Federal Aid to Local Governments in the West: An Irony of the Reagan Revolution

Despite the fact that the Reagan election was viewed as a power shift toward the West, the decade of the 1980s produced cruel disappointment. The region was generally left out of the economic recmery of the nation because of the bust in the agricultural and mineral industries. These state and local gmernments which sufferfrom high costs and low resources were particularly dependent on the national gmernment at the very time when the Reagan Administration was cutting federal aid and transferring power to the states. Unlike Nixon's New Federalism which helped the state and local governments of the West, Reagan's policies caused their relative position in federal aid flows to deteriorate. Although the Reagan revolution in cutting domestic programs was viewed as the embodiment of western rugged individualism, the region lost in terms of federal aid to small rural local governments.     

Health-Care Reform, Managed Competition, and Subnational Politics

"Managed competition" is Congress' likely response to health-carereform. At the center of managed competition are regional healthinsurance cooperatives or alliances. In some states, these allianceswill face daunting numbers of uninsured and underinsured peopleand a hostile reception from business leaders and state governmentofficials. In other states, alliances may be welcomed as a logicalextension of current efforts to expand access to health care.Uneven support for alliances among the states will affect theimplementation of reform, as is typically the case in federallyorganized programs. However, the visibility, power, and financialresources of alliances will also affect state governments. Henceforth,American federalism may include three centers of power, notjust two, and the impact on state politics could be profound.     

Strengthening the Political Safeguards of Federalism: The Fate of Recent Federalism Legislation in the U.S. Congress

Although a number of measures have been proposed during thepast decade to require the U. S. Congress to take more accountof state and local interests, whether in regard to mandates,preemptions, regulations, or grants-in-aid, the only major successhas been passage of the Unfunded Mandates Reform Act of 1995(UMRA). This article examines the fate of the dozen bills thatprogressed far enough to be the subject of a committee hearingor receive a vote in the House or Senate. Only a few of thesemeasures, most of them rather modest in scope, were enacted,while the most significant measures were rejected, largely becausestate and local governments have experienced a number of difficultiesin reproducing the conditions that were present for the passageof UMRA. Health, labor, and environmental groups were able toblock a number of these bills. Business groups occasionallyparted company with state and local governments and worked todefeat federalism legislation. Finally, state and local governmentgroups have not always been united in support of these measures.     

Why National Competition Policy?

Strategies to enhance Australia's international competitiveness need to embrace reform of key infrastructure service industries, reform of the regulatory environment, industrial relations reform and taxation reform. Key aspects of this reform agenda can only be addressed through a shared commitment by all levels of government. Ownership of the public utilities responsible for the nation's key infrastructure networks and services is divided among commonwealth, state and territory (and local) governments. Achieving a substantial lift in the productivity of these industries and ensuring the emergence of truly national infrastructure networks relies on agreement by all governments to public utility reform and the removal of barriers to cross-border competition. Moreover, the regulation of industries, occupations and businesses is primarily the responsibility of state and territory governments, hence regulatory reform also requires a cooperative approach by all governments.
While most jurisdictions have taken some steps to reform public utilities and to deregulate certain product markets, to date reform has been piecemeal. A more systematic approach to removal of impediments to competition across the board is likely to be necessary to lift the overall competitiveness of the Australian economy. The agreement by the commonwealth and all states and territories to implement the National Competition Policy (NCP) not only provides the necessary shared commitment to reform across the board, it also provides the rewards and sanctions needed to sustain that commitment in the face of certain resistance from vested interests.     

Preventing Local Government Fiscal Crises: The North Carolina Approach

Some local governments face fiscal challenges due to mismanagement and declining economies. In particular, manufacturing states like Michigan and Ohio have been hard hit by the effects of international competition. To prevent fiscal distress from becoming a crisis, states exercise oversight over local government fiscal management. The three bond rating agencies consider the North Carolina oversight system a model. This paper discusses the North Carolina oversight system, including audit review, technical assistance, debt issuance, and power to take over the financial operations of distressed local units.     

