Job Name:2222145 Date:15-04-16 PDF Page:2222145pbc.p1.pdf Color: Magenta Yellow PANTONE Warm Red C FEDERAL GRANTS=IN=AID: PERSPECTIVES AND ALTERNATIVES

By Deil S. Wright

June, 1968

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AMERICAN ENTERPRISE INSTITUTE FOR PUBLIC POLICY RESEARCH WASHINGTON, D.C. 20036 Distributed to the Trade by National Book Network, 15200 NBN Way, Blue Ridge Summit, PA 17214. To order call toll free 1-800-462-6420 or 1-717-794-3800. For all other inquiries please contact the AEI Press, 1150 Seventeenth Street, N.W., Washington, D.C. 20036 or call 1-800-862-5801.

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Deil S. Wright is Professor of Political Science and Research Professor in the Institute for Research in Social Science at the University of North Carolina. Previously he taught at Wayne State University, the University of Iowa, and the University of California at Berkeley (as visiting professor). He has pub­ lished several books and numerous articles in the fields of state and local government, public administration, intergovernmental relations, and public finance, and has served as consultant to various state and local governmental units.

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© 1968 American Enterprise Institute for Public Policy Research, 1200 17th Street, N.W., Washington, D. C. 20036. All rights reserved under International and Pan-American Copyright Conventions. Library of Congress Catalog No. 68-9148 Price: $2.00 AMERICAN ENTERPRISE INSTITUTE For Puhlic Policy Researcll

THE AMERICAN ENTERPRISE INSTITUTE FOR PUBLIC POLICY RESEARCH, established in 1943, is .a nonpartisan research and educational organization which studies national policy problems. Institute publications take two nlajor forms:

1. LEGISLATIVE AND SPECIAL ANALYSES-factual analyses of CUf­ rent legislative proposals and other public policy issues before the Congress prepared with the help of recognized experts in the academic world and in the fields of law and government. A typical analysis features: (1) pertinent background, (2) a digest of significant elements, and (3) a discussion, pro and con, of the issues. The reports reflect no policy position in favor of or against specific proposals. 2. LONG-RANGE STUDIEs-basic studies of major national prob­ lems of significance for public policy. The Institute, with the counsel of its Advisory Board, utilizes the services of competent scholars, but the opinions expressed are those of the authors and represent no policy position on the part of the Institute.

ADVISORY BOARD

PAUL W. MCCRACKEN, Chairnlan Edmund Ezra Day University Professor of Business Administration, University of Michigan

KARL BRANDT FELIX MORLEY Professor of Economic Policy (Emeritus) Editor and Author Stanford University

MILTON FRIEDMAN Paul S. Russell Distinguished STANLEY PARRY Service Professor of Economics Professor of Political Science University of Chicago Trinity College, D. C.

Gf)TTFRIED HABERLER Galen L. Stone Professor of International Trade E. BLYTHE STASON Harvard University Dean Emeritus, Law School University of Michigan c. LOWELL HARRISS Professor of Economics Columbia University

Loy W. HENDERSON GEORGE E. TAYLOR Director, Center for Diplomacy Director, Far Eastern & and Foreign Policy Russian Institute American University University of Washington OFFICERS

Chairman CARL N. JACOBS

Vice Chairmen HENRY T. BODMAN CLYDE T. FOSTER H. C. LUMB

President WILLIAM J. BAROODY

Treasurer HENRY T. BODMAN

TRUSTEES

HENRY W. BALGOOYEN FRED F. LOOCK HENRY T. BODMAN H.C.LuMB JOHN M. BRILEY WILLIAM L. MCGRATH FULLER E. CALLAWAY, JR. GEORGE P. MACNICHOL, JR. WALLACE E. CAMPBELL ALLEN D. MARSHALL RICHARD J. FARRELL DON G. MITCHELL CLYDE T. FOSTER CHARLES MOELLER, JR. HARRY C. HAGERTY DILLARD MUNFORD W ALTER HARNISCHFEGER HARVEY PETERS JOHN B. HOLLISTER H. LADD PLUMLEY ROBERT A. HORNBY EDMUND W. PUGH CARL N. JACOBS PHILIP A. RAy JAMES S. KEMPER, JR. HERMAN J. SCHMIDT RAYMOND S. LIVINGSTONE WILLIAM T. TAYLOR R. C. TYSON

THOMAS F. JOHNSON JOSEPH G. BUTTS Director of Research Director of Legislative Analysis

EARL H. VOSS Director of International Studies CONTENTS

I. OVERVIEW: INTRODUCTION AND SUMMARY __ 1 Introdtlction ~______1

Summary ~____ 4 Definition and Legal Basis 4 Historical Developments and Causal Factors 5 Aims, Advantages and Disadvantages, and Consequences 6 Program Scope and Financial Significance 8 Participants' Perspectives: National 9 Participants' Perspectives: State and Local -______9 State Government: Strengths and Weaknesses 11 Grant Alternatives 11

II. DEFINITION AND LEGAL BASIS 15 Definition of Grants-in-Aid .______15 The Legal Basis of Grants 19

III. HISTORICAL DEVELOPMENT AND CAUSAL FACTORS ,______25 Historical Development -______25 Causal Factors: The Politics and Economics of Grant Creation 27

IV. AIMS, ADVANTAGES AND DISADVANTAGES, AND CONSEQUENCES 35 The Aims of Federal Grants ~------__ 35 Advantages and Disadvantages of Grants 38 The Consequences of Grants ~______43

V. PROGRAM SCOPE AND FINANCIAL SIGNIFICANCE --______51 Number of Federal Grant Programs 51 Financial Trends and Patterns in Federal Grants 61 Federal Grants Relative to Other Financial Trends 69 VI. PARTICIPANTS' PERSPECTIVES: THE NATIONAL LEVEL . . __ . .______73 Congress and Grants . . 73 Federal Administrators and Grants . . . 80 Summary . .. _. . 87 VII. PARTICIPANTS' PERSPECTIVES: STATE AND LOCAL LEVELS .______91 Governors and Grants .___ _. .______91 State Administrative Officials and Grants _.____ . 100 Local Officials and Grants _. .______106

VIII. STATE GOVERNMENT: SlRENGTHS AND WEAKNESSES _. .___ _ 113

IX. GRANT ALTERNATIVES . _ 129 Improvement of Existing Grant Pro~rams _ 130 Congressional Policy . _ 131 Executive Branch Structure ...... _ 135 Administrative Procedure 136 Grant Alternatives _ 138 Direct Federal Expenditures _ 139 Federal Tax Reduction _ 139 Tax Credits _ . _ 140 Tax Sharing _ 142 The Plan 142 Pros and Cons of the Plan _ 147 Concluding Observations . ._ 150

OTHER AEI PUBLICATIONS 155 To my parents who gave many unrestricted "grants"

I.

OVERVIEW: INTRODUCTION AND SUMMARY

Introduction

HE STUDY OF FEDERAL grants, like many other aspects of our T political system, is overlaid with much conventional wisdom. It is a topic that has generated more heat than light, more political rhetoric than political insight. The purpose of this monograph is to review the several systematic studies that exist in the field, to assess the overall effects of grant programs on what today is called intergovernmental relations, and to offer some thoughts about possible reforms. In recent years, the problem of intergovernmental relations has become a major domestic issue. Indeed federal grant activity has reached such proportions, particularly since 1964, that the terms "new federalism" and "coop­ erative federalism," all coined in the 19308, are deemed insufficiently descriptive. Instead, the phrase "creative federalism" has attained prominence in the political arena, and scholarly literature has iden­ tified several new streams of federalism, "direct" and "private" serving as two illustrations. In this context, it seems appropriate to ask several questions that should concern the public official and private citizen alike. These questions, listed below, form the basis of this monograph. What are federal grants-in-aid? What is their legal or con­ stitutional basis? Why have they grown?

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What are the objectives, as well as the advantages and disadvan­ tages of federal grants? What are their consequences?

What trends and patterns have prevailed in the number, type, and fiscal significance of federal grants?

What are the prevailing attitudes toward grants among officials responsible for their enactment and administration, Le., con­ gressmen, federal administrators, governors, state administrators, and local officials? Ho\v have the states functioned in the context of expanded fed­ eral activity through grants-in-aid? What are the weaknesses and strengths of the states? Given the problems associated with federal grants, what modifi­ cations and alternatives have been proposed and which one(s) appears most feasible and most conducive to a viable federal systenl? It is appropriate at the Ot;tset to state the general value orientation underlying this study. The author is concerned about the impact of proliferated federal programs on our federal system. This concern springs from no fundamental animus against federal action, but rather from regard for the vitality of state and local governments. These governmental units have existed in a state of tension through­ out our political history, subjected variously to direct assault or quiet erosion depending on the social, economic, or political challenge of the moment. The outcome of successive encounters between centralizing and decentralizing forces is not easy to measure. Most political observers agree that some centralization has occurred in the century since the Civil War. Beyond this general agreement, there are two difficult, open questions: (1) how much centralization has occurred? and (2) has it been appropriate and desirable or inappropriate and undesirable? The difficulty with the first question is that we have no objective or universally accepted criteria for measuring the locus of power. Despite some progress in conceptual clarity, as well as much debate with sociologists on measurement, an understanding of pow(;r remains one of the elusive aims of political scientists. 3

The power ploblem lies at the center of debate over federal grants­ in-aid. In early studies of federalism, governmental power was ·,iewed as a fixed quantum. If the national government increased the scope of its activities (its power), the power of state-local gov­ ernments was assumed to have been diminished. As long as the legal approach to the study of federalism prevailed, there was a strong tendency to see the power question in either-or, win-lose terms. This view, born of the emergent phase of U.S. federalism and nurtured in the legal doctrines of dual federalism, gave rise to the "separate spheres" inte-rpretation of the nature of federalism. But it is now generally accepted that power is not a fixed quantum. In other words, there is some "slack" or "looseness" in the political system (or outside it) that may be exploited to develop or widen a power base. The acquisition of more power by one participant, then, does not produce an absolute reduction in the power of others. In the language of game theory, politics (or intergovernmental relations) is not a zero-sum game. Translated into current analyses of inter­ governmental relationships, this gives rise to the following typ'es of observation: "The national government is doing more and so are the states; therefore, the states have not been reduced in status." The point frequently overlooked in such discussions, however, is that the relative power of different governmental units vis-a-vis each other is probably of equal importance to their absolute power. Thus, the first question should be restated to emphasize trends in relative power positions. The second open question involves more than different interpreta­ tions of facts and events. It is the fulcrum on which many policy differences turn, differences that tend to divide our two political parties as well as create cleavages within them. Part of the function of this monograph is to clarify these and other differences as they relate to policy questions about federal grants-in-aid. In portions of this study, I have utilized the concept of "perspec­ tives" as a central organizing therile. The term is employed to mean the opinions, attitudes, and evaluations of governmental officials who are responsible for proposing, enacting, and administering federal grant programs. For the most part, these perspectives are documented by systematic and standardized data collection procedures. My inten­ tion is to provide, as nearly as possible, a representative sampling 4 of the perspectives of officials most "in the know" about how grant programs function. Representativeness is especially important in view of the many factors operating throughout the political process to screen in favorable data and screen out unfavorable data. A final caveat is in order. These attitudinal perspectives, along with less systematically-gathered historical, descriptive, and evalua­ tive data, form the basis for interpretations and conclusions that are conditioned by the author's personal views. However, the study contains sufficient, if not extra amounts of objective material to inform readers on aspects of grants that were previously undisclosed and to permit them to work out their own enlightened views.

Summary In an analysis that attempts to be both extensive and moderately detailed, a summary of the major findings and conclusions can be helpful. This summary is presented here, on a chapter-by-chapter basis.

Definition and Legal Basis The most generally accepted definition of a federal grant-in-aid is the payment of federal funds to a lower level of government-for a specified purpose, usually ona matching basis and in accordance with prescribed standards or requirements. This definition identifies both the categorical and conditional character of federal grants. Grants are to be distinguished from shared revenues, loans and advances, and payments to individuals, firms and quasi-public groups. When these additional types of federal outlays are grouped with grants, the broader term of federal aids is employed. Federal grants are a judicially approved device for achieving a national purpose, namely, spending federal tax moneys for general welfare purposes. Supreme Court decisions forming the legal basis on which the federal grant-in-aid structure rests point to two prom­ inent conclusions. First, there is no serious question as to the legal basis for federal grants-in-aid and, barring an unexpected revolution in attitudes, the courts are likely to interpose few if any restraints on national spending measures. Second, where matters of federal spend­ ing and grants are involved, the courts have become spectators rather than arbiters or umpires. As a result, the future of federalism and 5 the character of intergovernmental relations in the United States will be determined chiefly, if not exclusively, by the legislative and execu­ tive branches of the national government.

Historical Developments and Causal Factors Federal grants-in-aid-complete with their features of appor­ tionment formulas, matching requirements, and preparation of state expenditure plans-are a twentieth century phenomenon. Their growth closely paralleled the revolution in federal finance that oc­ curred with the adoption of the Sixteenth Amendment in 1913. They experienced major expansion in a few program areas in the 1930s, and extensive proliferation in number, variety, and size in the two decades following World War II. Since 1946, only the 82d Congress (1951-52) has failed to establish at least one new program. Other important trends since 1946 include the increasing tendency for grant programs either to "bypass" state governments or to involve only their minimal participation, as well as the notable shift in emphasis toward urban-oriented programs. Moreover, allocation. formulas of certain individual grants have recognized differing state fiscal capaci­ ties as a device for producing interstate· equalization of income. Finally, in new programs, grants intended ostensibly and primarily for state and local governments have been open to voluntary nonprofit groups performing a public function. This has occurred in the fields of education, hospitals, and economic opportunity. Why were federal grants invented and ,why has the technique been used so extensively? The first reason is political tradition. Given the long-standing preference of Americans for decentralized decision making, buttressed by constitutional-legal protections and localized power bases, the burden of proof has rested with the proponents of federal action. The grant device (both land and monetary) was a handy mechanism for compromising national and sub-national interests. The second reason is the differing tax and economic resources of the federal and state-local governments. The national economy has strength and vitality above and beyond 50 separate state economies. That the whole is greater than the sum of its parts is nowhere more apparent than in the taxation field where federal access to revenues through the income tax far exceeds the fondest hopes of the most 6 optimistic state officials. Furthermore, income tax revenues are substantially more responsive to economic growth than state con­ sumption and excise taxes or local property taxes. In other words, economic growth produces fiscal dividends for the national govern­ ment but the major service responsibilities continue to rest with state and local governments. lbe "fiscal mismatch" or "revenue/ responsibility gap" has been an important factor inducing greater use of grants. Thirdly, there is a relationship between representational influences and federal grants. Why have "cities gone to Washington" with their problems and why has the federal government responded? Aside from the elasticity of the federal budget and the legal breadth of the federal spending power, cities have found the President and the Congress, especially the Senate, more urban-oriented than most state legislatures. This will be less true in the future as the effects of legislative reapportionment are felt. Policy pressures articulated through private and "public" interest groups offer a fourth explanation for grants. To maximize their effectiveness while minimizing their costs (broadly defined), pressure groups have taken their causes (and their headquarters) to the nation's capital. Their activity in the various grant areas gives rise to a frequently observed phenomenon on the Washington scene, the so-called "triple alliance." This term refers to the shared and interlocking aims of persons from a pressure group, a congressional committee or subcommittee, and the administrative agency respon­ sible for the conduct of the program. There is a "triple alliance" in most grant areas influencing the development and implementation of policy.

A.ims, Advantages and Disadvantages, a·nd Consequences Federal grants have a wide variety of purposes. They can be designed to stimulate action in a field where none existed before, to guarantee minimum service levels, or to ease special hardships. Other grants provide for interstate equalization of resources and, indirectly, services, or they support the objective of economic stabili­ zation and development. Many recent project-type grants are de­ signed to demonstrate the feasibility of novel approaches to a public problem. And finally the planning-coordination objective is becoming more prominent in new grants and grant extensions. 7

The arguments for and against grants can be grouped under three broad headings. Legal and philosophical arguments range from constitutional and concentration-of-power questions to the capacity of different levels to govern and respond to social change. Financial arguments involve the fiscal justifications and alleged fiscal effects of grants. Thirdly, administrative arguments cover the wide spectrum of differences concerning the desirability of federal administrative requirements and their effects on program efficiency and performance. Interspersed through the debate on federal grants is an important unexpressed fourth set of arguments. They involve contrasting political opinions about the nature of political obliga­ tions, the proper scope of government in civil society, and the vitality and effectiveness of different jurisdictions within the federal system. These Holmesian "inarticulate major premises" are closely related to views favorable and unfavorable toward federal grants­ in-aid. Federal grants have both fiscal and policy consequences. In a fiscal sense, grants may be stimulative, substitutive, or additive (or some combination of the three) with respect to the activity and budget of a recipient unit. Although few analyses have attempted to establish the degree to which various kinds of grants have these effects, it is clear that (1) the widespread use of conditions and matching requirements virtually prohibits grants from being substi­ tutive and (2) exceptionally high matching ratios, e.g., 9: 1, produce additive rather than stimulative effects.

Available data reveal that states with lower incomes devote a higher percentage of tax revenues and make a greater tax effort to meet federal matching requirements than states with higher incomes. Despite these greater efforts and the presence of equalizing formulas in many grants, the overall effect of federal grants is no longer equalizing to any important degree.

Among the major policy consequences of grants on state and local governments is their tendency to alter priorities among programs because of the financial inducement to undertake aided programs. Moreover, the conditional and functional character of grants en­ courages independence on the part of state-local administrators, and fosters conditions in which federal administrative officials may sub­ stantially restrict the scope of action of elected state and local officials. 8

Program Scope and Financial Significance Whether measured in numbers, in aggregate or functional outlays, or as a proportion of state-local or federal finances, federal grants have increased significantly in the past two decades, substantially in the past single decade, and very sharply in the past few years. Recent tabulations dramatically demonstrate the proliferation that occurred between 1964 and 1966: grant programs increased from 116 to 162 and separate grant authorizations from 239 to 399; comparing five types of federal aids, project grants increased the most, in both absolute and percentage terms, while shared revenue programs re­ mained an infinitesimal part of the picture. As expected, a substantial portion of the expansion took place in the Department of Health, Education, and Welfare. But the administration of federal aids is a far-flung operation, spanning nearly 25 departments and agencies and over 125 bureaus. Two main consequences of such proliferation in aid programs, and especially of the shift toward specific project grants, are greater problems of coordination and increased discretion in the hands of federal administrative officials. One origin of these difficulties is the absence of reasonably clear legislatively-mandated policies for allo­ cating funds to increasingly diverse applicants. Federal grants totaled $113 million in 1920, $2.3 billion in 1935, and only $900 million in 1946. Since the end of World War II, grant amounts have recorded consistent increases averaging 12.8 percent annually and much more than that in the three fiscal years, 1966-68. Currently, nearly half of all grant funds are allocated for health, welfare, and labor programs, and about one-third for commerce, housing, and transportation purposes. About 15 percent now goes for education, compared to less than 5 percent prior to the enactment of the Elementary and Secondary Education Act of 1965. In the past two decades federal grants have grown more rapidly than state and local revenues or expenditures. Between 1946 and 1965, grants rose from less than 8 percent of state-local general revenues to nearly 17 percent, and a similar trend existed on the general expenditure side of the ledger. Today over one-third of state-financed general expenditures is derived from federal grants and the proportion is steadily increasing. 9

Federal aids are also becoming a larger proportion of federal cash payments to the public, almost doubling in the 14 fiscal years from 1955 through 1968. Currently, they constitute one-tenth of all federal cash outlays and one-fifth of federal nondefense cash outlays.

Participants' Perspectives: National Analysis of the perspectives of congressmen on grants-in-aid contradicts, at least in this one important policy sphere, the con­ tention about the lack of clear differences between the two political parties. Party identification was found to be a critical variable divid­ ing both House and Senate members on federal grants. A majority of all Democrats consistently ranked "low" on a scale measuring oppo­ sition toward federal grants, while Republicans were more toward the "high" end of the scale, but not as polarized. Senate Republicans and Democrats were more favorable toward grants than their counter­ parts in the House. Finally, no significant differences were noted between the 86th and 87th Congress despite the fact that presidential party control shifted from Republican to Democrat. The perspectives of federal program managers are important because the Congress regularly looks to these managers for advice on intergovernmental relations. Empirical survey data suggest that four perceptual themes prevail: Functionalism entails an insensitivity to the complexities and nuances of intergovernmental relations. Pro­ fessionalism, reinforcing the functional outlook, produces a com­ mendable commitment to program performance but it also leads to distrust of partisan policy influences and dislike for "meddling" generalist administrators seeking to coordinate grant programs. Protectionism engenders negative attitudes to proposed reforms. Finally, indifference adds up to disinterest in, and ignorance about, various aspects of intergovernmental relations. If we are to develop more sensible approaches to federal aid, the Congress must receive, on a regular basis, advice that is less heavily biased in the direction of more and larger highly categorized grants.

Participants' Perspectives: State and Local In responses to questionnaires from congressional committees, governors acknowledged the political and programmatic advantages 10 accruing froln grants but were quick to find fault with the fiscal and administrative effects. A tabulation of resolutions from gov­ ernors' conferences over a 20-year period reveals that about 15 percent of all conference resolutions addressed the question of fed­ eral grants-in-aid and that they were about evenly divided between urging grant expansion and criticizing grant implementa­ tion. It is clear that pronounced cleavages are present in governors' perspectives on f~deral grants. Continuous proliferation is undoubt­ edly adding to the complexities of the governors' positions. Surveys of state administrators' perspectives conducted in the 1920s, 1940s, and 1960s indicate deep ambivalence about the impact of grant programs on the states. For example, a majority joined their federal counterparts in favoring program expansion, but there was near unanimity in agreeing that grants should be subject to normal state budgetary and financial controls and a substantial minority thought that grants led to imbalance in state programs. A declining proportion thought that grants stimulated state action. A majority acknowledged that their agency or program was less responsive to the governor and legislature because of federal grants. Finally, a majority of grant executives indicated they would have allocated the federal funds differently in the absence of "strings," and nearly half of them, in sharp contrast to their federal counter­ parts, favored unrestricted grants or revenue sharing. One attitude survey of diverse groups of local officials identified four attitudinal positions along the spectrum of perspectives toward the federal system: orthodox states' righters, neo-traditionalists, prag­ matic cooperative federalists, and new nationalists. The two middle positions constituted the majority. The neo-traditionalists, represent­ ing about two-fifths of the respondents, shared some states' rights sentiments but too~ the practical view that the federal government had an appropriate (but restricted) role in using grants and other techniques to alleviate major problems. The pragmatic coopera­ tive federalists, about one-third of the respondents, accepted the "marble-cake" view of federalism and lacked any general principle on which further extensions of federal power via grants might be challenged. These two attitudinal positions shared a common prac­ tical approach. The realism of the neo-traditionalists and the prag­ matism of the cooperative federalists constitute an attitudinal base for building solutions to many intergovernmental problems. 11

State Government: Strengths and Weaknesses Why have the states been accorded lesser prestige, significance, and prominence in our political system? The real and alleged weak­ nesses of the states are examined in five major areas: ( 1) the organizational location or "middleman" position of the states, (2) structural-legal disabilities, (3 ) executive and administrative failings, (4) political traditions out of tune with contemporary urban­ industrial society, and (5) fiscal inadequacies. While weaknesses exist in each of the above areas, more extensive analysis and recent developments in at least the last four areas mentioned demonstrate that criticisms of states have been overstated and that several posi­ tive features have been understated. We conclude that state govern­ ments deserve more credi~ than they commonly receive.

