Municipal Assistance Corporation was selling long-term bonds to finance New York City’s capital budget at 7.5 percent interest, it is doing so today, with increasing difficulty, at over 14 percent, free of city, state, and federal income taxes. This situation is repeated in city after city, state after state.

This is not happening only in the “Snow Belt,” while the “Sun Belt” flourishes. The state of California now faces a budget deficit estimated at $1 billion. A recent New York Times article noted that many cities in the Sun Belt suffer fully as much from unemployment, poor housing, poverty, and limited economic opportunities as the cities in the Northeast and Midwest. Of nineteen Sun Belt cities, seven had worse hardship ratings than New York. The Sun Belt’s golden glow cannot hide the difficulties faced by New Orleans, Miami, Birmingham, Atlanta, and other cities within its midst. Their problems are national.

Long-term policy changes, such as those currently advocated by the administration, require a stable economic base from which data can be extrapolated in order for rational dialogue on federal-state relations to take place. Until we have a better fix on the recovery of the economy and federal deficits, on inflation and interest rates, it will be utterly impossible for local officials struggling with serious day-to-day fiscal problems to project with any confidence their own set of numbers. Until the economy stabilizes, it will not really be possible to have negotiations of any substance. As Governor James Hunt of North Carolina said, “…we…

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