Property Tax Responses to State Aid Cuts in the Recent Fiscal Crisis

Many states experienced fiscal crises at the beginning of this decade. Some responded by cutting state aid to local governments. This paper explores the extent to which local governments responded to these aid cuts by raising property taxes. The authors hypothesize that changes in aid help explain the observed differences in per capita property tax revenue changes across states. They find that on average school districts increased property taxes by 23 cents for each dollar cut in state aid. These results highlight the important role that the property tax plays in maintaining the stability of the state and local sector.     

State support under the new federalism

The new federalism will reduce total intergovernmental revenues to local governments. The reduction will be due to both the transfer to the states of much of the federal aid which previously flowed directly to local governments and reductions in total federal aid levels. Pass-through requirements on the shifted aid will not affect this general result but may soften the impact in many states. Because of differences in the extent to which state governments substitute federal pass-through aid for state aid from own-source revenues and in the degree to which different sources of revenues are treated differently by the states, local revenue reductions will vary greatly from state to state. The losses for local governments will range from 100% of the shifted aid in some states to as little as 15–20% in others.     

Let Them Eat Marblecake: The Preferences of Michigan Citizens for Devolution and Intergovernmental Service-Provision

Based on a survey of Michigan residents, this study explorespublic support for devolution of public services to state andlocal governments. The survey allowed respondents to choosemore than one level of government to provide services. On onehand, a large majority endorsed the devolution of services fromthe federal government to the states in general. On the otherhand, for most of 11 specific services studied, respondentspreferred arrangements involving all three governments. Regressionanalysis indicates that a preference for having services deliveredby state and/or local governments only is stronger among Republicans,conservatives, whites, and older citizens. Overall, however,Michiganians embrace "marblecake " federalism.     

From Convergence to Divergence: Reforming Australian Local Government

The article maps local government reform in the six Australian states over the last decade. It identifies an earlier phase of reform that focused primarily on redefining the roles and relationships within local government, especially between state and local governments, principally through the reform of the state local government Acts. As state reform agendas have shifted more to focus on managerial improvement, significant differences between local government reforms between states have emerged, in focus, process and outcomes. These differences are such that the role of local government itself has been refocused in several states away from the traditional local democracy values that have for so long underpinned this third sphere of government.     

Constitutional Law and the Protection of Subnational Governments in the United States and West Germany

In Garcia v. San Antonio Metropolitan Transit Authority (1985),the U.S. Supreme Court concluded in a 5–4 decision thatthe Tenth Amendment does not protect state and local governmentsfrom federal intervention into their "traditional governmentfunctions." The Court majority insisted instead that the protectionof state and local functions lies in the political process and,thus, reversed the previous majority decision in National Leagueof Cities v. Usery (1976). Constitutional provisions in WestGermany grant the states a general protection rather comparableto the Tenth Amendment. These provisions also give explicitprotection to local governments. In spite of the apparent differencesthat suggest greater legal protection for their autonomy, Germanstates and local governments are now sharing most of their protectedfunctions with the federal government in a complex system ofintergovernmental relations. The Federal Constitutional Courthas allowed numerous federal and/or state incursions in localgovernment decisionmaking based on considerations of the commongood.     

Foreign-Trade Agreements: A New Federal Partner?

The North American Free Trade Agreement (NAFTA) and the GeneralAgreement on Tariffs and Trade (GATT) shift power away fromstate and local government in the federal system. They imposenew rules on the exercise of state and local powers over procurementand the regulation of food, environmental, health, product andservice standards, investments, services, financial services,economic development, and land transportation. States will haveto comply with various reporting and registration requirements,and may be subject to stricter nondiscrimination obligationstoward imported goods and services than under the commerce clauseof the U.S. Constitution. State and local governments will bejudged by international panels, whose judgments the United Statesmust enforce or suffer trade sanctions from aggrieved tradingpartners. Yet, states have not strongly opposed NAFTA and GATT.The greatest state opposition has been to automatic preemption,which the Clinton administration promised to avoid as much aspossible. Nevertheless, increased power over federalism hasmoved to the executive branch, business, and trade-dispute panels,with less power for state and local governments.     