Grant Alternatives Federal grants-in-aid are an institutionalized part of intergovern­ mental fiscal relations, here to stay. But they are causing measurable amounts of tension and inefficiency. Given these conditions, what is to be done? There are two basically different ways to improve the mechanism for providing federal aid to the states, either adopt marginal and incremental adjustments or replace grants with entirely new techniques. 1. Proposals for marginal adjustments seek Ibetter manageability and coordination through changes in congressional policy, executive branch structure, and administrative procedure. Taking policy changes first, Congress should consolidate many of the present spe­ cific categorical grants into broader functional grants, as it has recently begun to do in the public health field. In legislating grant programs, it should specify its aims more clearly and use more consistent matching, allocation, and other formulas. These,. steps would facilitate the institution of new procedures for a periodic and fundamental assessment of grant aims and achievements. In this assessment, Congress should seek out a broader variety of perspec­ tives among the relevant publics rather than (1) leaving largely to chance and self-nomination those whose views will be heard or (2) structuring the process and the participants to arrive at predicted outcomes. The proposal to create major standing committees on 12 intergovernmental relations, or perhaps even a joint committee, merits serious consideration. Proposed changes in executive branch structure would build repre­ sentation for the "intergovernmental interest" into the federal admin­ istrative structure. In short, at critical points within the executive establishment-from the White House down to field offices in the states-there would be key individuals charged with responsibility for coordinating grant-in-aid programs. Key recommendations for procedural reform are designed primarily to facilitate centralized state fiscal control over grant-in-aid funds. The importance of intergovernmental relations is matched only by the general disinclination, until recently, to admit the existence of serious problems. Failure to enact even minor procedural reforms indicates how difficult it will be to institute more major changes within Congress and the executive branch. The ossified character of the federal grant-in-aid structure, sometimes referred to as "hard­ ening of the categories," suggests the need for entirely new alterna­ tives to grants. 2. Among several alternatives to grants, tax reduction, tax credits, and tax sharing deserve special consideration. Federal tax reduction has the advantage of allowing maximum discretion to the states and localities to determine their own tax and service levels as they see fit. However, it does not appear to be politically realistic at this time. The tax credit approach would allow individual taxpayers a direct reduction in their federal income tax up to a specified portion of the state and local income taxes they pay. Its chief advantages are that it is highly visible, it would encourage slate and local income tax effort, and it would tie state or local revenues to a tax base that is responsive to economic growth. On the other hand, it faces difficult political obstacles. Also it permits no effective means of interstate equalization and would provide initial windfall benefits to substan­ tial numbers of taxpayers. Tax sharing, or unrestricted (unconditional) grants, has been widely employed in other federal systems, and has recently become a live issue here. It has many advantages. Among those most often mentioned are the following: simplicity, greater state discretion, the opportunity to pursue equalization objectives, revenue growth, flexi­ bility, economic stabilization, reduced distortion effects on state 13 programs, less red tape and inefficiency, income redistribution, attitudinal acceptability at the state-local level, and ample precedent. Against these positive claims, opponents of revenue sharing point to state inefficiency, the possibility of reduced state tax and service efforts, priority for tax (or debt) reduction, concentration of needs at the local and city rather than state levels, the threat to existing grant programs, and the separation between taxing and spending authority. Revenue sharing comes off the best of possible alternatives to grants-in-aid. It is simple. It is consistent with a body of attitudinal perspectives broadly distributed among officials and the public. It rec,ognizes the interrelatedness of federal-state-Iocal fiscal problems, and holds out the excellent prospect of a better federal system by enhancing the existing strengths of the states. The question, as Walter Heller has put it, is this simple: "Do you want stronger states?" One vote here is cast in the affirmative.

II. DEFINITION AND LEGAL BASIS

N THE SURFACE, the term "federal grant-in-aid" appears clear O enough. As with many matters, however, superficial appear­ ances conceal an underlying complexity.

Definition of Grants-in-Aid

A straightforward definition of a federal grant-in-aid is "the pay­ ment of funds by one level of government to be expended by another level for a specified purpose, usually on a matching basis and in accordance with prescribed standards or requirements." 1 This definition conforms to the operational classification of federal pro­ grams employed by the U.S. Bureau of the Budget. But several qualifications should be noted. Comparisons with other forms of federal aid and assistance will help clarify the term and reveal how confusion over dollar amounts creeps into public discussions about grants. To start with, gr'l.I1ts-in-aid are different from shared revenues: ( 1) Grants are annually-appropriated, specified amounts. Shared revenues are a fixed percentage of a predetermined revenue source, normally not requiring annual legislation. The amounts fluctuate with

1 Federal-State-Local Relations: Federal Grants-in-Aid, Thirtieth Report of the Committee on Government Operations, u.s. House of Representatives, 85th Congress, 2d Session, House Report No. 2533, August 8, 1958, p. 7.

15 16 the revenues in question.2 (2) Grants are almost uniformly condi­ tional. In other words, they set expenditure restrictions for the receiv­ ing unit, e.g., allocation of the funds to a single function or program, matching requirements, and conformity to a previously-approved plan. On the other hand, shared revenues, in principle, involve no conditions on how the recipient unit uses the funds but, in practice, this is not always true. For example, at the state level, provisions for sharing highway user revenues not only require local units to use these moneys for highway purposes but often also require them to match amounts to be spent on new construction with local funds. At the federal level, some shared-revenue legislation requires that funds from a particular source be spent for specified purposes. (3) Grants have a built-in programmatic bias. Their conditional character orients them to specific purposes or goals, with an accompanying inflexi­ bility from the recipient's standpoint. For a variety of reasons, grants do not readily adjust to changing times and circumstances. In contrast, shared revenues are biased in the direction of general rather than programmatic support. They are more adaptable to broad or unrestricted inter-level aid programs. (4) Shared revenues are normally excluded from grant-in-aid totals in budget statements. Another category of intergovernmental outlay is loan funds. Many financial assistance programs, especially at the federal level but in­ creasingly at the state level, involve the advancing of funds for a specified time and purpose with repayment at a future date. For example, under the urban renewal program, local jurisdictions rely on federal loans for working capital over several months or even years. An example of an older federal loan program is public hous­ ing construction. Federal grants should also be distinguished from the payment of funds directly to individuals and to private (as well as public) nonprofit institutions. The recent and rapid growth of "government by contract" and of other types of payments to individuals and semi­ public groups has led observers to coin two new terms, "direct fed­ eralism" and "private federalism." 3

2 George D. lliffe, "Shared Taxes and Grants-In-Aid," Municipal Finance, August, 1950, pp. 24-27; Duane W. Riggert, "Federal Grants-In-Aid and Shared Revenues Briefly Defined," National Tax Journal, March, 1961, pp. 104-08; and Council of State Governments, Federal Grants-In-Aid (Chicago, 1949), pp-. 28-30. 3 Charles E. Gilbert and David G. Smith, "Emerging Patterns of Federalism in Health, Education, and Welfare," paper delivered at the 1966 annual meet­ ing of the American Political Science Association. 11

"Direct federalism" refers to the extensive use of project-type funding to 'attain a precise purpose, e.g., cancer research at a state university hospital. More importantly, these funds are paid directly to individuals and groups because of their special abilities and are not, of course, subject to an apportionment formula. In contrast, standard formula grants, which form the basis of what is generally called "cooperative federalism," are made available to units of state and local government and are a mechanism for distributing federal funds among the states according to prescribed formulas for deter­ mining each state's share. Special private grants are not counted in the Treasury's statement of grants-in-aid to state and local units, but instead are listed in a separate category designated "Federal Aid Payments to Individuals, Etc., Within the States." The bypassing of state and local governments is also common to "private federalism," which departs in other ways from both co­ operative and direct federalism in the federal funding field. Private federalism refers to the use of nongovernmental and, in some in­ stances, private business firms to implement public programs, e.g., to operate a Job Corps center, or to perform specialized training or research tasks on local law enforcement practices. Other examples of the "private" approach are the various proposals to involve pri­ vate capital in semipublic urban development corporations, which would obtain funds from both public and private sources to finance reconstruction in blighted uf'ban areas. The boundary lines among the above concepts are not always clear or consistent. Some funds employed via the private technique fall within the standard grant-in-aid expenditure categories. Conversely, the growing tendency to include research and demonstration authori­ zations within formula grants has resulted in ~ubstantial grant-.in-aid funds channeled to individuals, specialized groups, and agencies under the direct concept. Federal grant totals do not include sums spent by federal agencies in providing technical assistance to or cooperating with state and local authorities, e.g., joint or substantive inspection programs. Nor do they include amounts paid to state or local governments in return for services, e.g., housing federal prisoners in local jails, federal rental of floor space in state or local public buildings, or payments to the st~tes for National Guard activities. 18

Federal grants are normally in the form of monetary payments. The one principal exception involv~s the donation by the federal government of surplus agricultural commodities for school lunch and social welfare purposes. The dollar value of these commodities is in­ corporated into the federal grant category totals. A similar practice is followed in including the value of civilian defense equipment and supplies given to state or local units (on a 50-50 matching basis). To sum up the chief features of federal grants-in-aid: 1. Basic authorizing legislation establishes a grant for a specified number of years or on a continuing basis. 2. Annual congressional appropriations provide the grant funds (which may be less than the amounts authorized) that are distributed among the states - usually in accordance with a legislatively-prescribed formula,4 - generally contingent on state or local matching funds,5 and - almost always based on conditions that the recipient state or local unit agrees to respect. 3. The grantor supervises, reviews, approves, and audits the re­ ceiving units. 4. Funds are generally allocated to units of government and not to individuals, specialized subsidiary public agencies, nonprofit and semi-public groups, or private firms. 5. Grants provide for the purchase of goods or services and the payment of benefits to the public, in contrast to loans and repayable advances or payments for reimbursable services rendered to the federal government. One fir~al definitional detail will be helpful. In governmental re­ ports,- the term "federal aid" is often used. This 'term includes fed­ eral grants-in-aid and, in addition, shared revenues and loans and advances. Normally it excludes payments to individuals and technical assistance and services.

4 There are a few programs that do not have statutory allocation formulas; see Advisory Commission on Intergovernmental Relations, The Role of Equal~ ization in Federal Grants (Washington: Government Printing Office, January, 1964), p. 37. Hereafter cited as The Role of Equalization. 5 Thirteen of 60 identifiable grant programs in 1962 did not contain specific matching requirements. Ibid., p. 39. 19

The Legal Basis of Grants Three landmark decisions established the legal basis for federal grants. Two relate to a state's or an individual's legal standing to challenge the expenditure of moneys for federal grants. The other int~rprets the scope of the spending power of the Congress. The following discussion is only a brief outline of the legal basis on which grants first received judicial recognition. In 1921, the Congress enacted the Maternity Act authorizing appropriations to the states to assist in programs designed to reduce maternal and infant mortality. Administered through the Children's Bureau, the program was an early prototype of many current grant programs: it required the development of "detailed plans" for carry­ ing out the program; these plans, once approved by the Federal Board of Maternity and Infant Hygiene, were binding on states accepting the moneys; and a state's failure to conform to approved plans was cause for withholding federal funds. A challenge to the constitutionality of the Maternity Act was brought before the U.S. Supreme Court by (a) the State of Massa­ chusetts, acting in its own interest and on behalf of its citizens, and (b) Mrs. Frothingham, a private citizen.6 Massachusetts, which had refused to join in the grant program, questioned the validity of the legislation on the grounds that: (1) the act usurped local police powers and a state's control over its internal affairs, (2) the expenditure of funds under the act was for the local and not the general welfare, (3) the act imposed on the states an illegal option whereby each state was coerced into either (a) yielding part of its powers reserved by the Tenth Amendment of the Constitution or (b) giving up its share of appropriations under the act by refusing to participate, and (4) it set up a system of cooperation between the federal govern­ ment and particular states that was not provided for or contemplated by the Constitution. The brief filed by Mrs. Frothingham, in addition to claiming her legal standing to sue, contended that the expenditures exceeded the

6 Massachusetts v. Mellon, 262 U.S. 20 delegated powers of Congress and that the legislation amounted to an unconstitutional delegation of legislative power to a subordinate agency of government, the Children's Bureau. In defense of Mr. Andrew Mellon, then secretary of the treasury and co-defendant, the solicitor general claimed that Massachusetts and Mrs. Frothingham lacked the legal standing to present a justiciable controversy and, in addition, ( 1) Congress had not attempted to prescribe or direct the con­ duct of a state or its citizens, since the states were free to accept or reject the grants and the conditions attached to them, (2) the power of Congress to make appropriations from the gen­ eral funds of the United States is "almost unlimited," (3) the grant of power to spend money implied in the "general welfare" clause of the Constitution was in no way restricted by or limited to the enumerated powers listed elsewhere, (4) appropriations under the Maternity Act were for the general welfare, and (5) the act in no way infringed on the powers of the states. In closing his argument, the solicitor general observed: I have already quoted from the wise words of [President] Washington ... in recommending the establishment of a national university for the wise education of the American youth. He recognized the direct interest that the United States has in the intellectual welfare of its citizens; and if it has such interest, why has it not an equal interest in the physical welfare of its future citizens? The law presents another method of cooperation between the Nation and the States with respect to the general welfare. The time is past, if any such time ever were, when our Government can be divided into two noncommunicating compartments. If separate compartments at all, the potent agencies of steam and electricity have made them commu­ nicating. The Supreme Court refused to entertain the suits.7 It held that

7 Ibid., 480. 21 neither the State of Massachusetts nor Mrs. Frothingham had legal standing to bring suit and that the expenditure of funds under the act was a matter for the legislature and not the courts.* Speaking through Mr. Justice Sutherland, the Court noted the infinitesimal interest oi an individual taxpayer in federal outlays, the absence of an identifiable injury or grievance on the part of the State of Massachusetts, and the practical difficulties that would ensue if any state or any taxpayer could enjoin the expenditure of federal fund.s on the basis of alleged unconstitutionality. The net effect of the two cases was to make it almost impossible to challenge the expenditure of funds for federal grants. In disposing of the cases for want of jurisdiction, however, the Court failed to decide a basic constitutional question. Was it permissible for the federal government to spend money for programs and purposes that went beyond the enumerated and implied powers of Congress? How broad was the spending power of Congress? The authoritative interpretation of the scope of the spending power was initially developed in U.S. v. Butler, the 1935 case that voided the Agricultural Adjustment Act of 1933.8 That act imposed a tax on processors of various agricultural commodities, the proceeds to be directly appropriated for the purchase of surplus agricultural commodities to support farm prices. Confronted with a direct challenge to interpret the scope and character of the spending power of Congress, the Court, through Mr. Justice Roberts, referred to the historical argument over the construction of the phrase and then stated its opinion: Madison asserted ... [that] the grant of power to tax and spend for the general national welfare must be confined to the enumerated legislative fields committed to the Con­ gress. ... Hamilton, on the other hand, maintained the clause confers a power separate and distinct from those later enumerated ... and Congress consequently has a substantive power to tax and to appropriate, limited only by the requirement that it shall be exercised to provide for

* Since this study was prepared, the Supreme Court has announced an exception to this rule. On June 8, 1968, the Court held that a taxpayer may challenge federal expenditures on the ground that they violate the constitutional principle of separation of church and state (Flast v. Cohen, No. 416). 8 U.S. v. Butler, 297 U.S. 1. 22

the general welfare of the United States.... While ... the power to tax is not unlimited, its confines are set in the clause which confers it, and not in those of [Section] 8 which bestow and define the legislative powers of the Congress. It results that the power of Congress to authorize expenditure of public monies for public purposes is not limited by the direct grants of legislative power found in the Constitution.9

Clearly, this construction of the spending power opened the way for a broad interpretation of what programs and purposes might be supported with congressionally-appropriated funds. However, an interesting aspect of the Butler case is that, in 1935, the Supreme Court was not prepared to take a broad view of the general welfare clause. It invalidated the Agricultural Adjustment Act on the grounds that regulation of agricultural production was not a gen­ eral welfare matter but fell instead within the reserve powers of the states. It is a curious irony that the case endorsing Hamilton's broad construction of the spendirg power is usually recalled as a leading anti-New Deal decision.

Within two years, Justice Roberts' views on the scope of the wel­ fare clause changed. Beginning in March, 1937, the Supreme Court, in three 5-4 decisions, upheld the retirement insurance and unem­ ployment compensation features of the Social Security Act.IO None of these decisions directly involved grants-in-aid. But aU of tbem involved broad interpretations of the general welfare clause, and the last decision stated, significantly, that cooperation between the federal government and the states was valid in the absence of any constitutional prohibition.11 Two subsequent cases involved grants, but the court held to the Mellon precedent and dismissed them, ruling that there was no reason to question the validity of the grants.12 Dicta in each case indicated that the Court viewed the grants as part of a program, national in. scope, aimed at relieving unemployment and promoting the general welfare.

!) Ibid., 65. 10 Helvering v. Davis, 301 U.S. 619; Steward Machine Company v. Davis. 301 U.S. 548; Carmichael v. Southern Coal and Coke Company, 301 U.S. 495. ] 1 30] U.S. 495; this was one of the challenges raised by Massachusetts in Massachusetts v. Mellon but not ruled on by the Court. 12 Alabama Power Company v. Ickes. 302 U.S. 464; Duke Power Company v. Greenwood County, 302 U.S. 485. 23

At least two prominent 'conclusions follow from this brief review of the legal basis for grants-in-aid. First, the Supreme Co~rt has established a broad legal foundation for federal grants-in-aid. Fur­ thermore, barring an unexpected revolution in its attitudes, the Su preme Court is unlikely to interpose restraints in the spending field and the Massachusetts and Frothingham cases remain to indicate the difficulty of gaining standing to challenge national spending measures. 1:l Second, where· matters of federal spending and grants are involved, the courts have become spectators rather than arbiters or umpires. This conclusion was stated forcefully in 1955 by the (Kestnbaum) Commission on Intergovernmental Relations: ... under present judicial interpretations of the Constitu­ tion, especially of the spending power and the commerce clause, the boundaries of possible National action are more and more subject to determination by legislative action. In brief, the policymaking authorities of the National Govern­ ment are for most purposes the arbiters of the federal system.14 The commission elaborated these views In greater detail elsewhere in its report: ... the division of responsibilities between the National Government and the States was once thought to be settled qlainly in terms of power: either one level, or both, or neither, had the authority to move.... Such a decision was usually one for the judiciary. Under current judicial doctrine ... the National powers are broad and the possi-· bilities by means of spending are still broader. The crucial questions now are qu~stions of policy: Which level ought to move? Or should both? Or neither? What are the pru­ dent and proper divisions of labor and responsibility be-

13 Apparently this legal hurdle could be overcome by including provisions in grant-authorizing legislation that would permit suits challenging the constitu­ tionality of certain expenditures. Efforts have been made, without success, to include such provisions in legislation authorizing federal educational construe.. tion grants to private and sectarian colleges and universities. See, for example, Congressional Record, daily ed., July 29, 1966, pp. 16868-73. 14 The Commission on Intergovernmetal Relations, Report to the President for Transmittal to the Congress (Washington: Government Printing Office, June, 1955), p. 59. 24

tween them? These are questions mainly for legislative judgment, and the criteria are chiefly political, economic, and administrative, rather than legal.15

Four former governors serving on the commission took a less matter-of-fact view of the Supreme Court's failure to restrict the federal spending power: ... the Supreme Court in this field has largely abandoned its role as the arbiter of the respective constitutional rights and responsibilities of the State and National Governments. The result ... is a fundamental change in the balance of power between the States and the National Government. .. '. Where there is an overriding special national interest we have approved grants-in-aid that did not involve a basic impairment of the traditional powers and obligations of the States. We cannot approve, however, the present situa­ tion in which Congress has very nearly become the sole judge of the activities of State and local governments it may choose to enter.l6 (Italics added.) To conclude, there is general, though occasionally grudging, agree­ ment that the present and future character of federalism in the United States will be settled largely by the executive and legislative branches of the national government rather than by the courts.

15 Ibid., p. 33. 16 Ibid., p. 60. III. HISTORICAL DEVELOPMENT AND CAUSAL FACTORS

Historical Development

ERHAPS THE FIRST monetary "grant" from the federal government P to the states was the distribution of the Treasury surplus in 1836. While technically the surplus was apportioned as loans, repayment was not expected. Next, the Morrill Act of 1862 that established the land-grant college system, although funded by land sales, set several precedents for later grant-type programs. For example, the act's objectives were carefully spelled out, restrictions were placed on the use of revenues from the granted lands, and annual reports were required. In 1887 the first regular annual money grant was authorized to assist the states in establishing agricultural experiment stations. Prior to 1900 most federal assistance to the states was in the form of land grants, chiefly for educational purposes or technical assis­ tance and services in kind. Recent research on these nineteenth century federal-state relationships has led to a "new view" of our political history. The late Morton Grodzins 1 and his associate,

1 Morton Grodzins, "The Federal System," Goals for Americans, The Report of the President's Commission on National Goals (The American Assembly, Prentice-Hall, 1960), pp. 265-82; and Morton Grodzins, The American System: A New View of Governments in the United States, Daniel J. Elazar (ed.), (Chicago: Rand McNally, 1966).

25 26

Daniel Elazar,2 have argued that the doctrine of "shared functions" was an important if not predominant theme of federal-state relations throughout the nineteenth as well as the twentieth century. Some scholars have begun to question their contentions.3 With respect to continuing monetary (cash) support, however, it seems clear that federal grants-in-aid are preponderantly a device of the twentieth century. This reflects a shift in governmental activity from the nineteenth century emphasis on regulation and economic develop­ ment, in which states played a prominent role, to the current em­ phasis on service. The Smith-Lever Act of 1914 establishing the cooperative agricul­ tural extension program marks the beginning of the modern grant period. This law incorporated three features that have become standard in most subsequent grant programs: (1) an apportionment formula for fund distribution among the states, (2) state matching requirements (on a dollar-for-dollar basis), and (3) advance federal approval of state plans. Only two years later, in 1916, a much larger grant program for highway construction was passed with the inclusion of similar provisions. 4 A few other grant programs, such as vocational education, voca­ tional rehabilitation, and maternal and child health, were established from 1916 to 1921. Later, between 1933 and 1938, approximately a dozen major grant programs were passed, including notably cate­ gorical public assistance (aged, blind, and dependent children), health services (general, maternal, and welfare), employment secur­ ity, and public housing. The hallmarks of these programs were twofold: (1) the extensive amount of federal administrative super-

2 D'aniel J. Elazar, The American Partnership: Intergovernmental Cooperation in the Nineteenth Century United States (Chicago: University of Chicago Press, 1962) . 3 Harry N. Scheiber, The Condition of American Federalism: An Historian's View, a study submitted by the Subcommittee on Intergovernmental Relations, U.S. Senate, 89th Congress, 2d Session (Committee Print), October 15, 1966; Martin Diamond, "On the Relationship of Federalism and Decentralization," paper prepared for delivery at the 1964 annual meeting of the American Political Science Association. 4 Austin F. MacDonald, Federal Aid (New York: Crowell, 1928), presents an early general treatise on grants and other aids. For a more recent historical perspective, see Advisory Commission on Intergovernmental Relations, Periodic Congressional Reassessment of Federal Grants-In-Aid to State and Local Governments (Washington: Government Printing Office, June, 1961). The most extensive historical review is that of W. Brooke Graves, American Intergovernmental Relations: Their Origins, Historical Development, and Current Status (New York: Scribner's, 1964). 27

VISIon provided for, if not required, and (2) the condition (sub­ sequently attached to the Social Security Act of 1935) that state and local personnel administering these programs be covered by merit systems. In addition, the public welfare programs contained an "open-ended" feature regarding federal financial participation. The states were given some leeway in setting maximum benefit levels, as well as in defining eligibility requirements. Once benefit levels were set, the federal share was determined by fixed percentages of succes­ sive benefit brackets, e.g., five-sixths of the first $30; two-thirds of the next $15, etc. This novel but unwieldy arrangement has not been applied to other grant programs to date. The period since World War II has seen a number of significant developments in the field of federal grant programs: 1. There has been an extensive proliferation in the number and variety of grant programs. Only the 82d Congress (1951-52) failed to establish at least one new program and the 89th Congress (1965-66) broke all records by enacting more than two dozen. 2. There has been a significant tendency toward programs that either bypass state governments or involve them only min­ imally, e.g., in the passage of enabling legislation. Some grants, most notably those under the poverty program, even bypass local governments. 3. In ITlany cases, formulas for allocating grant moneys among the states have recognized differing state fiscal capacities. Under these formulas lower-income states receive more (on a per capita or some other basis) than wealthier ones. This interstate redistribution is generally referred to as equalization. 4. In the newer programs the emphasis has shifted to urban problems. 5. Finally, some programs established ostensibly and primarily for state and local governments have permitted voluntary nonprofit groups performing a public function to qualify for granted funds. This notable development has occurred in the fields of education, hospitals, and economic opportunity.

Causal Factors: The Politics and Economics of Grant Creation Why did federal grants come into being and why have they expanded so extensively? 28

The common answer is to assert that only the national government can respond adequately to social and economic 'change. This answer is an oversimplification that ignores the nuances of our dynamic political system. The growth of grants can be, but rarely has been.) explained in Q.road political and economic terms. America's political tradition is one of decentralized decision making, with wide discretion left to the states by constitutional reservation and political inclination. Barred from the kinds of intervening action practiced in some Latin American "federal" systems,5 the federal government has utilized several means of accomplishing its aims, among them the grant-in-aid device. Indeed, this device is a politically apt expedient because it gives the appearance, if not the actuality, of a significant role for the state. In other words, it seems to jibe neatly with traditional, strong preferences for state-local administration of domestic programs. Fiscal realities also fostered the development of the grant mecha­ nism. In the nineteenth century the federal government was land rich and cash poor-although tariff revenues occasionally provided em­ barrassing cash surpluses. It was logical that the federal government, in seeking to achieve its aims of education and economic develop­ ment, should allocate its vast land resources not only to the states but to private enterprises (railroads) and individuals (homesteaders). The following table shows the proportionate distribution of the public domain: TABLE 1 Disposition of the Public Domain of the U.S. Government Recipient Acres Received State governments .. _ 230,000,000 Homesteaders .. _ 274,000,000 Railroads _ 94,200,000 Cash sales and miscellaneous _ 418,000,000

Total 1,016,200,000

Source: Council of State Governments, Federal Grants-in-Aid (Chicago, 1949), p. 3.

