Tuesday, March 22, 2011

The once (and future?) General Revenue Sharing program

For years I’ve heard colleagues at the National League of Cities reference General Revenue Sharing – the long-ago abandoned program where the Federal government provided direct funding to cities with no strings attached. When this program is mentioned by city folk, it’s always a bit wistfully – like you might talk about your first love or the day your parents handed over the keys to the car. The era of General Revenue Sharing was short-lived but monumental in the world of U.S. city government - in no other time before or since did city governments feel the love more deeply or experience trust more fully.

With the debate currently raging at the Minnesota State Capitol over Local Government Aid – Minnesota’s revenue sharing program with cities – it would be easy to assume that the same ideological positions we see today also applied to General Revenue Sharing at the federal level; that, generally speaking, Republicans were against it and Democrats were for it.

Actually, it was Republican President Richard Nixon who initiated General Revenue Sharing as part of his “New Federalism” agenda. This proposal was rooted in his belief that greater efficiency and effectiveness in government could be achieved by shifting power from Washington to the levels of government that are closest to the people.

In his 1969 message to Congress, he made a number of arguments that are remarkably similar to messages heard today from conservative lawmakers and pundits – statements critical of the size and reach of the federal government, about the proliferation of federal programs, and about the need to return to what was envisioned by the Founding Fathers. The difference is that, in this context, Nixon also argued for the important role of local government in meeting societal needs:

“The problems of the cities and the countryside stubbornly resisted the solutions of Washington; and the stature of the Federal government as America's great instrument of social progress has suffered accordingly--all the more so because the Federal government promised so much and delivered so little. This loss of faith in the power and efficacy of the Federal government has had at least one positive impact upon the American people. More and more, they are turning away from the central government to their local and State governments to deal with their local and State problems.”
“Another inevitable result of this proliferation of Federal programs has been a gathering of the reins of power in Washington. Experience has taught us that this is neither the most efficient nor effective way to govern; certainly it represents a radical departure from the vision of Federal-State relations the nation's founders had in mind.”

“We are committed to enlist the full potential of the private sector, the full potential of the voluntary sector and the full potential of the levels of government closer to the people.”

In his message to Congress, Nixon also spoke specifically to the differences in the composition of Federal, state and local revenues and their economic implications:

“The fiscal case for Federal assistance to States and localities is a strong one. Under our current budget structure, Federal revenues are likely to increase faster than the national economy. At the local level, the reverse is true. State and local revenues, based heavily on sales and property taxes, do not keep pace with economic growth, while expenditures at the local level tend to exceed such growth. The result is a "fiscal mismatch," with potential Federal surpluses and local deficits.”

Several op-ed columns in recent years have called for a return to something similar to the General Revenue Sharing program – particularly in the context of short-term stimulus. A 2010 New York Times article from Robert J. Shiller put it this way:

“State and local governments are in severe fiscal trouble, and their constitutions often prevent deficit spending. In these circumstances, the federal government, which does not face such constraints, needs to raise revenue for them. …The need for a Keynesian revenue-sharing program is clear. After Congress approved stimulus legislation in 2009, Lawrence Summers, head of the National Economic Council, said that ‘it’s harder to spend $300 billion within a year on quality projects than you might think.’ And no wonder the task was tough: decision makers in Washington were removed from local needs.”

And a 2009 column from Mark Muro in The New Republic made this case:

"This system (General Revenue Sharing) had the obvious benefit of providing a fast-moving response to local government liquidity crises. But it also had the virtue of targeting aid where it was most needed, by dint of a formula that took into account localities’ tax regime, population, and per capita income. Used today, such an emergency program could represent the smartest sort of emergency intervention. It would get aid out of Washington and out of state capitals and onto Main Street. It would address the coming local government liquidity crisis. And it would help keep cities and counties from cutting back in ways that could place a significant drag on the nation’s fledgling recovery just as the extraordinary interventions of the Recovery Act trail off late next near."

But the prospects are slim. Advocacy from The New York Times and The New Republic automatically gives Republicans pause, and it is fashionable of late for politicians’ anti-Government rhetoric to go beyond the Federal level and extend to states and localities. Even more is the Reagan factor: it was Republican President Ronald Reagan who dismantled the General Revenue Sharing program. His argument for doing so was stated years before he become president during a 1975 conference of the conservative American Enterprise Institute where he debated with Ralph Nader and then Sen. Hubert Humphrey:

“Reagan responded forcefully to Senator Humphrey’s point that revenue sharing would enable states and localities to address their needs better. ‘The federal government,’ Reagan said, ‘has usurped the revenue that ought to remain where it was raised, at the state and local level. Revenue sharing would not be necessary if we left the revenue at the local level and restricted the federal government to those tasks which properly belong to it.’"

This said, I do remain hopeful that there will be a return to some form of General Revenue Sharing; that the political pendulum will swing back toward the philosophy presented in the final paragraphs of Nixon’s message to Congress:

“Our ultimate purposes are many: To restore to the States their proper rights and roles in the Federal system with a new emphasis on and help for local responsiveness; to provide both the encouragement and the necessary resources for local and State officials to exercise leadership in solving their own problems; to narrow the distance between people and the government agencies dealing with their problems; to restore strength and vigor to local and State governments; to shift the balance of political power away from Washington and back to the country and the people.”

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