Tax and expenditure limitations and the fiscal relationships between state and local governments

This paper uses comprehensive data on state and local tax and spending limitations for forty-nine states between 1976 and 1990 to estimate the effects of these limits on the fiscal relationships between state and local government. Results indicate that tax and spending limits on local governments are only partially effective in reducing revenues because political agents bypass limitations by transferring revenue reliance to unconstrained revenue sources, or because unconstrained levels of government take on additional revenue responsibilities. In particular, the empirical analysis demonstrates that binding local government fiscal constraints are associated with reductions in local revenues and increases in state aid to local governments. In contrast, state government limitations are related to reductions in both state and local own source revenues.     

Rural Development Councils: An Intergovernmental Coordination Experiment

Eight pilot state Rural Development Councils were establishedby the federal government in 1990 to coordinate rural developmentefforts among federal departments and agencies and to establishcollaborative relationships with states, local governments,and the private sector. After one year of operation, these councilsprovided a mechanism for the participating states to definethe rural issues relevant to their unique settings and to worktoward the accomplishment of their goals. In addition, the processallowed federal officials in Washington and in the states toutilize the discretion available in the system to maximize collaborationand cooperation. Additional states will be involved in the effortin 1992. Three types of agendas or expectations surrounded theinitiative: substantive, political, and process approaches.Although it is too early to determine the extent to which thecouncils have "delivered" on these expectations, the experimentprovides preliminary evidence of the scope of federal abilityto stimulate change within a state as well as the economic andpolitical forces that constrain it.     

State involvement in limiting textbook choice by school districts

Who gets to decide what textbooks are used in America’s public school classrooms varies by state. States can let each school district decide, provide standards that must be followed and make available an incomplete listing of books meeting those standards, or allow schools to choose books only from a list provided by the state. I present a model that provides an explanation for state limits on textbook selection by school districts. I examine the roles played by decision making costs, effectiveness of voters, religious composition, power of teachers, and propensity of state governments to interfere with or to help districts in textbook selection policies at the state level. There has been virtually no research on this topic. My findings corroborate the extant literature that addresses interference by state governments in local affairs and extend the morality politics literature by finding a strong link between religious fundamentalism and state-level policies. I also find that state book lists are less likely (1) in more educated states, where voters are better able to select the most appropriate textbook, (2) in states with smaller school districts, where voters are more involved in the schools, and (3) in states with stronger teacher unions, giving teachers more power in textbook selection.     

Race, Bureaucratic Discretion, and the Implementation of Welfare Reform

This article explores the impact of the race of individual clients and of the local racial context on the implementation of sanctions for recipients of Temporary Assistance for Needy Families (TANF) in a Midwestern state. We find that although nonwhites are sanctioned at lower rates than whites overall, nonwhites are sanctioned more compared to whites in each local area. This paradox occurs because nonwhites tend to live in areas with lower sanction rates. Consistent with the literature on race and policy, we find that sanction rates increase as the nonwhite population increases until a threshold is reached where nonwhites gain political power .     

Local Government Complexity: Consequences for County Property-Tax and Debt Policies

This article examines the consequences of local government complexityon county revenue decisions in fourteen Texas counties comprisingthe Dallas-Fort Worth and Houston metropolitan areas. Thereare significant differences in the configuration of local governmentsin the two areas traceable to when cities, school districts,and special districts were created. County revenue decisionsare also affected by the different configuration of governmentsin the two areas. These findings challenge the conventionalwisdom that states create local governments. Local choices areinstrumental in shaping local government complexity. What government-typesare chosen, and when, produce distinctive patterns of governancefrom one metropolitan area to the next, even in the same state.Consequently, reforms aimed at making the county the "localgovernment of the future" would require perhaps insurmountablechanges in state and local structures     