5 For a discussion of Latin American federalism, consult William S. Stokes, "The Centralized Federal Republics of Latin America" in George C. S. Benson (ed.), Essays in Federalisln (Claremont, Calif.: Institute for Studies in Federalism, 1961), pp. 93-116, . 29

Significantly, land grants to states, or "traditional" federalism, were exceeded by land grants directly to individuals for homestead pur­ poses and by cash sales for revenue-raising purposes. The passing of the nation's land frontier early in the twentieth century coincided with a "revolution" in federal finance. In 1913 the Sixteenth Amendment (income tax) became effective. The subsequent availability of federal monetary resources, along with several other influences, led to the establishment of several significant grant-in-aid programs between 1914 and 1921. The impact of the federal income tax on intergovernmental rela­ tions generally and on federal-state relations specifically can hardly) be overestimated. The frequently used terms "fiscal mismatch" and "revenue/responsibility gap" refer to the discrepancy between the revenue capabilities and the program responsibilities of the federal and state-local govemme-nts~'''This discrepancy presents special prob­ lems in light of Americans' preference for decentralized responsibility. But the problem is more complex. It is often claimed that the states, taken together, .have within their boundaries the same total wealth that is available to the federal government. This is true only in theory. In practice the national economy has strength and vitality above and beyond the 50 state economies. The whole is greater than the sum of its parts. In addition, for various reasons, the"states and loc-at--'governments .. ha"e come~(). ~ely heavily on consumption taxes and property· iaxe-s·:·-resp~~tf~·~ly. Not only ha~he federal govern- ment nearly preempted the income tax field-""!)ut interjurisdictional tax competition has, with selective exceptions, restrained vigorous use of the income tax by states and municipalities. The crux of the intergovernmental revenue problem stems from the differing responses of major tax sources to economic growth. Income taxes are most responsive, followed by consumer taxes and property taxes, in that order. For example, it is estimated currently that economic growth will automatically produce about $6 billion per year in additional federal revenues with no changes in rates. In the case of state and local tax revenues, however, this "growth divi­ dend" (1) is substantially smaller, both absolutely and proportion­ ately, and (2) does not keep pace with growing demands for pro­ grams and §ervices. Let us suppose that gross national product (GNP) increases by 4 percent and that, with no change in tax rates, federal revenues 30

rise 7 percent and state revenues 4 percent. The responsiveness factor of these respective revenue sources may be obtained by divid­ ing the percentage increase in revenues by the percentage increase in GNP. The results, technically known as elasticity coefficients, turn out to be 1.75 (7 -7- 4) for federal revenues and 1.0 (4 -;- 4 ) for state revenues. These coefficients roughly approximate the recent actual experience of federal and state revenues. At the same time, state-local expenditures have been increasing at an average rate of about 8 percent per year, producing an elasticity coefficient slightly less than 2.0. The difference between the state revenue quotient of 1.0 and the expenditure quotient of 2.0 illustrates the revenue/ responsibility gap. Thus far, the gap has been closed by (1) successive increases in tax rates, (2) greater borrowing, and (3) more aid from the federal government. The grant technique, to sum up, has served as an important means of adjusting to economic realities. There are at least two additional reasons for the development of federal grants-in-aid. Let us call them representational and policy. The representational basis for grant-in-aid growth springs from the many different constituencies to which officials respond. Noting just the formal constituencies, we have popularly. elected legislators, executives, and, in some cases, judges-at three or more levels. Sepa­ ration of powers, bicameralism, and overlapping jurisdictions add to the complexity. One way of viewing the problem of federalism is to determine what constituency is relevant for resolving a particular issue. 6 Mor~ specifically, in terms of grants-in-aid we need to note the relative representational strength of important interests at the federal level. In the nineteenth century it was rural strength in the Congress that pressed for grants. In the 1910-20 period it was the force of the Progressive movement. From the New Deal throughout most of the post-World War II period, it has been the pressure of urban interests. Why have the cities "gone to Washington" and why has the federal government responded favorably? One rough and inadequate mea-

(, Two discussions touch on the problem of varied constituencies: David B. Truman, "Federalism and the Party System," in Arthur W. Macmahon (ed.), Federalism: Mature and Emergent (Garden City, New York: Doubleday, 1955), pp. 115-36; and Morton Grodzins, "American Political Parties and the American System," Western Political Quarterly, December, 1960, pp. 974-98. 31

sure of the national response to urban interests is the $1.4 billion in federal aid channeled directly to local (mainly city) governments in 1966.7 Aside from the aforementioned elasticity of the federal budget and the legal breadth of the federal spending power, cities have found the national government receptive on representational grounds. Until reapportionment in recent years, the Congress­ particularly the Senate-was more urban-oriented than many state legislatures.R

More significant is the extent of urban area influence-through the unique institution of the Electoral College-on the election of the President. fI Since the Congress, by and large, looks to the President for leadership, the representational function has cast the chief execu­ tive in the role of advancing the extension of federal grants. The position of President Eisenhower is instructive in this respect. Al­ though he was personally and ideologically reluctant to increase fed­ eral involvement in state-local affairs, he approved several executive and congressionally-initiated grant programs.IO

The policy basis for creating grants is a close cousin of the repre­ sentational basis-but less formal "constituencies" are involved. vGrant programs are, almost without exception, attempts to solve or alleviate a particular functional problem.ll These problems raise policy questions-such as aid for schools, health, and highways-­ and it is an axiolll of politics that policy questions involve pressure

7 U.S. Bureau of the Census, Governrnental Finances ill 1965-66 (GF-No. 13, Washington, 1967), p. 20. 8 For a perceptive discussion of urban representation in Congress contrasted with state legislatures. see Morton Grodzins, The American System, op cit., Ch. 8. Also consult Frederic N. Cleaveland. ·'Congress and Urban Problems: Legislating for Urban Areas." Journal of Politics, '-March, 1966, pp. 289-307, where the fragile character and diffuse constituency base of "urban interests" are delineated. !l The key role of large urban industrial states in the election of the Presi­ dent is demonstrated in a systematic statistical analysis by Joseph E. Kallen­ bach, "Our Electoral College Gerrymander," Midwest Journal of Political Science, May, 1960, pp. 162-91. 10 See, for example, Eisenhower's speech to the Governors' Conference. Williamsburg, Virginia, June 24, 1957. This speech led to the creation of the Joint Federal-State Action Committee, whose deliberations and demise are chronicled in Final Report of the Joint Federal-State A ctioll Comrnittee to the President of the United States and to the Chairnlan of the Governors' Confer­ ence (Washington, 1960). 11 A recent succinct discussion of functionalism in intergovernmental rela­ tions is contained in William G. Colman, "The Role of the Federal Govern­ ment in the Design and Administration of Intergovernmental Programs," The A nnals, May, 1965, pp. 23-34. 32

groups. Although the literature has largely ignored the problem, pressure groups exert a considerable impact on federal-state rela­ tions, contributing (equally with the mass media) to the "nationaliza­ tion of public policy." 1:? To maximize their effectiveness while mini- . mizing costs (broadly defined), pressure groups have taken their causes (and their headquarters) to the nation's capital. From this vantage point, they influence the initiation, enactment, and implemen­ tation of major public policies, including grant-in-aid programs.

Their activity in the various grant areas gives rise to a frequently­ . observed phenomenon on the Washington scene, the so-called "triple ! alliance." ThJs term refers to the shared and interlocking aims of persons rep~~Senti'ng pressure groups, congressional committees or subcommittees, and administrative agencies responsible for the con­ duct of a program. There is such an alliance for most federal pro­ granl~L__ ~!1d especially for grants~in-aid. (Indeed, in some instances where an -orga-ilTze-d- pressure group did not exist at the time a grant program began, an effect of the program was to produce one.) The point here is not that the "triple alliance," or its constituent parts, is evil. Rather, the intent is to single out the forces that help bring federal programs, and grants-in-aid in particular~ into being.

One member of the triple alliance, the administrative agency, i deserves special comment. It is expected that an administrative i agency will do, or give the appearance of doing, a good job. In most instances this means defending the status quo, or seeking to expand a program by elaborating on existing goals or creating new ones. .) The predictable result is that few grant-in-aid programs are aban­ 1 i, doned. :1 Furthermore, it takes a lot of doing to alter or redirect , the focus of an existing grant program. Often it is easier, and more · acceptable politically, to pile on new programs than to reshape old ones to fit changing emphases among goals. This "tunnel vision" of administrative agencies is similar to but not identical with the individual perspectives of administrators, which will be discussed in later chapters.

1:? Totten J. Anderson, "Pressure Groups and Intergovernmental Relations." The Annals, May, 1965, pp. 116-26. 13 The Advisory Commission on Intergovernmental Relations identified grant programs that had been terminated. Of the 14, all but three were '"emergency" programs to meet problems of the depression or World War II. See Periodic Congressional Reassessnzellt of Federal Grants-In-Aid, Ope cit., pp. 19-20. 33

A relatively recent phenomenon on the pressure group scene is "public" pressure groups, either (1) representatives of individual governmental bodies and units or (2) a'Ssoeiations of elected or appointed officials. 14 In the first category are the Washington repre­ sentatives of particular states, cities, or public. institutions. For example, in 1967, reportedly ten state~_ and eight of the nation's 20 largest ...cities,pllJ.ss

14 For discussions of public pressure groups, see Anderson, op. cit., pp. 124-26; and Grodzins, The American System, op. cit., pp. 224-26. 15 Washington Post, August 6, 1967, p. Gl. IG Clark Kerr, The Uses of the University (New York: Harper, 1963). 17 A useful (but out-of-date) directory of most of these associations is: Public Administration Organizations: A Directory of Unofficial Organizations in the Field of Public Administration in the United States and Canada (Chi­ cago: Public Administration Clearing House, 1954). A directory of the Chicago-based "1313" associations is provided in the pamphlet Thirteen­ Thirteen East Sixtieth Street: Chicago (Chicago: Headquarters Services Divi­ sion, Public Administration Service, 1966). 34

accorded professional expertise has given functional specialists a weighty consultative role in pressing for new programs or changes in existing ones. (2) A majority of political and administrative generalists has fa­ vored federal grants and espoused the program-oriented goals at which the grants are aimed-airports, highways, health, welfare. (3) The combination of public pressure groups and traditional pressure groups, e.g., AFL-CIO, has produced a solid and potent external base enabling many proposed, extended, and expanded grant programs to run successfully the gamut of con­ gressional consideration. These two categories of public pressure groups have different interests and attitudes, stemming from the different institutional positions of their respective members. 18 The proliferation of grants and the accelerating tendency to bypass state and local governments are beginning to generate conflict between the two groups, as well as growing criticism from the generalists whose job it is to coordinate government affairs within their jurisdiction. The dimensions of this emerging conflict are not yet clear. How­ ever, it should be noted that generalist-oriented officials are not necessarily turning against federal activities per see Rather, they hold, in essence, that the federal government must become more aware of the consequences of its actions at the state-local levels and allow greater discretion to popularly elected officials. This is an argument for greater rationality in federal activities. It is an argument that can mean either more or less federal involvement, depending on whose judgment of "rationality" prevails. One writer describes it as "concerted national action to support a more positive localism." 19

18 The contrasting values of these two groups have been identified empirically by Edward W. Weidner, Intergovernmental Relations as Seen by Public Of­ ficials (Minneapolis: University of Minnesota Press, 1960). 19 William Buchanan, "Politics and Federalism: Party or Anti-Party?" The Annals, May, 1965, p. 115. IV. AIMS, ADVANTAGES AND DISADVANTAGES, AND CONSEQUENCES

HAT ARE federal grants-in-aid intended to do? What are their ad­ Wvantages and disadvantages? Their fiscal and policy conse­ quences?

The Aims of Federal Grants Broadly speaking, the purpose of federal grants is to help solve particular public problems with a minimum of disturbance to our established political framework. In order to be more precise, we must look at statutes, congressional debates, and administrative implementation, in an attempt to discern the stated or implicit pur­ poses individual grant programs are intended to fulfill. Of course, one program may fulfill several purposes and some purposes shade off into others. Therefore, no neat or exhaustive classification scheme for all major grant programs can be developed. So the following list is necessarily based on illustrative rather than systematic data. Stimulation. Many, if not most, federal grants-in-aid are intended, at least in part, to stimulate state and local activity in a specific area. Stimulation can mean the encouragement of action in a field where none existed previously, e.g., public housing. It can also mean the elaboration of an existing program, as in the case of urban redevelop­ ment's evolution into urban renewal. Minimum Service Level. This purpose was served by several of

35 36 the early "flat grant" programs, e.g., agricultural extension, voca­ tional education, and land-grant colleges. The distingu}shing feature of these grants is the allocation of equal (or minimum) amounts to each state, frequently without matching requirements. For example, the George-Barden Vocational Education Act (1917) still provides that each state shall receive a minimum of $15,000 for distributive education programs and a minimum of $40,000 for each of four other educational programs.1 Equalization. Some grants take into account the fiscal capacity of a state to support a program. States with lesser fiscal capacities receive proportionately more funds, usually through an allocation formula based on a state's per capita income. The effect is geo­ graphic redistribution of wealth, a transfer of revenue from above­ average income to below-average income states.2 Economic Stabilization and Development. To understand this purpose, a distinction must be drawn between the product and the process effects of public expenditures. Product-oriented expenditures are undertaken primarily or exclusively for the goods and services they provide, e.g., schools, highways, health services. Process­ oriented outlays are incurred chiefly to promote such goals as eco­ nomic growth and stability. A few federal grant programs that have economic process effects as a controlling objective are employment security, accelerated public works, and area redevelopment. Special Hardship. Occasionally the Congress enacts grants to alleviate temporary or unusual difficulties encoun~ered by a particu­ lar state or locality. A program intended to cope with temporary hardship is disaster relief. Perhaps the best example of a grant pro­ gram directed at unusual burdens that exist on a continuing basis is the "impacted area" program. This program grants funds to local school districts experiencing heavy pupil enrollment due to a con­ centration of federal installations or activities in a community. Experimental or Demonstration. Recently, there has been an increasing number of experimental grants whose chief and avowed purpose is to demonstrate the feasibility of a particular approach to a problem. They amount to "seed money." Sometimes they are separate programs-as in the cases of urban mass transit, juvenile

1 The Role of Equalization, p. 204. 2 See ibid. 37 delinquency, and "model" cities-and sometimes a demonstration effort embedded within a broad functional program. In either event, they have furnished the stimulus, or opening wedge, for creating major grant programs in new functional areas, e.g., juvenile' delin­ quency, once the experimental effort is considered "successful."

Planning and Coordination. The precedent for federal aid to pro­ mote planning stems from the New Deal days and the assistance provided to state planning agencies by the National Resources Plan­ ning Board. Increasingly, in recent years, federal grants have in­ corporated planning requirements. The Urban Renewal Act of 1954 required comprehensive planning as part of the program package necessary to qualify for federal funds. The Open Space Act of 1963 illustrates the special incentive technique for encouraging federal planning objectives. The act provides that if open space acquisitions are shown to be part of a comprehensive metropolitan plan, the fed­ eral matching share is increased by 10 percent.

These two examples illustrate single-function planning require­ ments. A more recent development is the comprehensive planning requirement, a product of mounting concern about both the multi­ plication of grant programs and the frequent conflicts among pro­ grams involving urban problems. For example, section 204 of the Demonstration Cities and Metropolitan Development Act of 1966 requires, in brief, that all applications for federal grants to assist in carrying out a host of urban development projects be submitted to some metropolitan-wide planning agency for "review and com­ ments." 3

Section 204 was obviously designed to increase coordination among urban grant programs and to encourage their conformity with com­ prehensive metropolitan-wide planning. Many congressional ob­ servers believe its language is so vague that additional legislation will be required to make it effective. 4 Nevertheless, the mere passage of this provision demonstrates congressional intent concerning the direction of planning requirements for federal urban programs. The current situation is well summarized in the following paragraph

3 Demonstration Cities and Metropolitan Development Act of 1966, Report of the Committee on Banking and Currency, U.S. Senate, 89th Congress, 2d Session, Report No. 1439, August 9, 1966, p. 19. 4 See Congressional Quarterly Weekly Report, November 11, 1966, p. 2321. 38 from a study by the Advisory Commission on Intergovernmental Relations: Although planning requirements are almost universally imposed in one form or another by the programs surveyed, the largest number of programs that do so actively promote functional planning only, and do not relate the aided func­ tion with other functions in a comprehensive plan designed to achieve orderly development of the entire urban area. A majority of the programs that do recognize comprehen­ sive planning, do so only passively. They do not require that such planning be done, but only that if it is done, it should not be disregarded.5

Advantages and Disadvantages of Grants ·-The pros and cons of grants are stated so well in a 1958 report of the House Subcommittee on Intergovernmental Relations (the Foun­ tain Committee) that this section of the report deserves quotation in full. The report first listed the standard arguments in favor of grants­ in-aid: A. Philosophical and legal considerations 1. The grant is a valuable device for forging cooperative effort among the levels of government in solving com­ mon problems ... [and thus] helps to strengthen the vitality of our Federal system. ... 2. By avoiding the alternative of complete nationalization of activities, grants ... help preserve State and local government. 3. Grants are necessary in a humane and il}creasingly interdependent nation to assure all individuals and communities a minimum level of essential public ser­ vices. Grants help reduce the inequalities that are bound to occur under changing economic and social conditions between the need of a State or local com-

5 Advisory Commission on Intergovernmental Relations, Impact of Federal Urban Development Programs on Local Government Organizations and Plan­ ning, Committee on Government Operations, U.S. Senate, 88th Congress, 2d SessIon (Committee Print), 1964, p. 22. 39

munity for public services and its ability to finance those services. 4. Federal grant programs have developed because of the failure of the States to meet ... pressing public needs of national concern. The need for Federal aid is more often occasioned by State irresponsibility than by fiscal inability. 5. Grants have developed principally not as the result of failures at any level, but rather because problems of national importance have emerged which require co­ operation among all three levels of government. 6. The Federal Government is more representative of and hence closer to the people than many State govern­ ments. In many States a minority of the voters (typi­ cally rural residents) dominate the State legislature which, consequently, tends to be indifferent or even hostile to majority (principally urban) interests and problems. 7. The Congress is more representative of urban, and therefore majority, interests than most State legisla­ tures. Reapportionment in the House of Representa­ tives has occurred after nearly every census and has been automatic since 1929. While population shifts have resulted in many State legislatures becoming less representative of urban areas, because of their failure to reapportion, the United States Senate has actually become more representative of these areas. ... 8. Restrictions on local home rule and detailed State con­ stitutional and statutory control of local affairs have forced the cities to seek assistance from the Federal Government. 9. The withdrawal of Federal aid, even with the release of some revenue sources, would result in the termina­ tion of programs in many areas. The underlying pur­ pose of many who argue for decreasing the burdens of the Federal Government by transferring the respon­ sibility for grant programs to state and local govern­ ment is to dismantle or deemphasize these programs in order to lower taxes. 40

B. Financial considerations 1. The most productive tax sources can only be reached equitably and efficiently by the Federal Government, due to the national character of industrial organization and the threat of interstate tax competition. 2. Most taxable resources are distributed among the States in a manner which differs from the distribution of need for public services. Those States and areas within a State which have the greatest need for a par­ ticular governmental activity are frequently the least able to finance it. 3. Federal aid draws heavily upon "progressive" national taxes to support activities which otherwise would be financed primarily by "regressive" State and local taxes. Since they represent an application of the ability­ to-pay principle, Federal grants help to reduce inter­ state inequalities both in the level of Government ser­ vices and in the tax burden. 4. Federal aid is necessary to help municipalities meet their essential needs. Although municipalities generally have the potential fiscal capacity to handle most of the problems with which they are confronted, many reve­ nue sources are denied them by State constitutional and statutory restrictions. ... 5. The grant is a useful device for stimulating ... activi­ ties for which State and local governments have a primary responsibility and in which there is a special national interest. A stimulating grant usually elicits increasing amounts of State and local funds for support of the activity, with a resulting reduction in the Federal share of program expenditures. C. Administrative considerations 1. Federal supervision of aided programs has been an important factor in improving State and local standards of administrative performance.... 2. Federal participation in programs administered by the States and localities has provided a valuable medium for the exchange of information and ideas and the pro­ vision of Federal technical assistance. 41

The standard arguments against grants-in-aid were outlined as follows: A. Philosophical and legal considerations 1. Grants have been used by the Federal Government to enter fields of activity reserved by the Constitution to the States. 2. The use of grants involves the danger that too much authority will be concentrated in the Federal Govern­ ment. The dispersion of governmental power set forth in our Constitution is the essence of liberty and democracy. 3. The expansion of Federal power at the expense of State and local government is inherent in the grant mechanism. Grants lead to domination and control by the National Government, with a corresponding weak­ ening of State and local authority and interest. 4. Grant programs substitute the policies and decisions of Federal bureaucrats for the control of government by elected State and local representatives. 5. The establishment of a grant program coerces a State into participating in an activity it otherwise ,would not undertake or would perform in a manner more in keep­ ing with local attitudes and preferences. 6. Grants. .. weaken initiative in the. States, and have detracted from the incentive of State and local govern­ ments to solve their own problems. When faced with difficult problems, State and local officials have often devoted their energies to selling the necessity for Fed­ eral aid rather than to getting the job done with their own resources. 7. Although the growth of Federal grants has resulted to some extent from the failure of States to meet their responsibilities, other factors have also been of major significance. These include the influence of strongly organized pressure groups seeking advancement of spe­ cial interests and the natural tendency of Federal ad­ ministrative agencies to expand the scope of their programs. 42

8. . .. A lasting solution [to state government weakness] can be achieved only through encouragement and faith in the philosophy that the government which is best for the people is that which is closest to them. The people are competent to handle their own problems on a local level. B. Financial considerations 1. States lack the necessary revenues ... because the Federal Government has preempted the most productive tax sources. 2. The absence of a direct connection between the taxing and spending authority encourages financial extrava­ gance and irresponsibility. 3. Grants distort State budgets since the States are tempted to provide matching funds for the aided programs, sometimes to the disadvantage or neglect of other State activities. 4. Grant programs once started are difficult if not impos­ sible to terminate, both because the recipient govern­ ments become dependent upon this source of revenue and because the programs build up political interest groups. 5. The elimination of the Federal cost of administering grant programs-the "freight charges" on money being hauled from the States to Washington and back-would save the American taxpayers a tidy sum. 6. The grant system has gained its popularity from the illusion that Federal money is free money. However, the Federal Government has nothing of its own to give away. The money used for grants must first be col­ lected from the same taxpayers who pay State and local taxes. 7. Federal grants place an unfair burden on some States because their citizens are taxed to support public ser­ vices in other States. 8. A continuous dependence on Federal assistance post­ pones necessary economic and social readjustments and tends to perpetuate uneconomic communities. 43

9. The great need of ... States is not for Federal grants but for more capital to develop their own resources. The most effective way to put every State and every section on a self-supporting basis is to reduce Federal taxing and spending so that a larger share of the Na­ tion's fiscal resources may be left at home. c. Administrative considerations 1. If given access to adequate revenue sources, States would perform most grant-aided activities more effi­ ciently and economically.... 2. By involving the participation of two or more levels of government in a single activity, the grant divides responsibility and diffuses accountability. ... 3. Grants tend to be limited to fairly narrow categories of a general activity. This restriction ... both compli­ cates administration and limits the ability of a State to adjust to changing needs and to apply these funds to problems of greater local concern. 4. State financial planning is made more difficult by the timing and uncertainty of Federal appropriations. ... [and] by intricate grant formulas and detailed account­ ing requirements in some programs.6

The Consequences of Grants Federal grants have two general consequences. The first is fiscal and the second is political or policy-related. Fiscal Consequences of Grants. The fiscal effect of grant funds on state or local spending could be stimulative, substitutive, or addi­ tive-or some combination of the three. If a grant is stimulative, its effect is to increase the expenditures of the grantee over and above what they would have been in the absence of the grant. The most effective way to guarantee fiscal stimulation is to make grants matching or conditional. Matching vir­ tually compels the receiving unit to increase its financial effort. Con­ ditional provisions limit the use of funds to particular purposes.

6 Federal-State-Local Relations: Federal Grants-in-Aid, Ope cit., pp. 23-26. 44

A grant is additive if its effect is not to increase the recipient's financial commitment to a program. In other words, the grant basically "adds" to program funding only or essentially in the amount of the grant. Conditional grants without matching requirements, of which there were 13 identified in 1962, are the ones most likely to fall in this category.7 Examples of such grants are those for disaster relief and the impacted area school program. There is, incidentally, some basis for suggesting that grants with a high matching ratio, for instance, the 9: 1 ratio for the interstate highway program, are basically additive because such matching ratios stimulate very little extra expenditure. The substitutive effect may result from general grants (or shared revenues) of the nonconditional, non-matching variety. The receiv­ ing unit may, with the availability of uncommitted funds, reduce taxes. Or it may spend the funds in areas that mayor may not be aided by specific conditional grant funds, thus accomplishing a shift in resource allocation in line with its own spending preferences. Since existing federal grants-in-aid are conditional rather than general, it seems clear that substitutive effects are not possible under present grant arrangements. On the other hand, a recent study of state grants in the New England area revealed that they were, to some extent, substitutive.8 Very little systematic knowledge exists about the impact of federal grants on state-local spending behavior. One recent study showed that matching requirements force poorer states to allocate a greater proportion of their tax revenues and exert a greater tax effort than wealthier states in order to participate in grant programs: It is estimated that State and local governments provided $3 billion to match the $7 billion Federal grants-in-aid dis­ tributed in 1962. In the aggregate, this was 7.6 percent of all State and local tax collections. The 12 lowest per capita income States provided from 9.7 to 17.9 percent of their tax collections to match Federal grant funds. By contrast, the percentage in nine of the 12 highest income States was less than 7.6 percent. It was only 4.3 percent in New Jersey and 5.1 percent in New York.

