Where the Money Comes From

Arriving at their desks in Albany last week, New York state legislators were confronted with a blue-and-white 1,039-page volume that could best be described as imposing. It imposed on New York taxpayers a 1967 budget of nearly $4.7 billion, biggest ever proposed for any state in the Union. The same tableau, with only slight variations, was repeated in statehouses across the country. For if January is the season of inauguration euphoria and soaring phrases, February is the time of budgetary reality and boring figures.

Despite the size of his ninth budget--$644 million above last year's-- New York's Nelson Rockefeller, with some astute fiscal maneuvering, was able to guarantee no new taxes.* Some of his colleagues were not so lucky.

More in Michigan. Faced both with declining revenues as a result of the automobile sales slump and the need for increased state expenditures, George Romney asked the Michigan legislature for state income taxes on individuals (21%), corporations (5%), and banks and other financial institutions (8%) to balance record expenditures of $1.15 billion, up $128 million from last year. If new taxes are not levied, he warned, the budget will drop $147 million into the red.

Michigan lawmakers have twice turned down previous Romney requests for income taxes, and last week's message displayed a measure of political courage. For much of the Governor's allure as a Republican presidential prospect has come from his ability--bolstered by booming auto sales--to bring Michigan back to full fiscal health. If the state should fall back into fiscal crisis, his national ambitions would also recede. Yet Romney not only refused to cut back what he regarded as essential spending programs, he also proposed increased outlays for education, social and medical welfare and conservation.

Less in California. By contrast, Californians had sent Ronald Reagan to Sacramento with a mandate for retrenchment--and that was precisely what they got in Reagan's first budget message last week. Higher education was cut back 15%, capital expenditures 17%, state departments and agencies an average 10%. No new programs were proposed. Even after Reagan's slimming course, his budget still totaled $4.62 billion, an increase over Democrat Pat Brown's requested budget a year ago, but still, according to Reagan, $251 million less than the state will actually spend during the current fiscal year.

Brown's budget had been balanced by a one-shot windfall of millions, the result of a change in the state's accounting system. Reagan has no such nest egg, and said he would need upwards of $240 million in new taxes just to stay even. Last week he even accused Brown of having "looted and drained" the state treasury, leaving his successor with the onus of levying new taxes. Reagan later explained that he had not implied any malfeasance on Brown's part, confessing that he was "addicted" to using the "simplest words."

As a token of his resolve to cut spending, Reagan's office announced that the new administration would make do with the old regime's stationery, crossing out the names of Brown's officials and typing in those of their successors. And rather than ask the state to build a new split-level to replace the Governor's 90-year-old gingerbread mansion in Sacramento--his wife Nancy calls it "a fire-trap"--Reagan said he would endorse the efforts of a citizens' group that is trying to raise money for a new official residence. "I'm not one," he said, "to look a gift house in the mouth."

Plenty from Washington. No matter what happens to their budgets in the state capitals, most Governors realize that the direction of state government depends more and more upon decisions made in Washington. It was thus appropriate that even as Rockefeller's budget was being presented in Albany, the Republican Governor--who brought the term "creative federalism" into current usage--was testifying in Washington before a Senate subcommittee studying ways in which the federal system can, in fact, be made more creative. The atmosphere was low-key, but nearly everyone had a story or two pointing out the bugs in the present system of federal grants.

If a mayor wants federal help in building a town sewage-treatment plant, West Virginia's Governor Hulett Smith pointed out, he may pick from five federal agencies and from five different sets of standards. If he addresses his letter to the Department of Health, Education and Welfare, he gets only 30% of the cost of the project. But if he mails it to the Department of Housing and Urban Development, he may hit something akin to the jackpot--a full 90%.

The Governors admitted, however, that the Federal Government in most cases steps in only because state governments have neglected their responsibilities. "Frequently," observed Vermont's Philip Hoff, "the states which cry the loudest for tax sharing are those which have failed to come to grips with their own tax problems." Even while conceding past errors, the Governors agreed that the states are ready to play a stronger role in the federal system. Their prelude promised that in statehouses and on Capitol Hill, federal-state relations will be more closely scrutinized this year than they have been for a generation.

* Thanks in part to anticipated revenues from a state lottery, approved by the voters last November, which Rocky's fiscal advisers hope will bring in $60 million a year.

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