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Debating New Federalism

March 1, 1982

Whatever one thinks about President Reagan's bid to turn a broad swath of federal programs back to state and local governments, the remarkable fact is that his New Federalism plan is now a significant element of the national political agenda. In the long run, it can only benefit the nation to have to come to grips with the issue of proper governmental division of labor.

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Let it be said first, however, that the overriding priority at the moment must remain enactment of the fiscal year 1983 budget, with an eye towards slashing the projected $91 billion deficit. Once that is done, lawmakers can then legitimately pursue a searching consideration of the whole equation of federal and state relations in the US. Despite criticisms of various aspects of the Reagan devolution plan by a number of governors meeting in Washington last week, it is now apparent that there is a growing consensus on the part of the governors and the White House that the federal government has assumed too many functions best left to local government.

What must now be thoughtfully debated by all parties - including the American people - is which federal functions might effectively be returned to the states, ensuring at the same time that states will be able to finance those activities and that grave inequities will not be created between regions. The New Federalism plan should not be rejected out of hand, nor seen as merely an effort to unravel the tapestry of the federal ''welfare state.''

Despite some heated political rhetoric, the issue is not one of simply ''overturning the New Deal,'' as suggested by some critics of devolution. In fact, many of the remaining New Deal agencies and programs are virtually untouched by the Reagan federalism program. Rather it is a matter of whether federal government has become overcentralized by the more than 500 federal programs and 1,200 federal regulations directly affecting some 63,000 units of state and local government in such areas as education, health and welfare, sewage treatment, job training, highways, and construction. These programs spiraled from $3 billion in federal grants to states and localities in 1954 to $ 91 billion in 1980. Mutual benefits

By returning some of these programs to the states, the federal government would be consolidating its own functions, thus leading to possible dollar savings and greater efficiency, while local governments could presumably better administer programs which in many cases they already either manage in tandem with the federal government or partially underwrite.

While such a transfer would be a significant shift of federal responsibility, it would not be as great a diminution in federal authority as might be assumed. Perspective is necessary. The total federal grant program to the states represents only a small part - about 12 percent - of the entire federal budget.For fiscal 1983, federal grants would be about 11 percent of the President's total $758 billion budget. But that part of the grant program earmarked for devolution under New Federalism would be only about half or so of the programs now falling within that 11 percent. And the fewer programs that are transferred, the less the impact on the size and scope of the federal budget. The ultimate financial impact of the transfer will thus take place not at the federal, but the state level.