7 The Role of Equalization, p. 39. These non-matching grants amounted to 12.4 percent ($870 million) of the $7 billion grant total in 1962. 8 George A. Bishop, "Stimulative Versus Substitutive Effects of State School Aid in New England," National Tax Journal, June, 1964, pp. 133-43. 45

The required State and local matching under existing grant programs generally takes a larger fraction of fiscal resources in the poorer States than in those with relatively high per capita income. For example, Delaware devotes $4.54 per $1,000 of its personal income to match Federal grant offerings while Mississippi devotes more than three times as much, or $14.78 per $1,000 of personal income.!) We also have some evidence about the equalizing pattern of grants. Statistically speaking, per capita federal grants have been shown to be inversely correlated with per capita state personal income.]O This has not always been the case, however. Prior to World War II, the wealthier states received a disproportionate share of per capita grants. The correlation between per capita personal income and per capita grants for 1940, as shown in Table 2, was positive at .31. The co­ efficients became negative in 1950, 1955, and 1960, although only the 1955 figure (-.28) was significant. These negative coefficients were produced largely by the use of equalizing formulas in 'postwar grants. One observer has noted that the ... use of these [equalizing] formulas appears to be in­ creasing but in 1962 less than 19 percent of the $7.0 billion granted to state and local governments was distributed on the basis of formulas that either allocated a higher pro­ portion of the available funds to low-income states or increased the federal share of total program costs in states with low per capita income.11 Three qualifications should be noted with respect to Table 2. First, the correlation coefficient between grants and per capita state income in 1964 reveals a very slight positive association. Apparently the early New Frontier programs and the greater allocation of funds to urban areas reversed the equalizing pattern of federal grants. M

n The Role of Equalization, pp. 19, 22. 10 Ibid., p. 63. See also, James A. Maxwell, "The Equalizing Effect of Federal Grants," Journal of Finance, May, 1954, p. 209, and Selma J. Mush­ kin, "Federal Grants and Federal Expenditures," National Tax Journal, September, 1957, p. 204. 11 George "'F. Break, Intergovernmental Fiscal Relations in the United States (Washington: The Brookings Institution, 1967), p. 121. ~ 0\ TABLE 2 CORRELATION COEFFICIENTS AND STATISTICS FOR PER CAPITA FEDERAL GRANTS-IN-AID WITH INDEPENDENT VARIABLES FOR THE STATES: 1940, 1950, 1955, 1960, AND 1964

Independent Variables Per Capita Federal Per Capita State Grants to the States a Personal Income b Per Capita Personal Population Population Coefficient of Coefficient of Year Income Density Size Mean Variation Mean Variation (Simple linear correlation coefficients) 1940 ______.31 -.25 -.36 $ 4.63 .61 $ 540 .35 1950 ______-.03 -.47 -.43 17.41 .39 1,391 .23 1955 ______-.28 -.47 -.47 22.56 .36 1,713 .23 1960 ______-.01 -.38 -.41 49.28 .54 2,078 .20 1964 ______.08 -.28 -.35 65.63 .65 2,379 .20

a Data on federal grants (less shared revenues) were obtained from the Annual Report of the Secretary of the Treasury for the fiscal year ending on June 30 of the year indicated.

b Income, population, and density figures were obtained from standard sources, including Personal Income in the States: 1929­ 1954 and Survey of Current Business. 47

Second, from 1940 through 1964 significant and consistently negative coefficients exist between population density, population size, and per capita federal grants. Following an analysis suggested by M. A. Haskell,12 we held constant, successively, the density and size variables and examined the association of grants with income. In every instance, the effect of controlling for these variables was: ( 1) to reduce the size of the original negative coefficients, or (2) to make the negative coefficients positive, or (3) to increase the size of the positive coefficients. In short, the extent to which federal grants have an equalizing impact among the states is partly, if not chiefly, a function of population size and population density. A third point concerning grant-income relationships arises from the last four columns of Table 2. The means for grants and personal income show that, from 1940 to 1964, per capita grants increased approximately 14 times while personal income increased fOUf times. More significantly, however, the variation in per capita income among the states has droppe'd substantially since 1940, although the rate of decline has slowed considerably in recent years.13 In contrast, the variation in per capita grants among the states declined sharply betwee·n 1940 and 1955 and then rose even more sharply from 1955 to 1964~ This erratic pattern for federal grants un­ doubtedly reflects the fact that, around 1955, grant programs were more homogeneous in their distribution among the states. The homo­ geneity of both state income and grants in 1955 clearly contributed to the high association between these two variables at that point in time. Both the size and allocation criteria of the federal highway program appear to be important factors in skewing the overall pat­ tern of grants. The major conclusion from this brief statistical analysis is that, contrary to the general v;ew, the overall pattern of grant expenditure is not equalizing to an important degree. Any redistributional or equalizing effects that result are traceable more to population density and size than to per capita state personal income. This conclusion is buttressed by a recent analysis of grants by broad program groups: education, low-income assistance, health, transportation, and re­ source development. That analysis summed up:

12 M. A. Haskell, "Federal Grants and the Income-Density Effect," National Tax Journal, March, 1962, pp. 105-08. 13 Findings that corroborate these results appear in Break, Ope cit., pp. 110-11. 48

Given the variety of equalization formulas used ... and their uneven application to different programs, it is not surprising to find that a classification of federal grants by broad programs produces few areas in which average per capita grants are systematically related to state per capita income.14 The preceding discussion on statistical patterns of grant distribu­ tion should not obscure our main point. Although relatively little is known about the effects of grants-in-aid on state-local spending pat­ terns, it seems evident that the effects are not substitutive. But to what extent are grants additive or stimulative? Do they "distort" state-local spending by forcing the allocation of funds to aided rather than non-aided programs? Such questions need to be tested with quantitative financial data. Policy Consequence of Grants. The reasonably precise realm of quantifiable fiscal data gives way to interpretative judgment when we attempt to assess the probable policy effects of grants-in-aid. In brief, these effects are: 1. The lesser financial sacrifice required to undertake aided rather than non-aided programs alters the agenda of state and local policy issues. The priorities of state and local units are revised or made less clear. Moreover, decisions about the number of programs to pursue and the service levels to maintain for the various programs become more complex. 2. Federal grants change the decision-making hierarchy at the state-local level. Their conditional and functional character engen­ ders a sense of independence and single-program fixation in local program administrators-who prefer, and often assert, substantial immunity from control by their governors, legislators, and other politically responsible officials. 3. As a further dimension of the preceding point, grants set con­ ditions in which federal administrative officials may substantially re­ strict the policy action and discretion of elected state and local officials. Given the financial inducements and conditions attached to grants, the states and their local units are all but required to adjust their behavior to fit specified nationally-prescribed constraints.

14 Ibid., p. 126. 49

4. Federal grants bring about a direct confrontation between con­ flicting national and state (or local) policy preferences. National decision-making criteria and institutional forces have an entirely different constituency base from that to which state or local officials respond. Federal statutory and administrative requirements concern­ ing health policies or highway locational requirements, for example, interject policy objectives that may conflict sharply with state or local views of what is desirable or necessary in a given program area. 5. Grants normally carry a number of procedural "strings" that can, and often do, have important policy consequences for a receiving unit. Requirements for public hearings and single agency administra­ tion, for example, may be intended only to set the procedural frame­ work for grant-aided programs but, in practice, can be critical to the program's outcome. 6. Finally, grants may restructure the influence hierarchy within a state or local community, producing not only gains or losses in influence among executives, legislators, and administrators, but also significantly changing the power potential of interest groups and associations. The above fiscal and policy effects of grants have been identified in order to lay the base for a more thoroughgoing analysis in the next three chapters. The major questions to be discussed in this analysis are: What is the program scope and fiscal significance of federal grants-in-aid? What do the persons involved in the· enactment and admin­ istration of grant-in-aid programs think about the overall impact of such programs? In other words what are the perspectives of grant participants?

v. PROGRAM SCOPE AND FINANCIAL SIGNIFICANCE

NA 1966 address to the National Legislative Conference, Mr. I Harold Seidman, Assistant Director for Management and Organi­ zation of the Bureau of the Budget, observed: In part, our current problems are the natural conse­ quences of rapid growth in the size, number and variety of Federal grant-in-aid programs. In the last ten years Federal aid to State and local governments will have more than tripled, rising from $4.1 billion in 1957 to an esti­ mated $14.6 billion in 1967. In the same ten year period expenditures by State and local governments from their own funds will have more than doubled. State and local governments are hard put even to keep track of the almost 400 subcategories or separate authorizations for the expen­ diture of Federal funds under various grant-in-aid programs.1 These remarks raise two frequently-discussed aspects of grants: ( 1) their number or extent, and (2) their dollar significance.

Number of Federal Grant Pro,grams It is difficult to avoid the "numbers game" in dicussing federal grant or federal aid programs. It is even more difficult to be sure

1 Congressional Record, daily ed., September 19, 1966, pp. 22123-24.

51 52

what the numbers mean. Seidman counted "subcategories or separate authorizations" in the federal aid field and came up with a total of "almost 400." A second, more widely used approach is to count programs. But what constitutes one "program"? Are grants for five different categorical classifications in the welfare area (aged, blind, dependent children, disabled, medical aid to the aged), counted as one program? Or five? Fortunately, some consistency in the definitions of aid and grant programs is developing. At the request of the Senate Subcommittee on Intergovernmental Relations, the Library of Congress prepared a comprehensive catalog of federal aids in effect as of April 1, 1964. This catalog counted some 115 programs or groups of closely-related programs, and explained: The count of 115 programs is necessarily somewhat arbitrary. It refers to the number of separate statements in the catalog. The several Federal aids for highways are described in a single statement, and, therefore, counted together as one item. Likewise counted as a single program in each case are public assistance, community and environ­ mental health activities, and vocational education-each encompassing numerous subcategories. If each subcategory in all the statements is counted as 'a separate program, the catalog identifies 216 authorizations for Federal assistance to State and local governments. In several instances, par­ ticular subcategories actually are not separate programs, but in other cases even a subcategory may comprise aids for varied activities or services. 2 Two supplements to the catalog have appeared, occasioned by the flurry of legislative activity during 1964 and 1965. The last brought the list of available federal aids up to the opening of the second session of the 89th Congress (January, 1966). A detailed analysis of the federal aids described in the catalog and supplements was recently completed.3 It documented the sharp

2 Catalog of Federal A ids to State and Local Governments, Subcommittee on Intergovernmental Relations, U.S. Senate, 88th Congress, 2d Session (Com­ mittee Print), April 15, 1964. 3 I. M. Labovitz, Number of Authorizations for Federal Assistance to State and Local Governments Under Laws in Force at Selected Dates During 1964-66 (Washington: Library of Congress, Legislative Reference Service, July 5, 1966). 53

TABLE 3 Programs (or Groups of Closely Related Programs) of Federal Aid to State and Local Governments, by Administrative Unit 1964, 1965, 1966, Federal department or agency April 1 1 Jan. 4 2 Jan. 10 2 (catalog) (supplement) (supplement) Department of HEW: Public Health Service ______17 17 21 Office of Education -______15 18 22 Welfare Administration ------6 6 6 Other ------2 2 5

Total, Department of HEW____ 40 43 54 Department of the Interior ______18 20 24 Department of Agriculture ------14 16 17 Department of Housing and Urban Development ______10 3 11 3 15 Department of Defense: Department of the Army ______8 8 10 Department of Commerce ______4 5 6 Department of Labor ______4 4 4 Department of State ______1 1 1 Department of the Treasury ______1 1 1 Atomic Energy Commission ______3 3 3 Executive Office of the President: Office of Emergency Planning __ 2 2 2 Office of Economic Opportunity 0 9 9 Small Business Administration ______2 2 2 21 other agencies ______7 8 12 General authorizations ______2 2 2

Total ______116 135 162 . 1 Revised count. 2 The net change from the preceding column reflects the expiration or repeal of earlier authorizations and the new authorizations. The count for 1966 re­ flects the transfer of the water pollution control program from the Department of Health, Education, and Welfare to the Department of the Interior in May, 1966. 3 Housing and Home Finance Agency. Source: I. M. Labovitz, Number of Authorizations for Federal Assistance to State and Local Governments Under Laws in Force at Selected Dates Du~ng 1964-66 (Washington: The Library of Congress, Legislative Reference Service, July 5, 1966), pp. 8-9. 54 increase in federal aid programs from 116 (a revised figure) to 162 in January, 1966. Nineteen new programs had been added by the second session of the 88th Congress (1964) and 27 more by the first session of the 89th. A tabulation of these programs, by administrative unit and date, provides the basis for several observations (see Table 3). First, not surprisingly, the Department of Health, Education, and Welfare (HEW) is the chief channel for aid programs, administering 54 or one-third of all programs as of January, 1966. Within HEW, the Public Health Service and the Office of Education were responsible for nearly an equal number. Of 11 cabinet-rank departments, nine administered one or more federal aid programs. Only the Department of Justice and the Post Office were left out. Four departments had six or fewer programs, with the Treasury and the Department of State having only one each. In addition, 12 out of 21 other agencies had responsibility for federal aid programs. Moving down the admin­ istrative ladder, approximately 125 different federal bureaus and divisions currently administer these manifold programs-in what one observer has labeled "the administrative abyss." 4 Five cabinet departments administer about three-fourths of the 160-odd programs. Inter-program and intergovernmental difficulties could be resolved, it is argued, if the relevant cabinet secretaries would just constitute themselves, along with the President, as a sort of National Security Council for federal aid matters.5 This viewpoint assumes, somewhat unrealistically, both a basic willingness to coor­ dinate aid programs and the ability to communicate this willingness down the federal hierarchy to the operating level. Second, it over­ emphasizes numbers, ignoring the fact that numerical analysis of aid programs weighs each program equally, whether it be $15 million for forest protection to the Department of Agriculture or $4.0 billion for highways to the Department of Commerce. Third, coordination at only the federal level will not secure adequate results because of extensive state and local participation in the administration of the aid programs.

4 David B. Walker, "The New Federalism-Problems and Prospects," an address before the 42d Annual New England Conference, November 17, 1966, p.4. 5 This mechanism and several other organizational reforms were suggested by Senator Muskie in a Senate speech on March 25, 1966, "The Challenge of Creative Federalism." 55

TABLE 4 Separate Authorizations or Program Subcategories of Federal Aid to State and Local Governments, by Administration Unit Federal department or agency January, 1966 Department of Health, Education, and Welfare: Public Health Service _ 69 Office of Education ------68 Welfare Administration _ 25 Othe-r ------22 Total, Department of Health, Education, &Welfare 184 Department of the Interior _ 35 Department of Agriculture _ 28 Department of Housing and Urban Development ------­ 33 Department of Defense: Department of the Army ------15 Department of Commerce _ 25 Department of Labor _ 9 Department of State ------1 Department of the Treasury _ 3 Appalachian Regional Commission _ 13 Atomic Energy Commission _ 5 Executive Office- of the President: Office of Emergency Planning 3 Office of Economic Opportunity 15 Federal Aviation Agency 2 Federal Power Commission 1 General Services Administration 8 Interstate Commerce Commission 1 National Foundation for Arts and Humanities 2 National Science Foundation 4 St. Lawrence Seaway Development Corporation 1 Small Business Administration 3 Tennessee Valley Authority 1 Veterans Administration 3 Water Resources Council 2 General authorizations 2 Total -______399 Source: I. M. Labovitz, N umber of A uthorizations for Federal Assistance to State and Local Governments Under Laws in Force at Selected Dates during 1964-66 (Washington: Library of Congress, Legislative Reference Service, July 5,1966), PP. 10-11. 56

The number of federal aid prograrns is one measure of the national government's increased role and current level of intergovernmental activity. Another measure is the number of separate authorizations or program subcategories. Table 4 gives the relevant data as of January, 1966. The two attention-commanding figures are, first, the total of 399 subcategories, and second, the total of 184 for HEW. Within HEW and for the government as a whole, the Public Health Service and the Office of Education enjoy the dubious distinction of being the two most "proliferated" aid agencies. As if to remove the onus of this designation, but actually for sounder reasons, in 1966 the Public Health Service consolidated several of its detailed cate­ gorical programs into one larger program, and the Congress passed the necessary legislation to replace numerous specific grants with a single grant. 6 The change should foster comprehensive health plan­ ning and public health services, and appears to be a much-needed step in the direction of a block-grant approach, a reform that enjoys considerable support.' The existence of 399 aid authorizations (plus others passed in 1966 and 1967) adds burdens, over and above actual and potential benefits, to government at all levels in our federal system. Perhaps the most significant one at the federal level, apart from sheer size, is program coordination, both among and within different agencies. At the state and local levels the burdens involve not only coordination with the federal government and between programs but also the extra problem of comprehension. A substantial information gap surrounds the availability, purpose, and requirements of the numer­ ous aid programs. As another Bureau of the Budget official ex­ pressed it, "Great increases in the number, complexity, and cost of federal grant-in-aid programs create an urgent need for improved information management within and among the various levels of government involved." 8 A third measure of the increased federal role is to count program

6 The original legislation appeared in S. 3008 and was enacted in much­ revised form as Public Law 89-749. 7 George C. S. Benson and Harold F. McClelland, Consolidated Grants: A Means of Maintaining Fiscal Responsibility (Washington: American Enter­ prise Institute, 1961); and Selma J. Mushkin, "'Barriers to a System of Federal Grants-In-Aid." National Tax Journal, September, 1960, pp. 193-218. 8 Willard Fazar, "Federal Information Communities: The Systems Ap­ proach," paper prepared for delivery at the 1966 annual meeting of the American Political Science Association; see also, Congressional Record, daily ed., September 7, 1966, pp. 21004-08. 57 subcategories arranged according to the functional classifications employed by the Bureau of the Budget. Table 5 furnishes this data for 1964, 1965, and 1966. (Comparable data for prior years are not available.) The figures reveal 160 new subcategories from 1964 to 1966, an astounding increase when compared with the total of 239 created during the entire historical period prior to 1964. Approximately 60 of the new subcategories were for health-Iabor­ welfare and 45 for education. Nearly 20 were added in natural resources and 15 for housing and community development. These four functional fields account for about 140 of the 160 new authorizations.

TABLE 5 Separate Authorizations or Program Subcategories of Federal Aid to State and Local Governments, by Functional Category 1964, 1965, 1966, Functional category April 1 1 Jan. 4 2 Jan. 10 2 (catalog) (supplement)(supplement) National defense _ 11 11 11 Agriculture and agricultural resources _ 12 12 15 Natural resources _ 33 41 54 Commerce and transportation _ 23 25 37 Housing and community develapment _ 17 23 32 Health, labor, and welfare _ 94 114 153 Educati0 n _ 37 42 82 Veterans benefits and services _ 1 3 3 General government _ 11 12 12

Total _ 239 283 399

1 Revised count. 2 The net change from the preceding column reflects expiration or repeal of earlier authorizations as well as addition of new authorizations. Source: I. M. Labovitz, Number of Authorizations for Federal Assistance to State and Local Governments Under Laws in Force at Selected Dates During 1964-66 (Washington: The Library of Congress, Legislative Reference Service, July 5, 1966), p. 12.

The preceding data have referred to federal aids rather than grants­ in-aid. In our earlier discussion of definitions, we identified grants- tit 00

TABLE 6

Number of Federal Aid Authorizations, by Types of Aid

Grants-in-aid Net total Loans, or Tech- MiscelIa- Less 2 f Date '\I?Por- Po' loan guar- nical neous co- Shared Gross multiple se ~rate s~~d e f ho~e1 g~a~tct ~ntees or assis- operative revenues total cla~sifi- a~hori- rc ~~an~sa s Insurance tance programs catIons zations

1964, April 1 (catalog)- revised count .______64 126 26 35 47 9 307 68 239

1965, Jan. 4 (supplement)! 76 151 28 40 55 9 359 76 283

1966, Jan. 10 (supplement)! 91 226 31 48 74 9 479 80 399

1 The net change from the preceding line reflects expiration or repeal of earlier authorizations and the addition of new authorizations.

2 Some authorizations make available more than one type of federal aid-e.g., a single statutory provision may cover both appor­ tioned formula and project grants, or grants and technical assistance, or project grants and project loans. The authorization is counted for each available type of aid in those preceding columns which are applicable, and duplications are eliminated by the deductions shown in this column.

Source: I. M. Labovitz, Number of Authorizations for Federal Assistance to State and Local Governments Under Laws in Force at Selected Dates During 1964-66 (Washington: The Library of Congress, Legislative Reference Service, July 5, 1966), p. 13. 59 in-aid as a special type of federal aid different from shared revenues, loans and advances, technical assistance, etc. Table 6, based on the report of the Legislative Reference Service, counts aid authorizations according to these various types. The data for formula and project grants-in-aid are the most interesting. From April, 1964, to January, 1966, formula grants increased 42 percent (from 64 to 91) and project authorizations rose 80 percent (from 126 to 226). Unfortunately, the correspond­ ing dollar figures are not available, but it is clear that the character of recent grant-in-aid activity constitutes a substantial departure from the past. In three of the four remaining tjpes of federal aids, increases ranged from 20 to over- 50 percent. Only shared revenue programs showed no change. This fact, along with the fact that all nine shared revenue programJ are in the functional field of natural resources, indicates the restricted role of the shared revenue tech­ nique in intergovernmental relations.9 The five types of aid authorizations tend to be concentrated in particular fields. 10 Twenty-six of the 48 technical assistance authori­ zations fall in the- health, labor, and welfare function. Nearly 150 of the 226 project grants are for health, labor, and welfare (97) and education (48), while housing, commerce, and natural resources account for about -20 each. Similarly, formula grants emphasize the health-welfare and education functions: 66 out of 91 grants deal with these functions; commerce and natural resources have only eight and nine grants respectively and housing has none. The one type of federal aid that is dispersed widely across functional cate­ gories is the loan, loan-guarantee, or insurance authorization. In general, each category has from two to five loan-type aids. Only veterans benefits is left out completely and housing has nine out of 31. With minor exceptions, then, there has been extensive proliferation and functional concentration in all types of federal aids. The over­ riding trend has.been major expansion in grants-in-aid, particularly in the project-type (non-formula) grant. Formula grants and the cooperative intergovernmental operation they require are primary examples, if not the foundation, of what has been called the "new federalism" II-or, alternatively, "func-

9 Labovitz, Ope cit., p. 14. 10 The following information is drawn from pp. 14-16 of ibid. 11 Jane Perry Clark, The Rise of a New Federalism: Federal State Coopera­ tion in the United States (New York: Columbia University Press, 1938). 60

tional federalism" and "cooperative federalism." These terms are used to characterize national-state-Iocal collaboration in the conduct of public functions. Although new federalism antedated the New Deal, it gained its institutional status during the great depression. Subsequently, in the two decades since World War II, it has been elaborated to the point where seven dominant trends may be discerned: (1) grants have grown in number, type, functional focus, and fiscal importance; (2) equalization through formula grants has become an explicit and approved aim, particularly for many HEW grant programs; (3) increasingly grants have had specific program objectives and subsequent extensions and additions have produced extremely cate­ gorized results; (4) increased professionalism has been accompanied by growing tensions between the functional program administrators (profes­ sionals) and: a. popularly elected officials and adlninistrative generalists, b. professionals at other levels in the same program field, and c. professionals in other functional programs at the same level; (5) along with professionalism, t~ere has been a trend toward tighter federal administrative standards governing state action, with varying effects on basic state policies; (6) there has been a trend, also associated with professionalism, toward project grants for research and demonstration purposes in­ volving direct and final federal approval of each grant application; and finally (7) the process involves federal review of state decisions on spe­ cific projects, project priorities, or state plans (to the extent that state decisions on applications are preliminary), with federal "review" constituting the effective final decision. 12 The first five trends are the mainstream of cooperative federalism.

