Debating New Federalism

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.

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.''

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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.

Mr. Reagan proposes that some 43 functional programs (comprising 124 categorical grants) be turned back to the states, along with the two basic welfare programs, food stamps, now all federal, and Aid To Families With Dependent Children (AFDC), now federal-state. To finance the return of these programs, he proposes establishing a $28 billion trust fund that would run through the 1980s, until the states, beginning after 1991, assume total funding for these programs, in part by gaining control over some federal excise taxes. The governors now balk at assuming either AFDC or food stamps, while accepting that the costly federal-state medicaid program should be taken over entirely by the federal government. What is significant, however, is that as many as 17 programs - mainly in education, and transportation - are generally looked upon as possible candidates for devolution, even by such a critic of federalism as House Speaker Tip O'Neill.Going slow at firstSuch a basically modest approach strikes us as a proper balance at this time. Welfare programs, such as AFDC and food stamps, properly belong to the national government. Without national standards, there is the danger that regions and states will be pitted against each other as the poor flock to states paying higher benefits. The education and transportation functions proposed for devolution by Mr. Reagan include the following categorical grant areas:

* Vocational training and rehabilitation

* Adult education

* CETA

* Airport grants

* Funds for primary, urban, and rural roads

* Bridges

* Construction safety

* Urban mass transitIs the public necessarily better served by retaining such functions at the federal level? Would not the jurisdiction of such projects as urban roads be best left to states?The vital question in the entire federalism debate, of course, is that of financing. The Reagan proposal, i.e., setting up a short-term trust fund, would not go far enough if welfare programs were to be eventually turned over to the states. The problem is that the largest part of the Reagan trust fund would come from windfall taxes (about $17 billion) rather than from federal excise taxes (about $11 billion). But the windfall tax would expire by 1991, leaving the states facing a significant money shortfall. For that reason, there is a strong case to be made for using federal income tax revenues to help underwrite a continuing fund (as proposed, for example, by Republican Senator David Durenberger) and to ensure that there is program equality between those states retaining federal programs. Such a fund could be gradually reduced in scope as states brought federal programs under local controls, took over various federal excise taxes, and increased their own tax sources.A test caseA relatively small-scale swap during the next several years (in the education and transportation areas, say) would also be useful in measuring the workability of a larger transfer at a later time involving such programs as welfare.Although the GOP-controlled Senate may produce a federalism package this year, the Democratic-led House is expected to defer the matter until after the November elections and thus not act until 1983. That delay is sensible. The objective during discussion of the issue in the months ahead should be to make government - at both the federal and state levels - as efficient and effective as possible. With such a goal as the starting point, the New Federalism could prove to be a rewarding inquiry for all Americans.

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