Gee Thanks, Ronnie, but...

By Claudia Wallis

For the Governors, a gamble has backfired

They gathered amid the glitzy gaming palaces of Atlantic City, N.J., and took time out for a pickup basketball game. But the 44 Governors who attended the National Governors' Association conference last week were hardly feeling sportive. They spent three days in tense, often heated discussion of the enormous political and fiscal problems handed to the states under President Reagan's "new federalism." Said Wisconsin Governor Lee Dreyfus: "There is some apprehension on the part of the Governors that we are getting the short end of the stick." Said Tennessee's Lamar Alexander: "We have nothing to go dancing up and down the boardwalk about."

The Governors were concerned that a gamble they made last February was now backfiring. In a bipartisan resolution, they had agreed to support the Reagan Administration's economic program on one major condition: that the Federal Government give them general-purpose block grants rather than money ear marked by Congress for specific uses. These block grants were to be the cornerstone of Reagan's "quiet federalist revolution," in which power would gradually be transferred from overblown federal agencies to state and local authorities. Given greater leeway and less red tape in using federal funds, the Governors were confident that the states could absorb cut backs of 10% without trimming services.

They did not get what they had bargained for. The package approved by Congress last month provided fewer block grants than anticipated, with almost as many strings attached as before. "A lot of sizzle but not much steak," grumbled California Governor Jerry Brown. Instead of the expected 10% reduction in grants, 25% was slashed. According to an NGA report issued at the start of the conference, nearly a third of the $35 billion cut from the 1982 federal budget is coming out of state aid. In the 35 states that use federal guidelines to determine taxable business income, an additional $2.3 billion in corporate tax revenues will be lost as a result of Reagan's tax program. The net effect, charged Brown, is that of a "shell game" that "shifts the burden of federal cutbacks to state and local government." Bill Krause, aide to Wisconsin's Dreyfus, was even blunter: "We aren't getting more powers, just more bills. Shift and shaft."

The cuts in federal aid will force states to do at least one of two politically unpopular things: curtail services or raise taxes. In a closed-door session, according to Arkansas' Frank White, seven out of 20 Governors confessed they had either just passed tax increases or intend to do so soon. Some states will suffer more than others. North Dakota, with its oil and coal revenues, will do just fine without the federal dollars. Boasts Governor Allen Olson: "We want to prove we can live without them." But in the Northeast and industrial Midwest, the new federalism is "cruel and unusual punishment," according to Roger Vaughan, economic aide to New York Governor Hugh Carey. These regions, says Vaughan, will bear an unfair burden of social service cutbacks because they spend more for the disadvantaged in the first place. Urban areas, which tend to have the highest concentration of poor and others dependent on federal programs, will probably be the biggest losers. A small delegation of mayors was invited to last week's conference, and they pleaded with the Governors for some say in how block grant funds are allocated. Declared Indianapolis Mayor William Hudnut III, president of the National League of Cities: "We are always at the bottom of the pyramid."

Despite their objections, the Governors did not reject new federalism outright. But they warned that it "must be a two-way street," as Georgia Governor George Busbee put it. States will resist the further transfer of federal responsibilities, he said, unless "there is a carefully conceived plan to sort out appropriate roles for each level of government and to balance those with adequate resources." It was not acceptable, Busbee cautioned, for "our friends" in Washington to "pick out the most expensive, the most difficult to manage, the most politically controversial federal programs, and hand them over to the states and localities with a heartfelt sigh of relief."

Just how more equitably to sort out what Arizona Governor Bruce Babbitt calls "the intergovernmental omelet of scrambled responsibilities" was the subject of much debate last week. Babbitt, a Democrat, and Tennessee's Alexander, a Republican, introduced what they termed a "swap" proposal: Washington would take over all responsibility for Medicaid, while the states would assume total fiscal control of primary and secondary education. Though the idea met with considerable enthusiasm, the conferees agreed not to advocate formally anything so drastic until its full implications could be evaluated. Instead they adopted a more general resolution, offering to accept "a phased-in reduction of federal support in the areas of education, law enforcement and transportation," in exchange for increased federal responsibility for "the so-called 'safety net' programs--such as welfare and Medicaid."

Addressing the Governors, Vice President George Bush promised: "The door to the White House is open. Come to us. Bring us your concerns." But that did little to assure the Governors that their message was getting through. Indeed, the Administration has shown no sign of backing away from Reagan's longtime desire to shift the responsibility for welfare programs back to the states. Said Richard Williamson, presidential assistant for intergovernmental affairs: "As far as welfare going to the feds, at this point we agree to disagree." --By Claudia Wallis. Reported by Barbara B. Dolan/Atlantic City

With reporting by Barbara B. Dolan

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