12 These trends are similar to those identified by Charles E. Gilbert and David G. Smith, "Emerging Patterns of Federalism in Health, Education, and Welfare," paper prepared for delivery at the 1966 annual meeting of the American Political Science Association. 61

The latter two, while originating out of the prior tendencies, constitute significant departures in the extent and nature of federal involvement. We have already noted the sharply increased number of project grant authorizations from 1964 to 1966. Some observers interpret the ex­ tension of project grants as the hallmark of President Johnson's "creative federalism." 13 The meaning of this term remains unclear, however, and we prefer to describe the trend toward "projectitis" as a major move toward "direct federalism" (or the "new, new federal­ ism") and an oblique thrust toward "private federalism." The direct, project approach vests far greater discretion in federal administrative officials than the older, formula-grant approach. Such discretion presents the opportunity to accomplish desirable results. But it also places a heavy responsibility on project grant adminis­ trators to weigh both the programmatic and the political payoffs of their decisions. Another result of the direct approach has been a less important role for Congress in setting policy concerning the allocation of federal grants. This is not to deny that particular committees or congressmen influence grant allocations. It is to say, rather, that legislatively-mandated grant policies have become in­ creasingly ambiguous, or nonexistent, guides to administrators who are allocating project funds to diverse applicants. A third result has been the by-passing of units of general govern­ ment. With the advent of direct federalism, the applicants and recipients of grants are individuals, specialized public agencies, quasi­ public groups, and even private firms. The granting of funds to applicants in the latter two categories has prompted a further elabora­ tion of federalism that will not be explored here, namely, "private federalism" or, the "new, new, new federalism." 14

Financial Trends and Patterns in Federal Grants Historical data on federal grants, by totals and functions, are presented in Table 7. In 1902 total federal grants were only. $3

13 Scheiber, Ope cit.; Roger H. Davidson, "'Creative Federalism' and the War on Poverty," paper prepared for delivery at the 1966 annual meeting of the American Political Science Association; and Gilbert and Smith, Ope cit., pp. Iff. 14 The latter term is used by Gilbert and Smith, ibid., p. 1; see also Scheiber, Ope cit., pp. 14-22; Davidson, Ope cit., pp. 13-15. For popularized and public elaborations of "private" federalism, see: Max Ways, "Creative Federalism and the Great Society," Fortune, January, 1966; and the testimony of David Rockefeller before the (Ribicoff) Senate Subcommittee on Executive Reorganization, November 29, 1966, as reported in Congressional Quarterly Weekly Report, December 9, 1966, p. 3005. 0\ TABLE 7 tv Federal Grants-In-Aid to State and Local Governments, by Functi9nal Category, 1902-68 (millions of dollars) Veterans Health, Education Agriculture & Other Commerce, Services & Welfare, && General Agricultural Natural Housing, & Year Benefits Labor Research Resources Resources Transportation Total a 1902 1.0 -0.0 1.2 0.8 -0.0 -0.0 3.0 1912 1.2 -0.0 2.5 1.6 -0.0 -0.0 5.3 1920 1.1 1.8 4.6 5.9 -0.0 20.5 33.9 1925 0.7 1.5 8.5 7.3 0.3 95.4 113.7 1929 0.6 1.5 9.4 11.0 1.1 86.0 109.6 1930 0.6 0.7 10.0 11.9 1.3 79.8 104.3 1931 0.5 21.2 10.6 13.0 1.6 138.1 185.0 1932 0.8 59.9 11.1 13.0 1.7 132.0 218.5 1933 0.8 63.1 10.3 13.0 1.5 104.2 b 192.9 1934 0.5 1,817.4 9.6 12.7 1.5 0.4 b 1,842.1 1935 0.5 2,243.7 12.6 12.7 1.5 0.3 b 2,271.3 1936 0.6 2,248.2 13.1 21.7 1.5 27.6 b 2,312.7 1937 0.6 2,546.8 13.8 22.0 1.5 79.2 b 2,663.9 1938 0.7 1,972.4 24.2 32.9 1.5 143.1 2,174.8 1939 0.7 2,622.5 24.7 92.4 2.5 161.3 2,904.1 1940 1.4 2,066.4 24.4 143.1 6.4 153.5 2,395.2 1941 1.4 1,771.3 25.2 110.1 4.1 170.6 2,082.7 1942 1.4 1,506.5 25.5 77.5 4.5 204.1 1,819.5 1943 1.2 902.6 26.1 47.7 9.0 299.8 1,286.4 1944 1.2 616.2 25.5 66.3 7.4 286.7 1,003.3 1945 1.2 570.2 25.0 81.9 7.5 218.2 904.0 1946 20.2 567.9 25.3 92.4 8.3 180.5 894.6 1947 59.2 902.1 32.2 65.1 9.8 601.9 1,670.3 1948 85.0 1,024.5 37.2 70.9 11.5 387.5 1,616.6 1949 31.6 1,231.5 36.9 86.6 14.0 442.2 1,842.8 1950 15.3 1,562.3 38.6 106.3 17.0 475.0 2,214.5 ~/..Il 9.0 1,637.2 48.8 98.3 17.7 434.0 2,245.0 1952 6.7 1,662.0 122.2 83.9 19.8 481.7 2,376.3 1953 6.3 1,811.1 231.0 97.3 22.8 594.4 2,762.9 1954 6.9 1,890.4 203.2 213.2 24.9 630.3 2,968.9 1955 7.7 1,854.2 239.3 247.7 25.9 723.6 3,098.4 1956 8.1 2,109.3 208.7 389.3 26.6 873.7 3,615.7 1957 8.2 2,178.9 204.6 381.8 26.6 1,016.4 3,816.5 1958 8.3 2,52~.4 165.9 c 278.2 31.3 1,723.9 4,731.0 1959 8.3 2,777.2 296.7 c 322.5 34.5 2,877.8 6,317.0 1960 7.9 2,923.6 363.6 c 275.3 35.3 3,241.6 6,847.3

1961 d 9.0 3,133.8 378.2 c 398.2 33.3 3,355.9 7,308.4 1962 d 6.5 3,540.0 405.2 c 537.8 34.7 3,195.6 7,719.8 1963 d 8.2 3,813.4 465.2 c 521.4 53.9 3,492.8 8,354.9 1964 d 7.6 4,259.1 479.4 656.0 44.9 4,430.7 9,877.7 1965 d 8.1 4,477.4 610.3 517.6 107.1 4,945.2 10,654.7 1966 d 8.9 5,781.3 1,524.7 368.7 226.9 4,785.9 12,696.4 (est.) 1967 d 11.4 7,012.4 2,228.5 525.1 261.3 5,024.5 15,063.2 (est.) 1968 d 15.0 8,042.0 2,497.9 559.0 405.3 5,588.1 17,107.3

a Data in this table are drawn from tabulations made in prior years by the Labor and Welfare Division, Bureau of the Budget and for more recent years from special analyses dealing with grants-in-aid and accompanying the President's budget. Figures shown do not tally precisely with other figures used in the text of this report since Budget Bureau classifications encompass a few additional items not falling within the definition of grant-in-aid. These differences in no way affect the orders of magnitude or trends of federal grants-in-aid. Shared revenues, loans, and repayable advances are excluded from these totals.

b Federal aid highway program financed for these years out of emergency relief funds.

C $5-$7 million for services to Indians embracing both education and welfare functions.

d Calculated from U.S. Budget, "Special Analysis: Federal Aid to State and Local Governments," 1963-1968. Source for 1902-60 data: Advisory Commission on Intergovernmental Relations, Periodic Congressional Reassessment of Fed­ eral Grants-In-Aid to State and Local Governments (Washington, June, 1961) A-8, pp. 12-13. w0\ 64

million. Under the impact of what one writer has called "progressive agrarianism" this sum increased elevenfold by 1920.15 In the next decade, despite normalcy, expenditure retrenchment, and no new programs, grant expenditures more than tripled. They hovered near $200 million from 1931-33, before experiencing a meteoric tenfold rise in 1934. Through the depression years and up to 1942, grants fluctuated within the general range of $2 to $3 billion, hitting a high of $2.9 billion in 1939. They fell sharply during the war years to a low of $900 million in 1945 and 1946. In the past two decades grants have risen more than tenfold, from $1.6 billion in 1948 to an estimated $17.1 billion in fiscal 1968. Within the past decade grant sums increased fourfold, about the same in relative terms as that experienced in the 1920-30 decade. In absolute terms, however, the dollar increase in the most recent decade exceeded $12 billion compared to $70 million in the earlier decade. Recent year-to-year increases in federal grants show considerable fluctuation (Table 8). The largest dollar increases occurred in two periods, 1958-60 and 1964-68-the first largely due to the rapid expansion of the highway program begun in 1956, the second to the myriad of the Great Society programs. Since 1963 federal grants

TABLE 8 Annual Increases in Federal Grants-In-Aid, 1949-68

Millions of ~1illions of Year dollars Percent Year dollars Percent

1949 ------226.2 14.0 1959 1,586.0 33.5 1950 ______371.7 20.2 1960 ______530.3 8.4

1951 ------30.5 1.4 1961 ------461.1 6.7

1952 ______131.3 5.8 1962 ------411.4 5.6

1953 ------386.6 16.3 1963 ------635.1 8.2

1954 ------206.0 7.5 1964 ------1,522.8 18.2

1955 ------129.5 4.4 1965 _._------777.0 7.2

1956 ------517.3 16.7 1966 ------2,041.7 19.2 1957 ------200.8 5.6 1967* 2,366.8 18.6

1958 ------914.5 24.0 1968* ------2,044.1 13.6 * Estimate. Source: Calculated from Table 7.

15 Daniel Elazar, "The Shaping of Intergovernmental Relations in the Twentieth Century," The Annals, May, 1965, p. 15. 65 have grown by more than a half-billion dollars each year and the 1966, 1967, and 1968 increases each topped $2 billion. In per­ centage terms, federal grants have risen by 10 percent or more annually in exactly half of the 20 years of continuous increases. The average annual increase for the entire period is 12.8 percent. This review points to two prominent conclusions. First, federal grants have recorded continuous increases in every year since 1948. Second, these increases have been substantial and frequently massive, in both dollar and percentage terms. These data further document the extensive expansion of federal influence on states and localities via the grant technique. What are the trends in grant expenditures within each of the major functional areas? What patterns have prevailed in the distribution of grants among functional areas? To answer the first question, we return to Table 7 and offer a few general observations about long­ term trends for each function. Veterans Benefits: Grants to the states for veterans services have exceeded $9 million only in 1946-50 and 1967-68. Clearly, rather than employing the grant mechanism, the federal government has assumed direct and nearly complete responsibility in the field, as witnessed by the $5.6 billion spent directly for veterans benefits and services in 1966.16 Health, Labor, Welfare: Expenditures in this field were high throughout the depression. Following wartime retrenchment, they grew gradually and steadily until they approached $4.0 billion in 1963. Subsequently, due to the combined impact of expanded eco­ nomic opportunity and public assistance outlays, they have doubled to an estimated $8.0 billion in fiscal 1968. Education and General Research: Federal grants for educational purposes were comparatively insignificant up to 1951. They first exceeded $100 million in 1952, as a consequence of 1950 legislation authorizing school aid in federally-impacted areas. The second not­ able rise followed the National Defense Education Act of 1958 : grants reached nearly $300 million in 1959 and doubled to $600 million by 1965. The Elementary and Secondary Education Act of 1965 is the chief factor pushing educational grant outlays to an

16 The Budget of the United States Government: Fiscal Year Ending June 30, 1968 (Washington: Government Printing Office, 1967), p. 42. 0'\ 0'\ TABLE 9 Federal Grants-In-Aid to State and Local Governments, by Functional Category, 1902-68 (percents)

Veterans Health, Education Agriculture & Other Commerce, Total Service & Welfare, && General Agricultural Natural Housing, & Total a (billions of Year Benefits Labor Research Resources Resources Transportation (percent) (dollars) 1902 33.3 - 40.0 26.7 - - 100 1912 22.6 - 47.2 30.2 - - 100 1920 3.2 5.3 13.6 17.4 - 60.5 100 1925 .6 1.3 7.5 6.4 .3 84.0 100 .1 1929 .5 1.4 8.6 10.0 1.0 78.5 100 .1 1930 .6 .7 9.6 11.4 1.2 76.5 100 .1 1931 .3 11.5 5.7 7.0 .9 74.6 100 .2 1932 .4 27.4 5.1 5.9 .8 60.4 100 .2 1933 .4 32.7 5.3 6.7 .8 54.0 100 .2 1934 .0 98.7 .5 .7 .1 .0 100 1.8 1935 .0 98.8 .6 .6 .1 .0 100 2.3 1936 .0 97.2 .6 .9 .1 1.2 100 2.3 1937 .0 95.6 .5 .8 .1 3.0 100 2.7 1938 .0 90.7 1.1 1.5 .1 6.6 100 2.2 1939 .0 90.3 .9 3.2 .1 5.6 100 2.9 1940 .1 86.3 1.0 6.0 .3 6.4 100 2.4 1941 .1 85.0 1.2 5.3 .2 8.2 100 2.1 1942 .1 82.8 1.4 4.3 .2 11.2 100 1.8 1943 .1 70.2 2.0 3.7 .7 23.3 100 1.3 1944 .1 61.4 2.5 6.6 .7 28.6 100 1.0 1945 .1 63.1 2.8 9.1 .8 24.1 100 .9 1946 2.3 63.5 2.8 10.3 .9 20.2 100 .9 1947 3.5 54.0 1.9 3.9 .6 36.0 100 1.7 1948 5.3 63.4 2.3 4.4 .7 24.0 100 1.6 1949 1.7 66.8 2.0 4.7 .8 24.0 100 1.8 1950 .7 70.5 1.7 4.8 .8 21.4 100 2.2 1951 .4 72.9 2.2 4.4 .8 19.3 100 2.2 1952 .3 69.9 5.1 3.5 .8 20.3 100 2.4 1953 .2 65.6 8.4 3.5 .8 21.5 100 2.8 1954 .2 63.7 6.8 7.2 .8 21.2 100 3.0 1955 .2 59.8 7.7 8.0 .8 23.4 100 3.1 1956 .2 58.3 5.8 10.8 .7 24.2 100 3.6 1957 .2 57.1 5.4 10.0 .7 26.6 100 3.8 1958 .2 53.3 3.5 5.9 .7 36.4 100 4.7 1959 .1 44.0 4.7 5.1 .5 45.6 100 6.3 1960 .1 42.7 5.3 4.0 .5 47.3 100 6.8

1961 .1 42.9 5.2 5.4 .5 45.9 100 7.3 1962 .1 45.9 5.2 7.0 .4 41.4 100 7.7 1963 .1 45.6 5.6 6.2 .6 41.8 100 8.4 1964 .1 43.1 4.9 6.6 .5 44.9 100 9.9 1965 .1 42.0 5.7 4.9 1.0 46.4 100 10.7 1966 .1 45.5 12.0 2.9 1.8 37.7 100 12.7 1967* .1 46.6 14.8 3.5 1.7 33.4 100 15.1 1968* .1 47.0 14.6 3.3 2.4 32.7 100 17.1

* Estimate. a Detail may not add to 100 because of rounding. b Less than $.05 billion. 0\ Source: Calculated from Table 7. -.....l 68 estimated $2.5 billion in fiscal 1968, a fourfold increase in three years. Agriculture and Agricultural Resources: Grants in these fields seldom exceeded $100 million until 1954, when they rose above $200 million for the first time. Subsequently, they have fluctuated between $200 and $650 million, depending largely on the value of donated surplus agricultural commodities. This program constitutes, in value terms, from three-fifths to three-fourths of the grant amounts for agriculture. Other Natural Resources: Federal grants for natural resources were less than $50 million as recently as 1964. In the short span of fOUf years a tenfold expansion has occurred, traceable to new and expanded programs in water pollution control and land and water conservation. We previously noted (Table 5) that 21 new grant authorizations were enacted in the natural resources field between 1964 and 1966. In addition, shared revenue programs in the re­ sources field are currently (1968 estimate) producing over $200 million for the states, double the 1964 figure. 17 Commerce, Housing, and Transportation: Except for 1947, federal grants in this category were less than $600 million until 1954. Reflecting expanded programs for urban renewal (1954) and high­ ways (1956), expenditures rose to approximately $1.0 billion in 1957. Projected outlays for fiscal 1968 are nearly $5.6 billion, including $3.8 billion for the highway program (from the highway trust fund),18 and about $1.3 billion for housing and community development. While transportation (highways) remains the dominant program in this category, housing and community development is expanding rapidly: dollar outlays tripled from 1964 to 1968, and the number of new grant authorizations doubled (from 17 to 32) between 1964 and 1966 (Table 5). The preceding discussion has covered dollar trends for federal aids as a whole and for particular functional categories. Changing our focus, the percentage distribution figures in Table 9 show the shifting priorities among functional grant categories over time. The federal government's response to the depression produced the

17 Special Analyses: Budget of the United States, Fiscal Year 1968 (Wash­ ington: Government Printing Office), p. 42. 18 This amount and subsequent 1968 estimates are from Ibid., pp. 155-61. 69 first notable shift. Commerce-housing-transportation claimed more than 60 percent of grant funds prior to 1933, while health-welfare claimed more than 60 percent from 1934 to 1950 (with the single exception of 1947). During the depression/New Deal years of 1934-39, health-welfare outlays consistently exceeded 90 percent of the total. From 1950 to 1960, there was a steady decline in the percentage of grants devoted to health-welfare. The decline is explained in part by moderately increased emphasis on education and agriculture but, much more importantly, by a marked shift back to commerce-housing­ transportation. In the last several years, the relative position of this category has again declined (to about one-third of all grants) as a result of rapid expansion in the educational field. The latter category accounted for 5 percent of grants in 1964, and its share is estimated to reach 15 percent in 1968. Thus, federal grants in this century have experienced substantial shifts in functional focus. The major shift has been from commerce­ transportation to health-welfare, which currently claims nearly half of all federal grants. More recently, education has assumed greater importance, though it still commands only one··seventh of all grant funds.

Federal Grants Relative to Other Financial Trends How do the increases in grants compare with what is occurring in other sectors of federal, state, and local finance? More specifically: Are grants an increasing, constant, or decreasing proportion of state/local revenues and expenditures? Are they increasing as a percentage of federal expenditures? In the past two decades federal grants have re-presented a growing share of both revenue and expenditure aggregates at the state and local level (Table 10). In 1946, grants were less than 8 percent of state-local general revenue but, by 1965, the last year for which revenues are available, they had more than doubled and approached 17 percent. The intervening years show a clear though slightly erratic upward trend. In general, the same trend can be observed for state­ local and state general expenditures. Between 1946 and 1965 grants as a percentage of state-local expenditures almost doubled. For state expenditures, with local outlays excluded, a similar secular trend is 70

evident, although the 1965 percentage is not quite double the 1946 figure. TABLE 10 Federal Grants-In-Aid and State-Local Fiscal Aggregates,l 1946-65

Grants as a Percentage of State-Local State-Local General General State General Year Revenue 2 Expenditures 2 Expenditures 2 1946 7.8 8.8 20.4 1948 10.5 10.2 20.9 1950 12.0 10.9 22.5 1952 10.5 10.1 21.2 1953 11.3 11.0 23.2 1954 11.4 10.7 23.0 1955 11.1 10.1 21.8 1956 11.5 10.8 23.2 1957 11.1 10.4 22.2 1958 13.0 11.8 25.2 1959 16.2 14.9 32.0 1960 15.7 15.2 33.4 1961 15.6 14.9 32.7 1962 15.3 14.8 32.4 1963 15.4 14.9 32.0 1964 16.9 16.7 35.6 1965 16.8 16.7 35.5

1 The percentages in this table are slightly and uniformly higher than those for similar aggregates appearing in u.s. Budget and Special A nalyses tabular presentation. These differences result from the inclusion of intergovernmental revenues in the Budget Bureau figures. 2 Excluding intergovernmental revenue, and also excluding revenue or expen­ diture items derived from utilities, liquor stores, employee retirement, and other insurance trust fund sources. Sources: Federal grant data from Table 7; state-local fiscal data from U.S. Bureau of the Census, from Historical Statistics on Governmental Finances and Employment, Vol. 4, No.4, Census of Governnlellts: 1962 (Washington, 1964) and, since 1962, from Governmental Finances (annual), Series GF.

The dominant feature of this time series, however, is the major reliance of states on federal grants. More than one-third of state- 71 financed general expenditures is derived from federal grants.20 Cur­ rently, the state-local sector is receiving more and spending more in proportionate terms from federal grants than at any time since the end of World War II. In other words, federal grants are increasing at a more rapid rate than state and local revenues or expenditures. Finally, what is the pattern at the national level? Table 11 reveals that federal aids to state and local governments are becoming a

TABLE 11 Federal Aid to State-Local Governments and Federal Cash Expenditures, 1955-68 Federal Aids as a Percentage of Total Nondefense Year Expenditures Expenditures 1955 _ 4.6 11.9 1956 _ 5.1 12.7 1957 _ 5.0 12.5 1958 _ 5.9 14.2 1959 - _ 7.0 15.0 1960 _ 7.5 15.6 1961 _ 7.1 15.0 1962 _ 7.3 15.6 1963 _ 7.6 16.1 1964 _ 8.4 17.5 1965 _ 8.9 17.7 1966 _ 9.4 18.8 1967 _ 9.6 19.5 I 968 _ 10.1 20.4 Note: The data is based on the federal cash budget, which includes l;oth administrative budget and trust fund outlays. Source: Special Analyses: Budget of the United States, Fiscal Year 1968 (Washington: Government Printing Office), p. 148.

20 Conceptually and analytically one might question whether it is appro­ priate to subtract federal aid from the state and local fiscal aggregates and then compute grants as a proportion of state revenues or expenditures. The effect of this, of course, is to raise the percentages above what they would be if federal aids were not excluded. The procedure followed here is justified on the grounds that the basic policy decision as to how grants are allocated among program areas is a national policy determination. While the states may have some discretion within programs, they cannot alter the inter-program alloca­ tions. In fact, because of matching requirements, the states probably have even less discretion than the tabled proportions would tend to show. 72 larger proportion of federal cash outlays. (Data limitations require that federal aid rather than federal grant amounts be used.) Whether national defense items are included or excluded, the proportions have about doubled in the 14 fiscal years. Currently, federal aids con­ stitute one-tenth of all federal cash outlays and one-fifth of federal nondefense cash outlays. The persistent and predominant theme of this chapter is clear and has been documented by a variety of ways and measures. Whether measured in numbers of programs, in aggregate or functional outlays, or by grants (or aids) as a proportion of state-local or federal finances, federal grants have increased significantly in the past two decades, substantially in the past single decade, and very sharply in the past three to four years. In light of these trends, it is relevant to consider the attitudes that grants have engendered among public officials responsible for their enactment and administration. V,I. PARTIC'IPANTS' PERSPECTIVES: THE NATIONAL LEVEL

HE PURPOSE of this chapter and the next is to study the views of T participants involved in federal grant and federal aid programs. The study is based primarily on data gathered and analyzed by standardized objective procedures that permit supportable general­ izations about participants' attitudes. In addition, we draw upon interpretative and qualitative data in order to highlight the major points of friction in the enactment and administration of grant programs. Admittedly, the selection of this second kind of data in­ volves an element of bias. Unless these friction points are recognized, however, there is a tendency to overstate the aims and achievements of grant programs and understate their problems and difficulties. This chapter examines the perspectives of grant-in-aid partici­ pants at the national level, both the congressmen who enact the grant programs and the administrators who are responsible for im­ plementing them.

Congress and Grants Roll call votes in two Congresses, the 86th (1959-60) and 87th (1961-62), provide an interesting sample of congressmen's attitudes toward grants-in-aid. The 86th Congress was controlled by the Democratic party, in both the House (282-154) and Senate (64-34), while Republican President Eisenhower occupied the White House.

73 74

The action in that Congress featured many attempts by liberal Demo­ crats, fresh from major victories in the 1958 elections, to enact new social and economic programs. Democrats also controlled the 87th Congress, by majorities of 263-174 in the House and 65-35 in the Senate. But, contrasted with the 86th Congress, White House poli­ cies featured the expansion-oriented New Frontier programs of President John F. Kennedy. Our analysis covers all roll call (recorded) votes in both Con­ gresses that directly posed the issue of either instituting a new federal grant-in-aid program or expanding an existing one. 1 For the 86th Congress we reviewed 30 roll calls, 12 in the House and 18 in the Senate; for the 87th, the total was 44, 21 in the House and 23 in the Senate. Perhaps the chief reason for the larger number in the 87th Congress, particularly in the House, was the expansion of the House Rules Committee in January, 1961, a move designed to cir­ cumvent the conservatives on that committee and to allow more issues to reach the House floor. Using voting records, we constructed scales based on a congress­ man's disposition to vote for or against grant-in-aid programs. The scaling technique, known as cumulative or Guttman scaling, ordered the members of each chamber along an attitudinal continuum that we call the "lesser-larger" federal role scale. For both substantive and methodological reasons, roll calls on grant programs were divided into groups of 12 or less. This procedure yielded seven different scales. These scales are listed below, together with the type and number of roll call issues contained in each scale.

