The states make a comeback

THE states are bouncing back. From Massachusetts and New Jersey in the East to Washington and California in the West, state governments are experiencing a surge of vitality and self-reliance. The trend is breathing new life into America's federal system.

Industrial development, foreign investment, public schools, welfare reform - these are the nuts-and-bolts issues on the agendas of state and local communities.

Governors across the country capture the mood:

Thomas Kean of New Jersey: ``The most important thing now is going on in the states, not in Washington. You now have a `debating society' in Washington, so a great deal of power is devolving on the states because they are the units that can solve problems and are closest to the people.''

Bruce Babbitt, former governor of Arizona: ``Centrifugal, decentralizing forces are at work, and political and economic power has begun to spread outward in new forms. The action is now in state capitals.''

Michael Dukakis of Massachusetts: ``There clearly is a recognition that a good deal of what the country needs has to take place at the state and local level.''

The trend would gladden the hearts of Alexander Hamilton, James Madison, and other Founding Fathers who sought to forge a strong national union without emasculating the states as political entities.

Until the Civil War the states were dominant in the federal structure. Proud and independent-minded, they were the principal actors in most domestic affairs. They educated the children, enforced the laws, built the roads. They were jealous of their rights. New England and the South enunciated the doctrine of nullification (the right of a state to declare a federal government action null and void). And the Civil War began when 11 Southern states exercised what they regarded as the right of secession.

Even in this early period, however, the national government began to assert itself. Under Chief Justice John Marshall, the Supreme Court upheld the right of Congress to establish a national bank. In McCulloch v. Maryland (1819), the court ruled that the Constitution and laws enacted by the federal government are the supreme law of the land and cannot be countermanded by any state.

With the Civil War came America's most severe test of federalism - a test won at terrible cost by the national government. When the fighting ended at Appomattox in April 1865, the doctrine of states' rights fell before the fact of national supremacy.

The Civil War, writes political scholar Everett Carll Ladd, was a watershed in federal relations, followed as it was by the adoption of the 13th, 14th, and 15th Amendments to the Constitution. The 14th Amendment, intended primarily to safeguard the rights of the emancipated Negroes, in time was construed as giving the Supreme Court authority to invalidate state statutes that infringed on individual rights.

The national government grew for other reasons as well, as Dr. Ladd recounts in ``The American Polity.''

Technological and economic development exploded in the late 19th and early 20th centuries, transforming an agricultural country into an industrial society with continental links. Telephones, trains, cars, and radios drew the nation together, and with the growth of cities and the rise of corporations, demands increased for a greater federal role. This period saw a growth of national regulatory laws - to protect food and drugs and to regulate railroads, shipping, and interstate commerce. New Deal shifts the balance

BUT it was the New Deal that touched off a virtual revolution in federalism. In the midst of the Great Depression, Franklin D. Roosevelt launched the greatest planned expansion of national authority in history. He set up new regulatory bodies like the Securities and Exchange Commission to protect investors and the stock market and the National Labor Relations Act to help trade unions. He made the federal government responsible for smoothing out business cycles, keeping unemployment under control, and fostering economic growth.

Above all, the national government took on the task of welfare for the jobless and impoverished; previously this task was handled by private charities or state and local agencies. In 1935 the historic Social Security Act was passed. Between 1925 and 1941, writes Ladd, federal per capita spending jumped 400 percent. By the end of World War II, total state and local spending annually dropped below federal spending for the first time in US history - and has stayed below it.

As society grew ever more interdependent, what had been called ``dual federalism'' - the relative independence of the two levels of government - became a ``cooperative federalism'' in which Washington and the states shared responsibilities.

Not only technology and economic expansion fueled a growth of the federal government, however. In the 1950s the impulse toward individual rights gathered momentum as blacks launched a long struggle for equality and an end of racial discrimination. States'-rights governors like Orval Faubus in Arkansas and George Wallace in Alabama resisted the attack on segregation in the South. But the federal government prevailed as Americans came to feel that injustice as well as poverty were national problems.

As Washington undertook battles on other civil rights fronts and moved vigorously into such areas as public safety (in factories, on highways, in coal mines, in consumer products), consumer credit, and the environment, the role of the states waned. Supreme Court decisions making the Bill of Rights applicable to the states further expanded national power.

Washington came to be called ``big government'' and the states the ``fallen arches'' of federalism.

``The change was not incremental; it was a massive increase which qualitatively altered the national government's role,'' Ladd writes. ``Let the end be legitimate, Congress was saying, and legislation on almost any conceivable subject is permitted, even required.''

