Trickle-Down Federalism

THE federal government's fiscal pinch is choking off funds at the state and local level too. Federal aid to states and cities has fallen off as programs like general revenue sharing and urban development grants have felt the ax. In turn, a number of states are squeezing off aid to localities, prodded by their own deficit problems. And all this at a time when a number of big-ticket items are coming due. An expansion of low-cost housing, for instance. Someone will have to foot the bill unless Americans would rather pay the rising social and economic costs of homelessness. Or medical care. The costs shoot up even as Washington toys with keeping its obligations down through a cap on spending. The Medicaid bill, or a bigger portion of it, may come to rest on governors' or mayors' desks. Then there's deteriorating infrastructure, water and roads, prisons, welfare reform.

One can understand why the governors meeting recently in the nation's capital were worried about domestic priorities.

Increasingly, the federal money available for domestic spending takes the form of transfers to individuals - public assistance in various forms or medicaid - rather than transfers to places for use on local projects. Some see this as the feds doing just what they should do, sharing the burden of aiding the needy, but leaving other fields open to state and local officials.

Many of those officials, however, wouldn't agree. After eight years of ``new federalism'' under Ronald Reagan, they still see the balance sadly askew. Even as the dollars from Washington tail off, they say, the mandates and regulations keep coming.

And Congress isn't their only nemesis.

Nothing in memory sent more shivers up the spines of local leaders than last year's Supreme Court ruling that the Constitution does not protect tax exemption for local revenue bonds. Such bonds are a major source of funding for all kinds of projects - new schools, sewers, other public works. Federal legislators have tried to assure their local colleagues that Uncle Sam will not try to raid the proceeds on the bonds, thus undermining their attraction for investors. But a lot of mayors, aware of the sniffing for revenue in Washington, somehow don't believe it.

If it comes down to whose side the people are on, the locals should take heart. Polls have shown a widening preference for state and local government over federal in matters of trustworthiness and efficiency. And for all the complaints about vanishing federal funds, many states and cities have shown admirable ingenuity in tackling problems like school reform. Federalism is going through a tough passage, but it's very much alive.

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