86th Congress: House: (1) composite scale-12 roll ca]ls (education-3, water pollution-3, airports-4, area redevelop­ ment-2) Senate: (2) education scale-6 roll calls (3) physical facilities scale-12 roll calls (airports-5, area redevelopment-6, water pollution-I)

1 A discussion of selection criteria and other methodological aspects of this analysis is presented in Deil S. Wright, A Guide to the Study of Con­ gressional Roll Call Votes on Federal-State Relations: Federal Grants in Aid, an unpublished manuscript (mimeo). 75

87th Congress: House: (4) education and social services scale-12 roll calls (education-7, public assistance-3, unemploy­ ment compensation-2) (5) physical facilities scale-9 roll calls (depressed areas-2, highways-I, housing-3, public works -1, water pollution-2) Senate: (6) education scale-12 roll calls (7) physical facilities scale-II roll calls (depressed areas-6, public works-5) We next examined the relationship between a congre'ssman's position along the scales and one major variable, his political party. The re­ sults are presented in Tables 12 through 18. Several observations follow. First, it is clear that party identifica­ tion is a critical variable sharply dividing members of both chambers in their outlook (and voting behavior) on federal grants. For example, looking at Table- 12, only 8 percent of the Democrats, but 81 percent of the Republicans, rank "high," meaning that they voted for a lesser federal role on nine or more of the 12 roll calls that constituted the scale. At the other end of the scale, 60 percent of the Democrats and only 3 percent of the Republicans ranked "low." Congressmen in his category voted in favor of a lesser federal role on none of the 12 grant-in-aid roll calls. Stated conversely, they vote-d for a larger federal role on all of the 12 roll calls. The relationship between party and grant-in-aid voting is con­ sistent. Across the seven scales, a majority of both House and Senate Democrats invariably falls in the "low" category as far as a lesser federal role is concerned. And in all but one instance, the physical facilities scale (Table 14), the n1ajority of the Democrats favor a larger federal role on every roll call in the scale. This polarization and uniformity is not matched by Republicans. In no instance did a majority of Republicans uniformly vote for a lesser federal role on all issues in any scale. Second, there are interesting inter-scale as well as inter-party contrasts and similarities. It is apparent that Senate Republicans­ in both Congresses under review-were not so strongly disposed toward a lesser federal role as their brethren in the House. The 76 same pattern holds for Democrats. Consistently higher proportions of Democrats in the Senate ranked at the low end of a lesser federal role scale than did Democrats in the House. In other words, Senate Democrats were more favorable toward grants than their House counterparts. This finding, persisting across party lines, suggests different outlooks toward the federal system in the Senate and in the House. The difference may reflect the broader, more urban,

TABLE 12 Congressional Roll Call Voting on Lesser Federal Role Issues (Federal Grants-in-Aid) for Composite Scale by Party, U.S. House ·')f Representatives, 86th Congress (1959-60) Lesser Federal Role Democrat Republican Higha 8% 81% Mediumb 32 16 Lowc 60 3

100% 100% N== 267 147 Scale Coefficients: CR == .92; CS == .48 a Voted in favor of a lesser federal role on 9 to 12 of the 12 roll calls. b Voted in favor of a lesser federal role on 1 to 8 of the 12 roll calls. e Voted in favor of a lesser federal role on none of the 12 roll calls.

TABLE 13 Congressional Roll Call Voting on Lesser Federal Role Issues (Federal Grants-in-Aid) for Education Scale by Party, U.S. Senate, 86th Congress (1959-60) Lesser Federal Role Democrat Republican Higha 9% 65% Mediumb 20 20 Lowc 71 15

100% 100% N== 65 34 Scale Coefficients: CR == .89; CS == .65 a Voted for lesser federal role on 4 to 6 of the 6 roll calls. b Voted for lesser federal role on t to 3 of the 6 roll calls. e Voted for lesser federal role on none of the 6 roll calls. 77

TABLE 14

Congressional Roll Call Voting on Lesser Federal Role Issues (Federal Grants-in-Aid) for Physical Facilities Scale by Party, U.S. Senate, 86th Congress (1959-60)

Lesser Federal Role Democrat Republican

High3 6% 58% Mediumb 23 32 Lowe 71 10

100% 100% N== 62 31

Scale Coefficients: CR == .95; CS == .47 a Voted for lesser federal role on 10 to 12 of the 12 roll calls. t> Voted for lesser federal role on 4 to 9 of the 12 roll calls. e Voted for lesser federal role on none to 3 of the 12 roll calls.

TABLE 15

Congressional Roll Call Voting on Lesser Federal Role Issues (Federal Grants-in-Aid) for Education and Social Services Scale by Party, U.S. House of Representatives, 87th Congress (1960-61)

Lesser Federal Role Democrat Republican

Higha 4% 41% Mediumb 33 48 Lowe 63 11

100% 100% N== 238 177

Scale Coefficients: CR == .95; CS == .48 a Voted for a lesser federal role on 4 to 12 of the 12 roll calls. b Voted for a lesser federal role on 1 to 3 of the 12 roll calls. e Voted for a lesser federal role on none of the 12 roll calls. 78

TABLE 16

Congressional Roll Call Voting on Lesser Federal Role Issues (Federal Grants-in-Aid) for Physical Facilities Scale by Party, U.S. House of Representatives, 87th Congress (1961-62)

Lesser Federal Role Democrat Republican Higha 8% 70% Mediumb 31 27 Lowe 61 3

100% 100%

N== 251 176

Scale Coefficients: CR == .96; CS == .80 a Voted for a lesser federal role on 7 to 9 of the roll calls. h Voted for a lesser federal role on 1 to 6 of the 9 roll calls. c Voted for a lesser federal role on none of the 9 roll calls.

TABLE 17

Congressional Roll Call Voting on Lesser Federal Role Issues (Federal Grants-in-Aid) for Education Scale by Party, U.S. Senate, 87th Congress (1961-62)

Lesser Federal Role Democrat Republican Higha 12% 59% Mediumb 22 29 Lowe 66 12

100% 100%

N== 64 34

Scale Coefficients: CR == .93; CS == .38 a Voted in favor of lesser federal role on 7 to 12 of the 12 roll calls. b Voted in favor of lesser federal role on 2 to 6 of the 12 roll calls. e Voted in favor of lesser federal role on none of the 12 roll calls. 79

TABLE 18

Congressional Roll Call Voting on Lesser Federal Role Issues (Federal Grants-in-Aid) for Physical Facilities Scale by Party, U.S. Senate, 87th Congress (1961-62)

Lesser Federal Role Democrat Republican Higha 5% 68% Mediumb 14 32 Lowe 81 0

100% 100% N= 59 31 Scale Coefficients: CR = .94; CS = .24 a Voted in favor of a lesser federal role on 9 to 11 of the 11 roll calls. b Voted in favor of a lesser federal role on 2 to 8 of the 11 roll calls. e Voted in favor of a lesser federal role on none of the 11 roll calls. and more varied constituencies to which senators respond. It could also reflect the greater sensitivity of House members to the electorate because of their two-year term. In any event, it suggests an irony about the Senate's role in the federal syste·rn. The framers of the Constitution viewed the Senate as a guardian of state interests 2_ a role that did not develop and, if support for greater federal involvement via grants is any measure, is not being played today. Third, while the Senate-House contrasts are clearly identifiable, there are no pronounced dnd consistent contrasts between the two congresses. Senate voting patterns, by party, in the 86th and 87th Congresses do not exhibit great discrepancies. The same holds true for the House, except for Republicans on the social service scale in the 87th Congress (Table 15). One overriding conclusion can be drawn. We traditionally hear about the absence of note'worthy differences between the two major parties in the United States. These tables reveal, however, that party membership is a powerful and significant variable in explaining a congressman's views on the le·sser-Iarger federal role , 2 The Federalist, No. 62. The failure of the Senate to act as a guarantor of states' rights is described by William H. Riker, "The Senate and American Federalism," American Political Science Review, June, 1955, pp. 452-69. 80 continuum. Furthermore, the association persists across chambers, as well as across congresses confronting Presidents of different political persuasions.

Federal Administrators and Grants A comprehensive survey of fede'ral officials administering grant programs was conducted by the Senate Subcommittee on Intergovern­ mental Relations in 1965.3 Among the 100-plus officials responding, 48 were directors of major grant-in-aid programs. The others had more limited responsibilities, or directed non-grant activities such as shared revenue, technical assistance, or loan programs. The survey was designed primarily to identify tension points in intergovernmental relations. We will consider only five of the questions it raised. 1. How much attention is given to the broader intergovernmental consequences of grants when grant programs are enacted? Not very much, the subcommittee's report implied. It identified a coalition of interested congressmen, administrators, and interest groups-the "triple alliance" mentioned above-as the effective instrument for establishing grant programs. Thus grant programs are the product of familiar political forces at work at the national level. The subcommittee's description of the enactment pattern suggests the desirability of a different legislative review process: ... the approach to a grant program ... is basically a functional one. It is geared to meeting specific, often ur­ gent, problems. Relatively little consideration is· given gen­ erally to the impact on other programs or on the state and local units which will administer it. 4

3 The Federal System as Seen by Federal Aid Officials, a study prepared by the Subcommittee on Intergovernmental Relations of the Committee on Gov­ ernment Operations, U.S. Senate, 89th Congress, 1st Session (Committee Print), December 15, 1965. An earlier, shorter questionnaire was used by the House Intergovernmental Relations Subcommittee in 1956. See Staff Report on Replies from Federal Agencies to Questionnaire on Intergovernmental Relations, Intergovernmental Relations Subcommittee of the Committee on Government Operations, House of Representatives, 84th Congress, 2d Session (Committee Print), August, 1956. 4 The Federal System as Seen by Federal Aid Officials, Ope cit., p. 22. 81

Congress is organized into committe-es, primarily along func­ tional lines. The result, too often, is an overemphasis on functional problems and an underemphasis on matters of form, such as gov­ ernmental structure or administrative coordination. Procedures for redressing this imbalance- were not pursued by the committee study, for understandable reasons: alteration of the enactment process opens up questions of legislative reorganization, a subject con­ siderably beyond the scope of a Subcommittee on Intergovernmental Relations. But the question needs to be raised. We have argued that the Congress, in conjunction with the President, is the main arbiter of the federal system. Yet the Congress, with its problem-oriented approach, is not structured to give adequate consideration to either the individual or the cumulative impact of its actions on govern­ mental forms and operations. Inherent in its approach is an implicit faith that more and more grants dealing with particular problems will add up to a meaningful and manageable prescription for the many ills besetting society. Disenchantment with this incremental program approach is evident. One possible result of growing criticism of categorical grant enactments would be the creation of standing committees on inter­ governmental relations in each chamber. All legislation involving grants-in-aid and intergovernmental matters would either originate in, or be reviewed by, a "Committee on Federalism and Intergov­ ernmental Relations." The idea is not practical at present but merits serious discussion. Until such time as the problems of inter­ governmental relations gain sufficient public attention to produce reform, subcommittees of the government operations committees in both houses must suffice. 2. How much attention is paid by federal administrators to the nuances of intergovernmental relationships in the implementation of grant programs? Practically none, according to the subcommittee's study. Func­ tionalism was found to be as prevalent among federal aid adminis­ trators as it is in the legislative process. Their outlooks were conditioned and reinforced by program goals, professionalism, and clientele pressures. They possessed, the committee found, neither "the mandate nor the desire to assess their grant-in-aid programs 82

in terms of their intergovernmental significance." 5 In the interest of protecting the "integrity of the program" the executives saw as intruders any outsiders (legislators, top administrators, or study groups) who raised difficult questions concerning policy consistency, inter-level administrative procedures, inter-agency coordination, and structural reorganization. 3. To what extent are federal administrators concerned about the impact of grant programs on the coordinating role of state and local executives, budget officers, and legislatures? The Council of State Governments, the first Hoover Commission, the Kestnbaum Commission, and the Advisory Commission on Inter­ governmental Relations have expressed varying degrees of concern about the state organizational and administrative problems created by grants. The subcommittee study underscored this concern. The study questioned aid administrators on four organizational aspects of intergovernmental relations: (1) the creation of a state department of local affairs, (2) use of the "single agency" require­ ment for administering grants at the state level, (3) the desirability of multi-purpose or block grants, and (4) state administrative re­ sponsibility for grants. 6 The findings may be noted briefly. First, less than one-third of all respondents thought that a state department of local affairs would be helpful in administering grant programs. Sec­ ond, about one-third reported that their grant programs required the states to set up a single agency to operate their particular program, and indicated that they were generally satisfied with this require­ ment. Their responses on this issue, according to the study, were given "solely in the context of their own operations, with little aware­ ness of the problems this requirement might create at the state level."7 Third, multi-purpose, general, or block grant devices were flatly opposed by an overwhelming majority, roughly 90 percent, and a similar majority opposed the more modest proposal that transfers of funds between grants be authorized. Moreover, respon­ dents also opposed revenue sharing proposals-"as a threat to growth in their own activities," to use the subcommittee's words. 8 Finally, functional or programmatic considerations overrode all other

5 Ibid., p. 22. 6 Ibid., pp. 39-55. 7 Ibid., p. 46. 8Ib;d., p. 51. 83 considerations on the question of state administration of grants. Nearly 100 percent of the federal executives opposed channeling state and local federal aid requests through state budget agencies. Over three-fourths indicated they did not advise governors or state budget bureaus of grant allotments made or available to the state. At the same time a large majority acknowledged they "occasionally" received inquiries from governors, legislators, and budget staffs about federal funds allotted or available. The study observed: In the administration of these programs, counterparts tend and prefer to deal with counterparts. Chief executives and top management ge·neralists [at the state and local levels] are viewed by these [federal] program administrators as potential or actual enemies, subject to the fluctuating whims of the electorate.9 4. What do federal administrators think about the abilities of state and local officials? The subcommittee observed: Even the most brilliantly conceived grant-in-aid progranl will fail to meet its objectives unIe's8 there are qualified state and local personnel to carry it out. Intergovernmental per­ sonnel matters, then, are of paramount significance.to

Unfortunately, the study did not question aid officials directly about the quality and competence of state and local administrators. In­ stead, it sought their views on whether the administration of grant programs at the state-local level was affected by low salaries, in­ adequate training programs, merit system requirements, the trans­ ferability of' retirement and other fringe benefits, and the impact of state political party shifts on program operations.11

Only a minority of federal administrators thought that stringent me-rit system requirements, or the lack of merit systems altogether, handicapped the administration of their programs. On the other hand, most of them regarded low salaries and inadequate training

9 Ibid., p. 55. 10 Ibid., p. 57. 11 Ibid., pp. 57-70. 84 as definite handicaps. Yet, only a slight majority thought that their programs would benefit materially from proposed federal assistance to state and local in-service training programs. This somewhat sur­ prising response may have arisen from: (1) the unrelatedness of the proposal to federal agencies' operations, (2) the fact that such a program would not overCOIne more basic shortcomings, such as low salaries, and (3) the feeling that state and local personnel either have adequate training or are not capable of bene-fitting from more. A substantial majority thought that personnel inobility was inhibited by the nontransferability of fringe benefits from one level of government to another, but there was some hint that this diffi­ culty was viewed primarily as preventing the recruitment of state officials into the federal service rather than vice versa. About one­ third of the administrators acknowledged that there was "a high turnover rate" in the state or local agency with which they dealt. The proportion, while not a majority, is significant and underscores the surprising reluctance of the federal administrators to endorse proposed grants for in-service training programs. This inconsistency is somewhat clarified by the fact that a similar one-third of the federal administrators saw their programs as handicapped by shifting political majorities. Thus, the inferred sentiments about the in­ efficiency of in-service training programs are understandable, even though they may be inaccurate. In general, two conflict themes pervaded the responses of federal aid administrators in the personnel sphere. One revolved around professionalism-specifically, the differences, presumed or real, in professional commitment and competence at the federal and the state-local levels. TIle federal officials were negative about the differ­ ent professional outlook of state and local personnel and displayed a natural drive to extend their own concept of professional standards to this level. The second theme revolved around functionalism. It arose from the contrasting outlooks of federal administrators and local legis­ lators, as well as the differing values, interests, and constituencies of bureaucrats and legislators in general. Thus, federal aid adminis­ trators expressed doubts about the influence of elected officials at the state and local level. In an overstatement, the subcommittee study noted: "Elected policymakers at the state and local level were 85 identified-either clearly or obliquely-as the villains in the drama of intergovernmental personnel relationships." The subcommittee was on firmer ground in concluding that the federal administrators "opposed giving these elective officials greater flexibility, which might result in the needed changes in state and local personnel policies." 12 5. Finally, what ·attitudes prevail among federal administrators on ways to resolve the Gordian Knot of intergovernmental relations­ the complex problem of metropolitan intergovernmental relation­ ships? Only about one-third of all the administrators responded affirma­ tively when asked if their program would "materially benefit" from an executive branch clearinghouse to collect and evaluate metropoli­ tan research. At least three reasons could explain such surprisingly narrow perspectives. First, some executives' programs have little actual relevance to metropolitan problems. Yet, taking just the 41 programs identified as having an impact on metropolitan develop­ ment, their administrators were about evenly divided into three groups. A third approved the research clearinghouse, a third re­ sponded negatively, and a third failed to respond to the question or claimed it did not apply.l~ The other two reasons pertain most appropriately to the two-thirds majority not favorable to the clear­ inghouse idea: either these administrators apparently fail to see their programs in a metropolitan context, or they may already feel over­ burdened by information and rese·arch. These factors, operating together, perhaps best explain the resistance or apathy of federal aid administrators to metropolitan concerns. In any case, it 3eems evident that programmatic considerations inhibit, if not directly obstruct, a broader view of programs affecting urban and metropoli­ tan development. A similar lack of breadth appeared when administrators were asked if their agency had an organizational unit to deal with metro­ politan agencies and problems or to collaborate with other federal agencies in establishing common approaches to metropolitan plans and development. Awareness of the metropolitan impact of an aid or grant program seems to correlate- with the existence of an organiza­ tional entity addressing itself to metropolitan questions.

12Ibid., p. 13. 13 Ibid., p. 74. 86

A question about the coordinating role of federal executive boards -should these boards remain regional committees for inter-agency communication or be given more responsibility for coordination­ confirmed prior observations. Only one-fifth of the administrators thought inter-agency boards should perform combined intergov­ ernmental and inter-agency coordinating roles. "Urban fragmentation"-that is, the proliferation of governmental jurisdictions in metropolitan areas-is caused in major part by the special district. The relationship between federal grants, special districts, and urban fragmentation has frequently been discussed but seldom examined on a systematic basis. The subcommittee's surveys support the following observations: (a) in about half the cases, federal grant programs to metro­ politan areas involve special districts, authorities, or autonomous agencies, (b) federal administrators, in an overwhelming majority (80­ 90 percent) saw special district participation as beneficial to their programs, (c) about one-third of the administrators also saw some obstacles to coordination created by these non-general units of government, but (d) substantially more than a majority doubted that cities and counties, either singly or jointly, could administer these programs better than the autonomous districts. 14 Despite some concern noted in (c) above, federal aid administra­ tors favor special districts over units of general government for carrying out grant programs. This finding lends strong support to the charge that federal grants-in-aid have contributed to urban fragmentation. How important is coordinated urban land-use planning to the implementation of federal grant-in-aid programs? What are adminis­ trators' views on proposals that would introduce greater coordina­ tion and rationality into metropolitan area programs? Fifty-four per­ cent of the administrators of the 41 metropolitan programs acknowledged that the success of their program is related to urban land-use planning and regulation. 15 A near majority affirmed that

14 Ibid., pp. 84-85. 15 Ibid., p. 87. 87 such planning was either "highly desirable" or "essential" on a metro­ politan basis from the standpoint of their program's success. With the importance of metropolitan land-use planning demon­ strated, were- administrators willing to subject their programs to such planning? Two questions were asked: 1. Assuming statutory authorization, would it be practicable to include in your program a somewhat higher federal share for projects that are consistent with comprehensive areawide development plans than for other projects? 2. Should your grant program be amended to require that projects having an areawide impact meet the needs of a number of jurisdictions and/or that they be consistent with metropolitan development plans? Among those administering metropolitan aid or grant programs the highest affirmative response to the first question, using various tabulation schemes, was only 27 percent. On the second question, affirmative responses dropped as low as 5 percent. Clearly, federal aid administrators are overwhelmingly opposed or indifferent to "coordination." They are unsympathetic with efforts to inject a stronger intergovernmental viewpoint into the administration of their programs. According to the subcommittee study, functionalism, professionalism, and indifference are not the only factors governing the-ir responses: ... most of this distrust is rooted in fear-fear of change, fear of delay, fear of dilution of individual program goals, fear of meddling by inexpert generalists, fear of dual or triple supervisory procedures, and fear of diminution of bureau and ,agency autonomy.16 In its conclusion, the subcommittee characterized this defensiveness as "standpattism." 17 We suggest that the term "protectionism" sums up better the defensive', status quo, and resistance-to-change views of federal aid officials.

Summary We concur with the Senate subcommittee study in suggesting that four perceptual themes persist among the manage-rs of federal aid

16 Ibid~, p. 92. 17 Ibid:, p. 94. 88 programs: (1) functionalism, (2) professionalism, (3) protection­ ism, and (4) indifference. The functional focus of administrators was to be expected. What was not expected was their excessive pre­ occupation with program politics, their tunnel vision and their con­ sequent insensitivity to the complexities of intergovernmental rela­ tionships. Single-mindedness, while occasionally laudable, has severe shortcomings in dealing with political complexity. Professionalism reinforced the functional outlook of the adminis­ trators. They displayed a deep and commendable commitment to professional ethical standards, specialized competence, the merit system, and the upgrading of program performance at all levels of government. But this syndrome produced a distrust of partisan policy influences on their programs and a special dislike for "med­ dling" generalist administrators seeking to coordinate grant programs with other ongoing activities. The aid administrators saw inter­ governmental coordination in a single program sense, preferring to deal only with their functional counterparts at other governmental levels. And even here, there was a note of disdain: they were con­ scious of their senior role and specialized competence through which they hoped to upgrade their state and local counterparts. A distinctly protectionist note crept in when questions about changed procedures and policy innovations were asked. Administra­ tive inclinations toward stability and continuity are widely recog­ nized, and certainly necessary to some extent. But the aid adminis­ trators exhibited these tendencies in an unusual degree: they rejected as ill-considered several possible changes in grant procedures designed to alleviate friction from the state and local governments' standpoints. Their indifference to intergovernmental matters is attributable partly to functionalism, professionalism, and protectionism, and partly to ignorance. It also stems from the security of the positions they hold, from the needed expertise they bring to the programs they administer, and from their view that many major questions and problems involving intergovernmental relations are the respon­ sibility of others. Let George do it! The significance of grant administrators' perspectives deserves em­ phasis. These administrators constitute more than just one of the three legs in the "triple alliance" of grant enactment. They are a 89 prime source of ideas for program changes, and their views often make the critical difference in decisions on pending legislation. In addition, congressmen look to thenl for policy innovations. The prime lesson that emerges from the subcommittee survey is that the Congress cannot obtain necessary advice about intergovernmental problems from federal administrators. Perhaps none of the tradi­ tional channels of information are adequate for its purposes, for certainly its current informants are heavily biased. In the grant-in­ aid field this means a bias toward more specialized, categorical grants. Important alternative approaches are ignored, as are mar­ ginal adjustments such as new program coordination mechanisms. The brunt of the blame, however, cannot be laid legitimately at the feet of federal administrators. Grant programs cannot be created and expanded without the continuing assent of the Congress, and this assent has been amply demonstrated by roll-call analysis and fiscal and numerical trend data. The data show that Repub­ lican opposition to categorical grants, while general and substantial, has not been as uniform and consistent as Democratic support. Moreover, the mainspring of the Republican opposition appears to have been "anti-spending" rather than "the strategy of the con­ structive alternative." There appear to be only two ways to break the lock-step approach in which we are caught. First, significant numbers of the majority party could become convinced that the categorical aid device demands revision. Or second, the minority party could become the ma­ jority and, in the process, commit itself to the pursuit of sensible alternatives. In any event, it will be necessary for the Congress to obtain, on a more regular and systematic basis, the broader views of intergovernmental relations that are necessary to intelligent legis­ lation in a federal system. A key source of such views will be state and local officials-to which we turn our attention in the next chapter.

VII. PARTICIPANTS' PERSPECTIVES: STATE AND LOCAL LEVELS

HIS CHAPTER CANNOT begin to fulfill the pretensions of its title. T Data on the perspectives of most of the state and local participants in grant-in-aid programs either do not exist or would be very expen­ sive to obtain. Necessarily, therefore, we have restricted our inquiry to three groups: governors, state administrators, and a conglomerate group of local officials.

Governors and Grants The position of governors in relation to the new federalism of grant-in-aid programs is anomalous and ambiguous. Since grants supply a major portion of state budgets, it would border on political suicide for governors to oppose or refuse to accept them. Indeed, there are positive political payoffs from a governor's standpoint in obtaining as much federal aid as possible. Federal grants do help meet demands for services and, perhaps more importantly, are generally regarded by voters as a way of keeping state taxes down. But grants have disadvantages because they restrict the range of policy choices open to the governor. In fact, restriction is inherent in the grant device, since each federal grant program stems from a national decision to promote certain aims on a national scale through the grant mechanism. Policy restraints on the governor operate not only between programs, but also within those particular programs

91 92 that include several detailed grant categories or prescribe administra­ tive standards sharply limiting flexible and effective use (from the governor's viewpoint) of grant funds.

An additional element of restraint on the governor comes from a combination of two factors-( 1) pressure groups, either the tradi­ tional private lobbies or those composed of public officials, and (2) the fact that frequently the fields supported by grants are partially insulated from gubernatorial control through the device of a board or commission. Highways provide an example: in this area policy control usually rests less with governors than with alliances of high­ way engineers at all levels and construction contractors; and the administrative consequences of grants-in-aid tend to reinforce this dispersion of executive power. In short, the governors' policy coor­ dinating role is often diluted or effectively blocked.

Coleman Ransone, in a succinct analysis of these cross-pressures, raises the central question being asked by most governors, "the new federalism-bane or boon?" Two of his conclusions are: In practice, therefore, the governor finds that his policy decisions are conditioned by the policy decisions which have been made in Washington. ... The governor, to a considerable extent, is bypassed in the line of communication and finds that his control over both policy and management of the agencies which administer these [grant] programs at the state level is weakened con­ siderably.1

Grants-in-aid, then, assuredly contribute to the headaches governors suffer in performing their political and administrative leadership roles.