Citizens’ Perceptions of Governance in Rural and Urban China

This article presents three main findings from a purposive stratified survey of urban and rural residents. First, Chinese citizens “disaggregate” the state with high levels of satisfaction for Central government that fall dramatically as government gets closer to the people. Satisfaction levels are noticeably lower for those in rural China. Second, attitudes about the way policy is implemented by local governments raise concerns. Irrespective of place of residence, respondents feel that when implementing policy local officials and governments are mainly concerned with their own interests, are more receptive to the views of their superiors rather than those of ordinary people, favor those with money, and are formalistic in implementing policy rather than dealing with actual problems. Third, the areas of work that citizens would really like government to concentrate on are job creation and providing basic guarantees to protect against the shocks of the transition to a market economy. Tony Saich is the Daewoo Professor of International Affairs, Kennedy School of Government, Harvard University and Director of the Harvard University Asia Center. His recent research focuses on the development of social policy in China, particularly on the provision of public goods by local governments. His publications include Governance and Politics of China by Palgrave and edited volumes on Financial Sector Reform in China (with Yasheng Huang and Edward Steinfeld) and AIDS and Social Policy in China (with Joan Kaufman and Arthur Kleinman both by Harvard University Asia Center. He would like to thank Edward Cunningham for his great help in preparing this article. He also wants to thank Victor Yuan (Horizon Market Research Company) for his tremendous help in designing the survey and implementing it. In addition, I would like to thank Anita Chan, Martin King Whyte and two anonymous reviewers for their extremely helpful comments on an earlier draft.     

The President's FY 1990 Budget: The Last Act in a Decade of Change

This article examines the budget requests of Presidents Reagan and Bush for fiscal year 1990, and how the federal budget has changed during the decade of the 1980s. The author concludes that the federal budget has become less controllable, as the priorities and composition of federal expenditures have shifted during the Reagan years. While the Reagan and Bush budgets do not differ significantly, the manner in which they were constructed does. The effort of President Bush to define his budgetary version of a "kinder, gentler" America may be more illusory than real. The author also traces the change in federal assistance to state and local governments, concluding that, apart from transfer payments, the federal role has markedly declined.     

Developing and Testing a Composite Model to Predict Local Fiscal Distress

One of the thorniest issues of intergovernmental fiscal relations is state oversight of local fiscal affairs. States have oversight responsibility and must take action when local governments run afoul of responsible fiscal behavior. Less accepted is how states can detect local financial difficulties before they become emergencies that require state takeover. Research in the 1970s provided some assistance to states wishing to recognize local financial emergencies. But the time has come to look at this issue anew, particularly with an eye toward predicting local financial problems before they become serious. This article describes a 10-point scale that predicts these problems and tests the scale to predict local fiscal stress in a sample of Michigan local governments.     

Turning Up the Heat: The Impact of Electric Utility Competition on K–12 Education Funding in Ohio

Ohio, like many states, is currently-considering deregulation of the retail electric power industry. This issue is made more complex in Ohio because structural change in the delivery of electric power is also likely to have a negative effect on state and local government revenues. This effect occurs because of three main forces: the elimination of differential property tax treatment of utilities relative to general businesses, the likely decrease in state electricity excise tax revenues as a result of falling power prices and administrative difficulty in taxing out of state providers, and the potential for stranded costs to diminish the taxable value of electric generating equipment. This article provides an overview of these issues and a brief analysis of the extent to which these problems will be shared by other states. The article then demonstrates the impact of deregulation-induced tax changes on both state and local school district revenues in Ohio and concludes with a discussion of how the state's ability to insulate local governments from these adverse fiscal effects is made both more imperative and more difficult by a recent Supreme Court Ruling on school funding Finally, the issues discussed in the article are placed in a more general context of the challenges of adjusting tax policy to changing circumstances