In the '70s a reaction began to set in against a bloated federal system. Lyndon Johnson's Great Society programs, the culmination of almost a century of gradual centralization, had vastly expanded the national government. In the view of many, Washington was trying to do too much; the states had become ``federal junkies.'' Debate began on how to bring the federal structure into better balance and sort out the proper functions for each level of government.

State constitutions were modernized (for instance, giving governors a second term), and state governments were reformed. And with one-man, one-vote reapportionment, state legislatures became more powerful and assertive.

The White House also called for change. Richard Nixon, seizing on a Democratic idea, persuaded Congress to enact ``revenue sharing,'' turning back to the states and cities a portion of the revenues raised by the federal government. Jimmy Carter launched a national urban program that reflected a strong federalism concept. Reagan's `counterrevolution'

IT is President Reagan, however, former governor of California and a longtime believer in states' rights, who set out to reverse 50 years of Rooseveltian growth in Washington's role. In his view, having to accept Wash-ington's mandates and regulations was too high a price to pay for federal aid. Under his New Federalism plan of 1982, the federal government would become the chief provider of health care, the states would take over welfare programs, and taxes and grants would be restructured.

The plan was quietly dropped when it ran into opposition from Congress, the states, and the public. But during the Reagan presidency there has been a significant devolution of responsibilities to the states. The pendulum of federalism is moving away from Washington, driven not only by the Reaganites' antigovernment ideology (they seek to shrink government at every level) but also by huge federal budget deficits. States know they must increasingly go it alone.

``For 50 years - through the Great Depression, the New Deal, World War II, the Korean war, the Great Society, and Vietnam - the pendulum was swinging toward Washington because of its strengthened fiscal hand and national crises,'' says John Shannon, director of the US Advisory Commission on Intergovernmental Relations. ``Now the pendulum is swinging the other way - toward the state and local governments and a `do-it-yourself' federalism.''

``The trend is rooted in history,'' comments Princeton University scholar Richard P. Nathan. ``It's a kind of cycle - when the federal government is conservative, the action swings to the states. In the 1920s, in fact, it was the states that developed the innovations that became the New Deal.''

Dr. Shannon thinks the trend will continue through the next decade. He sees the federal system being profoundly changed by three ``semirevolutions'':

The first is the tax revolt spawned by California in 1978, which signaled to state governments not to increase spending at a faster rate than taxpayers' growth of income. Some 19 states passed varieties of California's Proposition 13. As a result, spending by state and local governments flattened out and came into equilibrium with economic growth.

Second, there has been a turnaround in federal aid going to the states. Between 1954 and 1978, federal aid grew faster than state and local revenues. In 1953, federal aid accounted for a little more than 10 percent of total state and local outlays. By 1968, the figure had risen to more than 18 percent and by 1977, to 26 percent.

But President Reagan in 1981 drastically reduced federal-aid levels in entitlement programs. He cut back grants to states and localities for operating programs, and consolidated 80 categorical grants into nine general block grants under which federal funds went directly to states rather than to cities or nonprofit organizations. He also pushed through legislation that gave the states the primary role in job training and gave them new flexibility in managing medicaid, enabling them to control costs.

Total federal aid to the states - especially medicaid - continues to grow. But as a result of these measures, in 1983 the aid dropped to 21.5 percent of local and state expenditures and by 1986 it had declined to an estimated 18 percent. Now that revenue sharing has ended, it is expected to drop further.

``This has had a bracing effect,'' Shannon says. ``States no longer look to Washington to set the domestic agenda.''

Third, the tax overhaul passed by the 99th Congress will intensify interstate competition for tax wealth. High-tax states worry about a loss of jobs and upper-income taxpayers. So, to reduce their vulnerability to interstate competition, they will have to cut rates and pay for this by broadening the tax base.

Shannon believes these trends reflect the self-correcting forces in American society. ``Uncle Sam bit off too much and had to be pulled back,'' he says. ``The decentralization of our system is one of our weapons - the fact that we have 50 states and 20,000 local governments, each making its own decisions. States now know there is no more candy in Washington.''

This is not to say that all 50 states are doing well economically. Many, especially those in the Northeast, are experiencing a resurgence. Others - Oklahoma, Texas, Iowa, Wyoming - are in distress. Most have gone through a painful process of shrinking programs and increasing taxes in order to balance their budgets. And because many legislatures did not make up for the loss of federal welfare benefits, poverty has grown across the nation.

Nor has the federal government shrunk as a result of the shift to the states. Deficits and debt notwithstanding, the national government keeps growing. This year's federal budget runs a trillion dollars - 24 percent of America's gross national product and more than the combined budgets of all the states.