What do governors think about grant programs? Unfortunately, the data are exceptionally limited. We lack, for example, any sys­ tematic analysis of the frequency and substance of governors' testi­ mony before congressional committees or their interactions with the President and cabinet officers.

1 Coleman B. Ransone, Jf., The Office of Governor ill the United States (University, Alabama: University of Alabama Press, 1956), pp. 249-50. 93

Two surveys have solicited governors' views on a range of questions on grants-in-aid.2 The first, sponsored by the House Subcommittee on Intergovernmental Relations in 1957, asked detailed questions in four functional areas: employment security, highways, public health, and welfare (Table 19). The number of responses ranged from 20 to 30. Although some reservation exists about the extent to which the responses represent the views of the governors rather than of their program officials, it appears that all responses were cleared through the governors. Regarding program adequacy, there was major sentiment favoring expansion in all four functional areas. Clear majorities were satis,fied with federal supervision but a notable minority in three areas indi­ cated some dissatisfaction. A substantial minority favored some transfer of responsibility, mainly in the direction of a greater state role. The two questions regarding the need for legislative or admin­ istrativechanges pointedly demonstrated the ambivalence present among governors with respect to grant programs. Almost uniformly, the governors noted that these kinds of improvements were needed­ at the federal level. These views stand in sharp contrast to their support for program expansion and their general satisfaction with program responsibilities and federal supervision. The general re­ sponse pattern, although dated and admittedly limited in scope and representativeness, documents the difficult position of the governor under the "new federalism." We could speculate at length about the impact of the two newer types of fede'falism, Le., direct and private. Suffice it to say that the continued .proliferation of grants by number and type has undoubtedly added to the complexities of his position.

The second survey, undertaken by the Senate Subcommittee on Intergovernmental Relations in 1963, queried 6,000 state and local

2 The two surveys were quite different in terms of content and respondents covered. See Replies From State and Local Governments to Questionnaire on Intergovernmental Relations, Sixth Report by the Committee on Government Operations, U.S. House of Representatives, 85th Congress, 1st Session, House Report No. 575, June 17, 1957, and The Federal System as Seen by State and Local Officials, a study prepared by the staff of the Subcommittee on Intergovernmental Relations of the Committee on Government Operations, U.S. Senate, 88th Congress, 1st Session (Committee Print) 1963. Also, Ransone's analysis of governors and federal grants was quasi-systematic in that he used a semi-structured interview as a basis for talking with governors in a majority of the states. \0 TABLE 19 ~ Responses of State Governors to Questions Regarding Grant Programs in Four Functional Areas, 1957 Adequacy of Program Federal Supervision Total Functional Area Number a Adequate Expand Reduce Eliminate Satisfactory Unsatisfactory Public welfare 32 9 17 1 1 21 6 Highways 26 1 15 0 0 19 1 Public health 22 7 10 0 0 15 5 Employment security 21 6 8 0 0 13 4

Legislation Administrative Transfer Responsibility Urgently Needed Measures Needed Functional Area Yes, to- No Yes No Yes No -- Federal State Local Federal State Federal State Public welfare 2 7 0 19 24 1 1 20 3 2 Highways 0 8 1 10 12 0 3 9 3 2 Public health 0 4 3 7 17 0 2 14 3 2 Employment security 1 9 0 10 14 1 0 13 2 1

a Replies to individual questions may not equal totals because respondents did not answer all questions.

Source: Replies From State and Local Governments to Questionnaire on Intergovernmental Relations, Sixth Report by the Com­ mittee on Government Operations, U.S. House of Representatives, 85th Congress, 1st Session, House Report No. 575, June 17, 1957, p. 4. 95 officials, including all governors. The response rate was very poor generally (8 percent), and only nine of the 50 governors responded. Since it would be hazardous at best to represent these nine as typical of the 50, no overall conclusions regarding governors' views can be drawn. Not surprisingly, however, the responses fitted the pattern revealed by the earlier House subcommittee survey. For example, six of the nine governors mentioned additional functions that should receive grant assistance and the same number wanted reassignment of some responsibilities under grant programs to the states. Con­ versely, five felt that grants distorted the emphasis of state and local programs and eight of the· nine agreed that federal grant requirements hampered organizational flexibility at the state and local level. Responses to numerous other questions fitted a similar mold. In general the governors acknowledged the political and program­ matic advantages of grants but were quick to point out the financial and administrative problems that almost invariably accompanied them. Two quotations provide examples of the types of problems encountered. The first involves the "single agency" rule. Simply put, this rule specifies that the particular grant program must be administered by a single state agency with sole responsibility for the activity. The difficulties it creates are illustrated by the attempt of Governor Mark Hatfield of Oregon to develop a plan to reorganize the state functions for which he was constitutionally responsible. Presented by the Governor to the legislature in 1961, the plan called for six major departments: Labor, Natural Re­ sources, Public Safety, Transportation and Public Utilities, Commerce, and Social Services. Only the last named de­ partment met ·with any difficulties with respect to grant requirements. The Oregon plan contemplated a state agency similar in program responsibilities to the federal Department of Health, Education, and Welfare. The Governor would ap­ point the Director of Social Services who would appoint division heads responsible for administration of health, mental he'alth, public assistance, veterans' affairs and voca­ tional rehabilitation programs. The plan also provided that administrative decisions of the respective divisions would be reviewed by the Director of Social Services. 96

The proposed reorganization plan was questioned by federal administrators on three grounds: (1) that it inter­ posed between the Governor and the administrators of aided programs the Director of the Department of Social Services; (2) that it provided for appointment of adminis­ trators of aided programs outside the merit system; and (3) that administrative authority would be subject to re­ view beyond that of the respective divisions. An addi­ tional obstacle presented itself in the case of vocational rehabilitation in that the federal law specifies that, to be eligible for federal assistance, the general vocational re­ habilitation program must be administered or supervised by the vocational education agency or an agency primarily concerned with vocational rehabilitation. No cure appears feasible here other than amendment of the federal law.

In brief the barrier that the Oregon reorganization plan met was the "single state agency" concept. Departmental concern was expressed that the Oregon approach failed to lodge final administrative responsibility in the several ad­ ministrative units or divisions of the Department of SocIal Security Act's public assistance and child welfare provi­ sions and the Public Health Service Act's venereal disease control, tuberculosis control and general health services provisions and its hospital construction provisions. The Department of Health, Education, and Welfare has suggested that the state amend its plan to either (1) make the Department of Social Services the "single state agency" responsible for final administrative decisions respecting policies, rules and regulations and for final administra­ tive hearing decisions or (2) make the severa~ divisions autonomous units, each of which would be a "single state agency" with respect to ihe federally aided program it administered. Neither alternative is acceptable to Oregon.3

This example is described in a special report to the 1962 Gover­ nors' Conference. That report, which cited the single agency rule as the chief federal deterrent to state administrative reorganization,

3 Council of State Governments, State Goverllnlell! Organization and Fed­ eral Grant-In-Aid Program Requirements (Chicago, 1962), pp. 16-17. 97 was authorized by the 1961 Governors' Conference where a resolu­ tion was passed deploring "the tendency of federal agencies to dictate the organizational form and structure through which the states carry out federally supported programs."4 The second quotation is a broadside, aimed at not one but the full range of objections and exasperations. It is from a speech to the 1958 Governors' Conference by Orville L. Freeman, then gov­ ernor of Minnesota and subsequently secretary of agriculture. There are many deficiencies in Federal-State relations. We should seek to identify them and to develop sensible recommendations for their correction. We should, in other words, analyze what Professor Grodzins has called the "squeak" points in intergovern­ mental relations and how they impair the operation of the Federal-State mechanism. We should examine such condi­ tions and problems as the following: ( 1) Because Federal appropriations are voted on an annual basis and many States operate on biennial budgets, the States experience great difficulty in planning their pro­ grams involving Federal aid. They do not know how much will be available until Congress has acted. (2) The large number of separate Federal aid programs introduces a chaotic note in State budgeting, tending to impair the maintenance of the executive budget. Some kind of coordinated activity at the Federal level would enable the States to participate in Federal-aid programs on a more planned and more integrated basis. (3) Federal aid programs tend to skew State financial programs in favor of those activities that have federal sup­ port. When a State can, in effect, obtain $2 by the expendi­ ture of $1, such programs obviously will be given preferen­ tial treatment. This makes it important to assess at some point the total impact of all Federal aids upon the State's overall financial program. (4) Another skewing effect results from the tendency of

4 Ibid., p. 40. 98

some Federal aids to favor certain groups of citizens. For example, in the welfare field persons who qualify for Federal aid categories, such as aid to the blind or aid to dependent children, almost everywhere have a favored posi­ tion over those who qualify for only general relief. (5) Some of the worst fe·atures of bureaucratic control are manifest in the Federal-aid programs. Some adminis­ trative forms are so complex that they make administration unnecessarily unwieldy. Often great amounts of irrelevant information are required. States frequently experience troublesome delays in obtaining needed decisions from regional and national offices. Sometimes authority to act in behalf of Federal agencies is not clearly spelled out; at times Federal agents will be too indecisive, at other times too arbitrary. (6) The many Federal-aid programs are conceived, established, and managed independently of each other. No central or single mechanism coordinates programs which often affect each other. The Joint Action Committee might very well consider establishment of an administrative mech­ anism at the national level that would be responsible for bringing the numerous aid programs into balance with each other and for helping States maximize their participation in the aid programs. (7) A top-level reviewing mechanism would prevent the sudden springing of a new Federal-aid program without full preparation on the part of both the States and the Federal administering agencies. In 1956 when Congress approved $5 million for aid to rural libraries the Department of Health, Education, and Welfare was taken by surprise and was completely unprepared for its administration. Aid pro­ grams often result from pressures applied on Congress by particular interest groups. States will suddenly discover that still another aid program has been created without their consultation. The legislature must either vote a matching appropriation or face criticism for failing to take advantage of Federal aid. (8) The scope and complexity of Federal-aid programs, 99

proceeding as they do through the labyrinthian bureau­ cracy, is making it increasingly difficult for States and their subdivisions to maintain sensible communication and to obtain essential information concerning available aids. Many jurisdictions fail to participate in Federal programs because they do not have personnel who are familiar with the programs or who can master the bureaucratic intricacies. (9) Federal programs that deal directly with municipal­ ities sometimes unsettle the State's relationship with their subdivisions. Direct Federal-local arrangements should exist only when the State provides no suitable mechanism for the Federal-aid program. By describing the "squeak" points in intergovernmental relations I do not mean to suggest that there is much evi­ dence on the part of the States of basic ~dissatisfaction with Federal programs. One of the revealing aspects of the many intergovernmental studies is the lack of criticism on the part of States concerning on-going Federal programs. We recently conducted a survey in Minnesota to evaluate the effectiveness of Federal programs. Our administrators uniformly approved the programs and voiced apprehension over any prospective diminution in them. 5 Resolutions of governors' \conferences are an additional source of systematic data on governors' views about federal-state relations.6 Of the 160 formal policy resolutions passed by such conferences in a 20-year period, 1946 through 1966, 24 relate either directly or indirectly to grants-in-aid. These resolutions were about evenly balanced between favoring expanded grant programs and criticizing grant implementation requirements, thus confirming the findings discussed above. Carrying the analysis one step further, we examined the policy action called for in each of the 160 resolutions. Did the resolution urge more federal activity, or less? More state activity, more local

5 To Establish all Advisory Commission on Intergovernmental Relations, joint hearings before the Intergovernmental Relations Subcommittee of the House Committee on Government Operations and the Senate Committee on Government Operations, 86th Congress, 1st Session, June, 1959, pp. 187-89. 6 The resolutions used in this analysis were obtained from the fall issues of State Government. 100 activity, or more interstate action? The results, tabulated in Table 20, indicate that the governors were about equally disposed to recommend more federal action (68 resolutions) and more state action (73 resolutions). A lesser but significant number of resolu­ tions (26) called for less federal activity. However, more resolutions urged greater joint or interstate activity than less federal involve­ ment. The governors evidently, and perhaps realistically, have more confidence in "horizontal" federalism than in efforts to turn the clock back regarding federal activities.

TABLE 20 Resolutions of the Governors' Conference by Policy Action Recommended, 1946-66

Number of Resolutions Less federal activity 26 More federal activity 68 More state activity 73 More local activity 15 More interstate activity 34

::: Adds to more than 160 because some resolutions recommended in more than one policy action. Source of resolutions: State Govenl1nent, 1946-66.

State Administrative Officials and Grants

Somewhat surprisingly, there is a moderate amount of systematic data on state grant administrators. The first known survey was conducted by a committee of the National Municipal League in 1928.7 At that time federal grants totaled only $100 million and the survey covered only 264 state grant executives in six program areas-forestry, agricultural extension, highways, national guard, vocational education, and child hygiene. Twenty years later, when the Council of State Governments (COSGOV) repeated portions of the survey, grants approximated $2 billion and over 500 state grant

7 Report of the Conlmitfee on Federal Aid to the States of the National Municipal League, Supplement to the National Municipal Review, October, 1928, pp. 619-59. 101 executives in ten major program areas were contacted.8 Over 300 responded. Responses to the three questions asked in both surveys are shown in Table 21. Executives' judgments on stimulation and on the positive effects of federal supervision showed no significant change between 1928 and 1948. Over 90 percent agreed that grants stimulated state activity and more than two-thirds felt that federal supervision improved state standards. The 20 years, however, did produce a marked rise in the percentage of state administrators who believed grants led to "interference" in state affairs. The direction in which this percentage has moved since 1948 will be disclosed by a survey planned by the author in 1968.

TABLE 21 Responses of State Executives in Federal Grant Programs, 1928 and 1948 Percent Responding "Yes" (and total number Questions of respondents) 1928 1948 Have federal grants stimulated state ac­ 90.9 93.8 tivity with respect to the aided programs? (264) (325) Has federal supervision improved state 68.6 70.3 standards of administration and service? (264) (317) Has federal aid led to interference in 6.1 35.8 state affairs? (264) (321) Source: Council of State Governments, Federal Grants-in-Aid: Report of the Conlnlittee on Federal Grallts-in-A id (Chicago, 1949), p. 280.

The 1948 COSGOV survey posed seven other grant-related ques­ tions whose results are tabulated in Table 22. The dominant theme is satisfaction with existing financial arrangements and support for grant expansion. This is not surprising, given administrative pro­ clivities toward the status quo organizationally, and toward expan­ sion programmatically. In some respects state grant executives think like their federal counterparts. They depart in cetain ways, however, from the general pattern of administrative protectionism and bureau-

8 Council of State Governments, Federal Grants-In-Aid, Ope cit., pp. 274-81. 102 cratic imperialism. For example, nearly 90 percent thought that federal grants should be subject to the same kinds of budgetary controls as general state revenues and expenditures. The near unanimity with which this objective is endorsed is remarkable in view of the lack of progress in achieving it.n Apparently opposition to the objective lies not with state grant-in-aid executives, who appear to favor financial controls that could conceivably run counter to their program interests. Moreover, a significant minority of 30 percent indicated that, from their viewpoint, federal grants led to an imbalance among state programs. This result of grants, fre-

TABLE 22 Responses of State Executives in Federal Grant Programs, 1948 Total Percent Number of Responding Respon- Questions a HYes" dents Should federal grants for the program be increased? 77.6 299 Should the system of federal grants be ex­ panded, i.e., new programs added? 51.6 277 Are existing provisions relative to matching arrangements satisfactory? 73.9 268 Are existing provisions regarding the apportion­ ment of funds among the states satisfactory? 68.6 290 Are existing provisions relative to the allocation of funds among the various portions of an aided program satisfactory? 78.0 241 Should federal aid be subject to the same financial control as other state funds? 87.8 312 Does federal aid tend to unbalance overall state programs? 28.5 298

a The wording of some questions has been changed slightly to facilitate tabular presentation. Source: Council of State Governments, Federal Gra/lts-i/l-A id: Report of the Conlmittee Oil Federal Grants-in-Aid (Chicago, 1949), pp. 276-80.

n A recent catalog of friction or "squeak" points was prepared for the National Association of State Budget Officers, Federal Grant-In-Aid Require­ ments lrnpedillg State Administration (Chicago: Council of State Govern­ ments, November, 1966). 103 quently called the "distortion effect," has long been discussed but, as we noted earlier, it has rarely been objectively identified and operationally measured. Here the effect is acknowledged by execu­ tives most likely to be aware of it but also most likely to benefit from it in terms of their own programs. Given these circumstances it is perhaps surprising to find so many administrators admitting its existence. Perhaps, they were responding to intra-program im­ balances created by grants in their own agency and not to imbalances in "overall state programs." Two recent studies furnish additional data about state executives' attitudes. A 1963 study surveyed nearly 1,400 department and agency heads in all 50 states. 10 The response rate was 69 percent representing about 930 replies, including 310 from executives respon­ sible for programs involving federal aid. A 1965 study focused in depth on executives in two states, Iowa and Minnesota.11 It asked several questions used in the 50-state study, plus additional ones on different intergovernmental matters. The response rate was slightly above 60 percent-274 replies from Iowa and 206 from Minnesota. In all three samples, about one-third of the administrators were serving in departments where federal aid constituted 50 percent or more of the budget. This fact, incidentally, underscores the previous fiscal data demonstrating the heavy reliance of the states on federal grants. The results of these surveys, shown in Table 23, indicate only moderate variations and a surprising amount of similarity, considering the diversity of the executives. In all three instances, substantial numbers believed that federal grants were stimulative in character, but, interestingly, the percentages were considerably smaller than in the 1928 and 1948 surveys. The difference may be accounted for in two ways. First, the earlier surveys simply asked whether state activity was stimulated by grants but, in the two recent surveys, stimu­ lation was defined more precisely to mean that grants increased the amounts raised by the state. A second possibility is that federal grants may no longer be, or thought to be, as strongly stimulative as

10 Deil S. Wright and Richard L. McAnaw, American State Administrators (Institute of Public Affairs, University of Iowa, January, 1965), mimeo. 11 Deil S. Wright and Catherine D. Papastathopoulos, State Executives In Iowa and Minnesota (Institute of Public Affairs, University of Iowa, October, 1967), mimeo. 104 they once were. Expansion in the scope and magnitude of federal grants may have shifted their impact toward additive or substitutive effects. In this event the changed views of state executives would reflect actual changes in the effects of grants on state programs. (Like the distortion issue, the question of whether grants are actually stimulative or not remains to be determined by objective fiscal data.)

TABLE 23 Views of State Executives on Federal Grants-In-Aid, Nationally and for Iowa and Minnesota, 1963 and 1965 Nation- Minne- ally Iowa sota Questions (1963) (1965) (1965) (percent responding "yes") Do federal funds increase the amount of funds raised by the state? 52 47 38 Does federal aid seem uncertain and difficult to estimate? 40 34 51 Is your agency less subject to supervision and control by the governor and legis­ lature because of federal aid? 50 63 48 If federal aid did not have restrictions on how the money is spent would you allo­ cate the funds differently from the way they are presently spent? 54 51 52 N == (approximately) (300) (150) (120) Sources: Deil S. Wright and Richard L. McAnaw, American State Adminis­ trators (Institute of Public Affairs, University of Iowa, Iowa City, Iowa: January, 1965), mineo. Deil S. Wright and Catherine D. Papastathopoulos, State Executives in Iowa and Minnesota (Institute of Public Affairs, University of Iowa: October, 1967), mimeo.

One administrative problem often mentioned at the state level is the uncertainty of estimating available federal funds. One-third to one-half of the executives in each of the three groups affirmed this uncertainty. We have no data from other times or places to document any trend. Several references have been made to the independence, or insula­ tion from policy control, of administrators at all levels in the grant- 105 in-aid field. Initial skepticism that grant administrators would re­ spond candidly about their own independence was dispelled by the large numbers who freely acknowledged that, because of federal aid, they felt less subject to the supervision and control of state policy organs-the governor and legislature. Nationally and in Minnesota, approximately half concurred with this view. In Iowa, where the governor has weaker formal powers than in Minnesota, the proportion exceede-d 60 percent. It would be difficult to imagine a ,clearer demon­ stration of the policy and administrative impact of federal grants on state government. How do state executives feel about the distortion effects of federal grants? Avoiding the possibly prejudicial word "distortion," we simply asked if funds would be allocated differently in the absence of grant restrictions. In all three groups, a slight majority said "yes." In other words, a substantial number of state executives tends to believe- that the allocation of fiscal resources brought about by fed­ eral grant programs is not the most desirable, that present federal "strings" are inappropriate and/or unwise. One remarkably consistent theme persists throughout these recent surveys. That theme might, for lack of a better term, be called "modal centrist," that is, the percentages hover around 50. Since these percentages relate to only the affirmative half of the respon­ dents, the centrist pattern actually represents a fairly sharp division of opinion among state executives regarding the effects and relation­ ships engendered by federal grants. In one sense the state grant executive is like the governor. He sees benefits from grants but finds the constraints, complications, and consequences far less than desirable. This finding of sharp role conflict is supported by the pattern of affirmative responses to two questions asked only in the Iowa-Minne­ sota study: Iowa Minnesota Do you think federal grants-in-aid have had overall desirable effects on state government? 61% 60% Do you favor the federal government sharing unrestricted tax revenues with the state? 42% 51% 106

Again we note the modal centrist pattern. There appears to be no clear-cut consensus regarding grants among the state executives responsible for their execution. What general conclusion follows from this analysis of state execu­ tives' views? The conclusion was partially stated in the 1966 COSGOV study of federal grant requirements that impede state administration: The problems described above are each significant to the state administrator affected. The fact that the problem is stated represents a genuine concern that a federal require­ ment goes beyond those necessary for effective administra­ tion. It also represents an administrative situation that, if left unattended, could result in inefficient operations, loss of morale, and less accomplishment in the program. The listing of problems, however, should not obscure the fact that, within the framework of the categorical grant system, much satisfaction also exists. Many state adminis­ trators reported that they were generally satisfied with their relations with national administrators. The fact that fed­ eral aid programs have worked successfully for fifty years would indicate that there are more satisfactions than com­ plaints.12 Our empirical data require qualification of the final statement that "there are more satisfactions than complaints." A more accurate conclusion would put more emphasis on the ambivalence of state administrators toward federal grants.

Local Officials and Grants When we turn our attention to the many different types of local officials, we face two difficulties. The first is selection: which group should be surveyed or should all local officials be lumped together into a composite but polyglot group? The second is simply the paucity of attitudinal data available for any particular group or for the aggregate. Several studies on intergovernmental relations have focused on

12 Federal Grant-In-A id RequirefnefltS Impeding State Administration, Ope cit., pp. 20-21. 107 local officials. 13 Unfortunately, they have been highly restricted in terms of place, type of official, subject matter focus, and compara­ bility with other research. The one that commands attention, because of its comprehensiveness and subject matter, was conducted by the Senate Subcommittee on Intergovernmental Relations in 1963, and published under the title The Federal System as Seen by State and Local Officials.14 This study has several limitations. First, the re­ sponse rate was only 8 percent (less than 500 out of 6,000). Second, the questions were broadly-phrased, open-ended, and sometimes ambiguous and, therefore, the responses could be subject to varying interpretations. Third, respondents were categorized in terms of attitudinal positions viewed as modal points along a horizontal spec­ trum of attitudes about federal grants and the federal system.15 These positions were assigned highly value-laden labels. One should be cautious, therefore, about reading too much operational meaning into the characterization of the attitude positions. Despite these limitations, this study offers the best available data for generalizing about local officials' attitudes on grants in particular and on the federal system in genera1. 16 Four attitudinal categories were drawn from the varied responses. The first was termed "Orthodox States Righters." This group's ideo­ logical position was consistent with the classical tenets of dual federalism-a view of the federal system that emphasizes the sepa­ rateness of the various levels of government. These respondents con­ tended that no new grant programs should be initiated and that most of the existing ones should be terminated. The "Neo-Traditionalists" shared with the first group many states'

13 See as examples: Weidner, Ope cit.; Vincent V. Thursby and Annie Mary Hartsfield, Federal Grant-ln-A id Programs in Florida (Tallahassee: Institute of Governmental Research, Florida State University, 1964), and H. Paul Frie­ serna, Communications, Coordination, and Control Among Local Govern­ ments in the Siouxland-A Study of Intergovernmental Relations (Iowa City, Iowa: Institute of Public Affairs, The University of Iowa, 1965). 140p. cit., note 2 supra. 15 The subcommittee staff interpretation imposes a one-dimension linear model on local officials' attitudes toward grants and the federal system, whereas probably a multi-dimensional and perhaps non-linear model would have been more appropriate. 16 About three-fourths of the respondents to this survey were county, city, and school officials. Therefore, the survey is treated here as essentially one of the attitudes of local officials. This discussion relies heavily on pp. 203-15 of the committee staff study. See also David B. Walker, "Federalism Today," National Civic Review, November, 1964, pp. 535-39. 108 rights, anti-centralist sentiments, but what set them apart was their reality-oriented attitude. When confronted with existing relationships and specific issues among governmental units, they bowed to practi­ cality (or the status quo). They accepted the existing (1963) levels of grants, albeit reluctantly, and acknowledged that the federal gov­ ernment had an appropriate but restricted role in using the grant device and other techniques to alleviate certain common problems.