Washington cannot abdicate responsibilities that can only be borne at the federal level: defense, entitlements, scientific research, and management of the economy. The Supreme Court, moreover, has enhanced the power of the federal government to regulate state activities, such as requiring that minimum-wage and work-hours laws cover public employees.

And although the national government often finds itself stalemated - on the budget deficit, for instance - it can and does produce breakthrough legislation. ``Tax reform shows that the federal government can still work,'' says Margaret Kunin, governor of Vermont. New vigor in state capitals

SOME scholars also see national government as a check on strong local economic interests and corporate power. ``Ultimate power has to reside somewhere in a democratic polity,'' writes Arthur M. Schlesinger Jr. in ``The Cycles of American History.''

``If that power is not exerted by the public government, then national policy is seized by self-serving private interests. Government off the back of business means business on the back of government.''

``We have come to recognize over one-half century that certain things are national and require national action,'' comments Governor Dukakis. ``But good creative states can do more at the grassroots to be effective.''

The new vigor of the states is much in evidence. A meeting of the National Governors' Association in South Carolina last fall reflected the states' robust efforts, not only to deal with problems within their own boundaries, but to cooperate with one another - and with the federal government. Governors debated issues from education and environment to law enforcement and the use of National Guardsmen in Central America.

``The tide is turning toward more responsibility and a greater role for the states,'' observes Richard Thornburgh, former governor of Pennsylvania. ``The reasons are a recognition that our resources are finite and that you can no longer provide the enormous sum of federal support for a lot of programs. Also, there is a sense of alienation from a government that has become remote and Washington-centered.''

``The devolution is not faddish, it'll be sustained,'' says former governor of Florida Bob Graham, now a US senator. ``And it's possible that government is best that's closest to the people's desires and to the problem that government is intended to impact.''

Out of today's state capitals are emerging thinkers and innovators, searching for modern-day answers to modern-day problems. Daniel J. Evans, a US senator and former governor of Washington, and Charles Robb, former governor of Virginia, head up the Committee on Federalism and the National Purpose, which seeks to promote a federal system that is more humane and efficient and to end the great disparity in wealth between the states.

States are becoming aggressive in promoting private business at home and economic ties abroad. Today governors fly off to Africa, Asia, and other corners of the globe to forge trade links. When he was in office, Governor Thornburgh traveled to China, Japan, Africa, Israel, and Egypt to ``plant the flag of Pennsylvania so people will think not only of dealing with the federal government but with the states.'' Federal-state partnership

STATES have even established overseas offices to attract foreign investment and tourism. ``A governor could be pretty laid back 15 years ago,'' says John Carlin, former governor of Kansas. ``But come 1990, because of world competition, a governor will be judged on whether he has followed through on economic development.''

Today's urgent problems at home and abroad appear to demand not only a heightened role for the states but greater cooperation between the states and Washington. ``We need a shared federal-state partnership where we work hard on development,'' says Governor Dukakis. ``If you're concerned about our competitive posture or drug abuse or infrastructure, there has to be more cooperation at all levels.''

The role of the cities and counties in the federal system is also changing. During the heyday of federal largess in the 1960s and '70s, mayors hightailed it to Washington to lobby for sewer grants, jobs programs, and money. Now, as federal programs have been phased out or as responsibility is transferred to the states, the cities again have to deal with state capitals. And they are becoming more self-sufficient, raising their own money to meet local needs.

Counties, which once represented rural populations, also are involved in gritty urban problems, and they seem to be gaining in political power.

As Robert Kerrey, former governor of Nebraska, comments: ``You see much more direct participation by citizens at the local level. Cities, counties, and school districts are being controlled by nontraditional politics because of rights for women and blacks, and economic changes.''

Lamar Alexander, former governor of Tennessee, says: ``Twenty years ago the national government began to support things it had never been involved in, and local officials began to do an end run around the states. But the states have become stronger and different entities for the cities to deal with.''

The federal system, in short, is alive and well in 1987. There will continue to be a shifting back and forth of responsibilities between the states and the national government as times and demands change. Each American generation will sort out for itself the trade-offs of federal and state functions.

Governor Alexander capsules the thinking of many politicians of this generation when he says: ``The best job in the United States has to be the governor of his or her state.'' Tomorrow: The people - turned off politics Further reading: ``The Changing Politics of Federal Grants,'' by Lawrence D. Brown, James W. Fossett, and Kenneth T. Palmer: The Brookings Institution (1984). ``American Federalism,'' by Richard H. Leach: W.W. Norton & Co. (1970). ``Federal Grants: Giving and Taking Away,'' by Richard P. Nathan and Fred C. Doolittle: Political Science Quarterly (Spring 1985). ``Storm Over the States,'' by Terry Sanford: McGraw-Hill Book Company (1967).

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