The third category was composed of the "Pragmatic Cooperative Federalists." Avoiding any general ideological commitments, these respondents appeared to be driven by circumstances or the particu­ larities of their official positions to embrace the "marble-cake" view of the federal system. Their acceptance of the work-a-day necessi­ ties of intricate federal-state-Iocal relations did not preclude criticism of existing patterns and relationships. Such criticism, however, fell within the context of cooperative federalism and lacked a general principle from which to challenge further extensions of federal power via grants of other devices. This position is common among many public officials and has been articulately advanced by the late Profes­ sor Morton Grodzins. The fourth category, the "New Nationalists," expected the federal government to play a major role in resolving public problems and viewed state and local governments with skepticism, if not distrust. None of these respondents elaborated arguments favoring a unitary system, but none suggested a reduction in the role of the national government or in the present role of state and local governments. However, the "New Nationalists" did oppose, or reject, most of the measures offered to strengthen the power position of state and local governments. They strongly supported further use of grants as a highly appropriate technique for asserting the senior role of the national government. Where did the respondents to the survey fall along this spectrum? What are the implications of the distribution? Firm interpretations are risky because of the low-response rate and the soft character of the original data. The results of the survey are presented in Table 24. The two extremes are about evenly divided and, when combined, constitute only about one-fourth of the respondents. The "Prag­ matic Cooperative Federalist" category represents about a third and, surprisingly, the "Neo-Traditionalist" holds a plurality position. 109

Added together, the two middle groups dominate local participants' perspectives toward American federalism.

TABLE 24 Attitudinal Positions of Local Officials Concerning the U.S. Federal System Orthodox States Righter 11 % Neo-Traditionalist 43 Pragmatic Cooperative Federalist 33 New Nationalist 13

100% Source: The Federal Systenz As Seen By State and Local Offi­ cials, Subcommittee on Intergovernmental Relations, U.S. Senate, 88th Congress, 1st Session (Committee Print), 1963, pp. 203-05. To what extent do these two groups share common ground and an operating theory of our federal system? The Senate subcommittee study pointed to overlapping viewpoints on many practical present­ day problems and explained the overlap by the "realism" of the one group and the "pragmatism" of the other. In its conclusion, the study outlined the components of a composite operating theory: 1. As a practical matter, Federal, State, and local gov­ ernments are viewed as loosely related parts of one overall system. Each level, however, vigorously main.tains its sepa­ rate institutional identity and freedom of action in policy­ making. 2. The domestic functions of government are not neatly parceled out among the three levels; instead, several gov­ ernmental activities are assumed jointly by each govern­ mental level with significant and continuing responsibilities being assumed by all. 3. Decisionmaking in the intergovernmental process is shared fairly equally among various public bodies on the three planes, thus preserving a cardinal principle of tradi­ tional federalism. 4. The administration of programs of joint concern is a mutual undertaking. Such devices as joint boards, joint 110

inspection, the sharing of specialized information and use of another level's technical personnel reveal the benefits of this collaboration among equals; competition rather than collaboration, however, is produced when administrative regulations are unilaterally imposed. ... 5. The Federal grant-in-aid ... provides a necessary means whereby the three levels of government can col­ laborate to fulfill common purposes. If not encumbered with excessive administrative redtape, it can also serve to strengthen State and local governments, since it utilizes the existing institutional framework for administering these activities of common concern. 6. Representative, responsive, and responsible State gov­ ernments are vital for the proper operation of American federalism. They have a vital role in collecting a sizable proportion of total revenues, directly administering several important governmental services, providing vital assistance to their local units of government, and serving as political laboratories for testing new policies. 7. When properly empowered, financed, and aided, county and municipal governments singly and in volun­ tary association with one another can meet many of the challenges that ubiquitous urbanization has created. 8. Intergovernmental relations should be viewed pri­ marily as a network of functional, financial, and administra­ tive arrangements which seek to advance the commonweal. Parity with respect to the power positions of the various levels is an indispensable ingredient for successful collabo­ ration in this area.... 9. Every level has a fundamental duty to preserve the interlevel balance, but a primary responsibility for imple­ menting this ideal rests with Congress. Its ... enactments constitute the greatest single force shaping the federal system under which we live. ... 17 This operating theory of our federal system-with its strong practical, non-ideological orientation-is the COlnmon ground underlying the

170p. cit., pp. 206-07. 111 views of the large majority of local officials. To some extent, it contradicts the implications of our state executive data, which re­ vealed the kind of growing disenchantment with the categorical grant-in-aid approach that could serve as a springboard for much­ needed reforms. On the other hand, given mounting evidence that the categorical approach is not functioning effectively, the local officials' commitment to practicality is likely to become- a force strengthening the case for basic reform.

VIII. STATE GOVERNMENT: STRENGTHS AND WEAKNESSES*

TATE GOVERNMENT is the main governmental mechanism through S which federal grants pass. Therefore, before examining alterna­ tives to current grant techniques, we should look briefly at the presumed strengths and weaknesses of the states. Less than two decades ago, state government was described as "the tawdriest, most incompetent, and most stultifying unit of the nation's political structure." It was fraught with "venality," "crim­ inal negligence," as well as "obfuscation, obsolescence, obstruc­ tionism ... and even outright dictatorship." 1 Intemperate words, perhaps, but nevertheless they reflect general attitudes toward state government in the late 1940s. A significant change has occurred since then. One indication is the interest in the so-called "Heller proposal" for returning substantial federal tax revenues to the states without conditions on how the money could be used. That this proposal could command, in 1964, both top-level White House review and support from the Republican presidential candidate suggests that state government has regained more status than is

* This chapter draws heavily on portions of the author's essay titled: Inter­ governmental Action on Environmental Policy: The Role of the States (Insti­ tute of Public Administration, Indiana University, 1967). 1 Robert S. Allen, Our Sovereign State (New York: Vanguard Press, 1949), p. vii.

113 114

ordinarily imagined. As an aside, the fact that the proposal and even the presidential task force report reviewing it were quashed by two strong interest groups, the AFL-CIO and the National Education Association, says something about the locus of power in intergov­ ernmental policymaking. What factors restrict effective state action? What are the trends and tendencies currently operating at the state level that have significance for the states' future? What are the strengths of the states? It has been traditional to emphasize the "middleman" position of the states in our federal system, most often as a way of downgrading f the role of state government. For example, Paul Ylvisaker set J forth criteria for a three-level, "proper" areal division of powers and noted that, on the basis of American experience, the middle tier "chronically seems to suffer in comparison with local and central governments, having neither the attachment of the one nor the pre­ possessing qualities of the other." 2 Ylvisaker's general impression tends to be confirmed by Belknap's and Smuckler's investigation into the interest, attention, and seriousness accorded to national, state, and local problems in one community. They found that state prob­ lems ranked far below either national or local problems-on all three counts, and among active community leaders as well as a general sample of residents. 3 The writings of Morton Grodzins, and especially his value orien­ tation toward "mild chaos," tended to give greater importance to state government. 4 But Grodzins did not attach major significance to state governments qua governments. The thrust of his work was to identify the informal influences operating in policy or administra­ tive problem areas with little regard for formal theories of the sep­ arateness of political units. In short, while he acknowledged the role of states (and local units too) as independent centers of political power maintaining "mild chaos," the chaos could be perpetuated,

2 Paul Ylvisaker, "Some Criteria for a 'Proper' Areal Division of Govern­ mental Powers," in Arthur Maass (ed.), Area and Power (Glencoe, Illinois: The Free Press, 1959), p. 36. 3 George Belknap and Ralph Smuckler, "Political Power Relations in a Mid-West City," Public Opinion Quarterly, Spring, 1956, pp. 73-81; and Lead­ ership and Participation in Urban Political AfJairs (East Lansing, Michigan: Government Research Bureau, Michigan State University, 1956). 4 Grodzins, "The Federal System," op. cit. See also Elazar, The American Partnership . .., Ope cit.; Grodzins, The American System .. .yOp. cit. 115 consistent with his theory, by alternate power centers. (It should be pointed out that Grodzins did not extend his analysis this far before his untimely death.) The extent to which Grodzins and other writers have failed to give due consideration to formal constitutional arrangements was recently discussed by Professor Martin Diamond.;; The attention that Diamond gives to formal legal arrangements serves as a useful counterweight to the heavy process emphasis in much recent research. Perhaps, a reformulation of the states' role will emerge from the confrontation of these formal and informal approaches. There are several additional reasons why the states have been accorded lesser prestige, significance, and prominence in our political system. 1. Organizational location. The "middleman" position of states, as already noted, affects state efforts to command citizens' attention. It has also been suggested that this position gives rise to institutional and political disabilities. As York Willbern has put it: "In many governmental activities the decisions made at the two ends of the process are more significant than those made in the middle." 6 The "middleman" position forces upon states an essentially facilitative, instrumental, and secondary (or tertiary) role. States may be called upon (or forced) to assist their local units in what is primarily a local program. Harvey Mansfield contends that the states "are infiltrated, sometimes spurred, sometimes paralyzed, by the interests of their organized legal creatures," and adds that state-local relations are "usually in fact federal whatever the theoretical plenitude of state powers." 7 To the extent that these views are accurate, signif­ icant decision-making power has been drawn upward to the national level and downward to the local level, with a resultant diminution in the basic political integrity of the states. 2. Structural-legal disabilities. Restraints on state action arising from diffusion of power and legal inflexibility has been a common theme in political literature. The 1955 report of the Commission on Intergovernmental Relations urged that states move ... to revise their constitutions, to modernize their legisla-

5 Diamond, Ope cit. 6 York Willbern, "The States as Components in an Areal Division of Pow­ ers," in Maass, Ope cit., p. 82. 7 Harvey C. Mansfield, "The States in the American System," The Forty­ Eight States: Their Tasks as Policy Makers and Administrators (The American Assembly, Columbia University, 1955), p. 15. 116

tive processes and procedures, to reorganize the executive branches ... to reorganize their tax systems, to maintain adequate planning and resource agencies, and to extend home rule to their political subdivision.8 Two political scientists, William Anderson and L. D. White, neither unfriendly to state government, have emphasized the urgency of constitutional reform.9 The same authors, along with innumerable others, also stress a closely related need, namely reapportionment.1o 3. Executive and administrative. In any competition for power, the advantage falls to the participant who can effectively use power. State governors, many have argued, cannot mobilize power vis-a-vis either the national government or other state-level participants in the political process; despite executive reorganization movements in the 19208, state administrations remain fragmented.!! L. D. White pointed to a related disadvantage: "The states, with some notable exceptions, do not command the administrative talent that is available to the general government." 12 4. Political tendencies and traditions. In a recent article, Press and Adrian attribute the "sickness" of state governments to the "small-town political tradition" that has been dominant in state policymaking. They recommend that this tradition, enthroned by misrepresentative legislatures, be reduced to its true minority status or "our state governments will remain sick, sick, sick." 13 Another "tradition," segregation in southern (and northern?) states, has been critically appraised by William Riker. He finds that the states have been the major vehicles for insuring advantages to southern segregationist whites and, in an arresting oversimplification, argues: "Thus, if in the United States one disapproves of racism,

8 The Commission on Intergovernmental Relations, Ope cit., p. 37. !) William Anderson, Intergovernmental Relations ill Review (Minneapolis: University of Minnesota Press, 1960), p. 138; L. D. White, The States and the Nation (Baton Rouge: Louisiana State University Press, 1953), PP. 56-67. 10 The literature on the apportionment of state legislatures is voluminous. An excellent "research anthology" has recently appeared under the title: Reapportionment, Glendon Schubert (ed.) (New York: Scribner's, 1965). A thorough analysis of legal, historical, and political aspects of apportionment in the immediate aftermath of Baker vs. Carr may be found in: Advisory Com­ mission on Intergovernmental Relations, Apportiollnlellt of State LeRislutllres (Washington: Government Printing Office, 1962). 11 Willbern, HAdministration in State Government," T he Forty-Eight States, ••. Ope cit. 12 White, Ope cit., p. 60. 13 Charles Press and Charles R. Adrian, "Why Our State Governments are Sick," A ntioch Review, Summer, 1964, pp. 149-65. 117 one should disapprove of federalism." 14 Wil1bern singles out two additional political tendencies present at the state level. The first is that nongovernmental constellations of power, i.e., pressure groups, are stronger vis-a.-vis the public sector at the state level than at the national or local level. (One might add that pressure groups are evidently nlore effective at the national level than are the states.) The second tendency, complementary to the first, is the enlphasis at the state level on restraint and restriction in the use of governmental power. According to Willbern, "liberty has tended to outweigh welfare as a value goal" at the state level, thus minimizing the opportunity for positive action. Hi This antipathy toward positive governmental action finds powerful expression in constitutional "thou shalt nots." Moreover, there is an equally strong informal commitment among many state leaders to the view that more governmental activity is bad, in and of itself. The writer recalls an argument used by a state legislator in opposing annual rather than biennial legislative sessions: "The legislature would meet twice as often and therefore pass probably twice as many laws, most of which would be unnecessary." Data collected in our 50-state survey of state administrators, discussed in detail above, supports the general point. When asked whether they thought "the current overall level of services and expenditures in your state should be expanded and increased," 30 percent responded "no" and two-thirds responded "yes." 1G The size of the "no" proportion is significant. Another political tendency that poses major problems for state governments is our old acquaintance, "functionalism." One of its consequences is the growth of contacts and shared loyalties among :functional specialists at national, state, and local levels. An advisory committee to the Commission on Intergovernmental Relations coined the phrase, "vertical functional autocracies," in an effort to describe and analyze this phenomenon.17 Coming at the problem from a different angle, Edward Weidner explored tensions between "pro­ grammatic" and "expediency" values in an intergovernmental con-

14 William Riker, Federalism: Origin, Operation, Significance (Boston: Little, Brown & Company, 1964), p. 155. 15 Willbern, in Maass, op. cit., pp. 77-82. 16 Wright and McAnaw, op. cit., p. 27. 17 Advisory Committee on Local Government, The Commission on Inter­ governmental Relations, Local Government (Washington: Government Print­ ing Office, 1955), p. 7. 118 text. IS His "expediency" value referred "to the preservation and extension of the power of units and levels of governments." Ex­ pediency goals held by elected officials (mayors, councilmen) and administrative generalists (city managers, clerks) conflicted with the programmatic goals held by the functional specialists responsible for executing particular state, county, or municipal activities. A second consequence of the powerful functional or programmatic forces at work in government has been the bypassing of state govern­ ments altogether on several programs. Urban renewal and airports (in some states) are good examples of dit ect national-local dealings. In The Economic Opportunity Act of 1964 carried "bypassing" one step further by authorizing grants directly to private organizations. 5. Fiscal. Constitutional tax and debt restrictions, limited fiscal capacities, interstate tax competition, heavy reliance on indirect and regressive consumption taxes, earmarked funds, administrative inade­ quacies, and geographical limits are a partial list of frequently-noted fiscal restraints upon states.:?o In addition, economists have contended that state (and local) finance is fiscally perverse in relation to the business cycle-that is, state-local spending, taxing, and borrowing follow a pattern that accentuates recessions and inflationary tenden­ cies. 21 Several recent analyses of the fiscal perversity and tax compe­ tition arguments suggest that qualifications, jf not substantial revisions, need to be made in our conventional wisdom on these points. 22

lR Weidner. op. cit., pp. 22ff. In Roscoe C. 1\1artin. The Cities and the Federal System (New York; Atherton Press, 1965). The Federal Government and the Cities, a collection of essays (Washington: School of Goverr:ment, Business and International Affairs, The George Washington University, 1961). For a discussion of func­ tionalism on the metropolitan scene, consult Robert C. Wood, HA Division of Powers in Metropolitan Areas," in Maass, Ope cit., pp. 53-69. 20 For an overview of fiscal problems in a federal system see Roy Blough, "Fiscal Aspects of Federalism," in Macmahon, op. cit., pp. 384-405. See also: Commission on Intergovernmental Relations, Report, Ch. 4; and Mansfield, op. cit. 21 Mabel Newcomer, "State and Local Financing in Relation to Economic Fluctuations," National Tax Journal, June, 1954, pp. 99-106; A. H. Hansen and H. S. Perloff, State and Local Finance in the National Economy (New York: McGraw-Hill, 1944), pp. 52-69. :!:! Morton S. Baratz and Helen T. Farr, "Is Municioal Finance Fiscally Perverse?" National Tax ]ounull, September, 1959, pp. 276-84; Jacob Cohen and Morton Grodzins, "How Much Economic Sharing in American Federal­ ism?" American Political Science Review, March, 1963, pp. 5-23; Robert W. Rafuse, Jr., "Cyclical Behavior of State-Local Finances," in Essays in Fiscal Federalism, Richard A. Musgrave (ed.) (Washington: The Brookings Institu­ tion, 1965), pp. 63-121; E. M. VanBruggen, "Local Property Tax Competi­ tion: A Statistical Analysis of Local Property Tax Relationships in Iowa, 1950 and 1960" (master's thesis, The University of Iowa, August, 1965). 119

Shifting from the debit to the credit side of the ledger, what condi­ tions and tendencies qualify the states for a more significant place in the political landscape? On fiscal matters in particular, sonle additional comments are appropriate. It has been amply demonstrated that state and local finances are inextricably intertwined.23 In 1966, of nearly $47 billion in total general revenue received by the states, almost $17 billion was remitted to local units and it constituted approximately 32 percent of all local government general revenues.24 It is equally interesting to note that a minor and unexpected revolution is taking place at the local level. Local property taxes yielded $8.3 billion in 1952 and $19.4 billion in 1963. This increase, 135 percent over an II-year span, matched or exceeded the increases in several other revenue categories: local revenues fronl state governments (134 percent), state sales and gross receipts taxes (125 percent), federal individual income taxes (70 percent), federal corporate income taxes (2 per­ cent), and federal sales and excise taxes (52 percent).2G These figures are consistent with the general thesis advanced by Alan K. Campbell that state-local expenditures and revenues are the "most dynamic sector" of our economy.2G Studies demonstrating the resil-

23 Seymour Sacks, Robert Harris, and John J. Carroll, The State and Local Government . .. The Role of State Aid (Comptroller's Studies in Local Fi­ nance, No.3, New York State Department of Audit and Control, 1963). See also: Seymour Sacks and Robert Harris, "The Determinants of State and Local Government Expenditures and Intergovernmental Flows of Funds," National Tax Journal, March, 1964, pp. 75-85; and Harvey D. Brazer, Daniel B. Suits, and Muriel W. Converse, "Municipal Bond Yields: The Market's Reaction to Michigan's Fiscal Crisis," National Tax Journal, March, 1962, pp. 66-70. 24 U.S. Bureau of the Census, Ope cit., pp. 20-21. 2G Ibid.; also Historical Statistics 011 Governnlent Finances and Employment, Ope cit., Tables 3, 5, and 6. 26 Alan K. Campbell, HMost Dynamic Sector," National Civic Review, February, 1964, PP. 74-82. I suggest one qualification of Campbell's point that growth rates in state and local fiscal aggregates exceed those of all other parts of the economy. According to my calculations, for the period 1952-63 the average annual increase in state general expenditures was 8.02 percent and in combined state-local expenditures was 8.59 percent (excluding federal grants). In the same period, federal government expenditures for nonmilitary purposes increased at an average annual rate of 9.43 percent. In other words, federal domestic spending is rising at a slightly faster rate than state or state-local spending (when general or administrative budget expenditures are considered) . 120 iency of state and local finances are appearing with increasing fre­ quency.27 This development recalls the point made by Harlan Cleveland, former dean of the Maxwell Graduate School, who urged local and state officials to approach financial problems with imagina­ tion, leadership, and with the attitude that "the wealth is there." ~8 The significance of state and local fiscal outlays should also be recognized from the standpoint of econonlic impact. Selma Mushkin recently analyzed the regional and state-by-state inlpact of increased employment attributable to state and local government. Of total net growth in nonfarm employment of 4.3 million persons during the 1956-63 period, 1.8 million were employed by state and local government and 500,000 in private sector jobs resulting directly from state-local procurement. The economic consequences of state­ local activity were nlost dramatically illustrated for Michigan, Ohio, Indiana, Illinois, and Wisconsin: between 1957 and 1962, total estimated civilian employment in these states rose only 18,000 (from 13,956,000 to 13,974,000), but state-local government employment increased by an estimated 207,000. In other words, state-local employment offset a major decline in private-sector employment.2B Similarly, the most recent analysis of the cyclical behavior of state and local finances suggests that the "perversity hypothesis," while possibly valid during the 1930s, is now "more misleading than help­ ful." The study concludes: Owing to the sharp and persistent upward trend in the level of state and local expenditures in the postwar period, and to the limited-but improving-income elasticity of

27 Otto Eckstein, Trellds ill Public Expenditures in the Next Decade (New York: Committee for Economic Development, 1959); Dick Netzer, "Financial Needs and Resources Over the Next Decade: State and Local Governments," in Public Finances: Needs, Sources, alld Utilization (Princeton: Princeton University Press for the National Bureau of Economic Research', 1961), pp. 23-65; Robert C. Wood, 1400 Go\'enl/llellts (Cambridge: Harvard Univer­ sity Press, 1961); Deil S. Wright, Robert W. Marker, and Garlyn M. Wessel, A Half-Century of Local Govenlfllental Finances: The Case of Iowa­ 1910-1960 (Iowa City, Iowa: Institute of Public Affairs and Iowa Center for Research in School of Administration, University of Iowa, 1963). :!H Harlan Cleveland. HThe Wealth is There." address to the annual conven­ tion of the American Municipal Association, November 28, 1960; reprinted in Iowa Municipalities, February, 1961, pp. 18-25. :!B Selma J. Mushkin assisted by Robert Harris, "State Economic Program­ ming and Economic Development," a paper prepared for the Third Regional Accounts Conference, Miami Beach, Florida, November, 19-21. 1964, p. 7 and Table 3. 121

state-local receipts, the budgetary behavior of these govern­ nlents in the aggregate has been stabilizing during every postwar recession. During the upturns, however, the overall fiscal impact has accentuated inflationary pressures. Re­ ceipts have been stabilizing throughout the period, but expenditures have been destabilizing during the expansions. If departures from trend only are considered, expenditures as well as receipts are found to be stabilizing during the upturns.:w There are also political forces at work that are advantageous to the role of the states. Probably the nlost discussed new force is legislative reapportionment. In brief, this writer sees its implications to be roughly as follows: 1. The "snlall town" political tradition will decline sharply, and the rising political power of suburban and nletropolitan America will be a force to be reckoned with in state legislatures-and in the Congress too. 2. While the rhetoric of the political nouveau riche from suburbia may sound "small town," we are likely to see a distinctly different type of legislative behavior in ternlS of state taxes, expenditures, and pro­ grams. Generally we nlay anticipate more sympathy for positive state action, and perhaps even less interest in "honle rule" and "states' rights" and more in "states' responsibilities." 3. There is considerable basis for supposing that reapportionment, as well as other forces, will produce stronger and more responsible state political parties, and possibly SOUle shift in the locus of political pressure for positive governmental action from Washington to the state capitals.:n 4. There is likely to be less destructive conflict between governors and legislators (especially vis-a-vis the national government) when

:W Musgrave (ed.), Ope cit., p. 5. ;~ 1 Thomas A. Flinn, HParty Resoonsibility in the States: Some Causal Factors," A n1ericon Political Science Review, March, 1964, p. 71. My supposi­ tion that increased state party responsibility will strengthen the states (or at least not weaken them) is diametrically opposed to views expressed by Martin Landau, "Baker vS. Carr and the Ghost of Federalism," in Schubert, Ope cit., p. 247. Landau foresees a shift in "the party system toward the urban-national side as against the state-local side and this is a necessary condition for the emergence of a national party system." He adds: '"A national party system that is built on an urban basis must mean a fundamental restructuring of our formal system of government." '-' 122 reapportionment (1) reduces the possibility that the governor's man­ sion and the legislature will be controlled by different parties, or (2) reduces the range of constituency outlooks by the executive and legislature regardless of party affiliation. One other political tendency deserves comnlent. Leonard D. White cites emotional ties and loyalties as one plus factor for the states.32 To what extent attachments to any unit or level of govern­ ment actually exist and the strength with which they are held are questions that need, and are just beginning to receive, further atten­ tion. Robert Wood, for example, implies that local governments are viewed as sort of necessary adjuncts to provide programs that are not supportable in any other way: "It has never been in the Region's tradition to charge local governnlent with the responsibility for physi­ cal and economic developnlent." :3;~ More recently York Willbern noting the declining loyalties to "the city" and the other forces at work compelling adaptations in governmental forms, suggested the likelihood that "both the sense of conlnlunity and the governmental arrangements for communities will become nlore fluid and more di­ verse than they have been in the past." :~-t The crux of the matter is: are the states ready, willing, and able to exploit the loyalties they presently have as these de-localizing tendencies arise? A recent survey of a representative sample of Iowa adults suggests some starting points for answering this question. When asked which level of government interested thenl Inosl, 39 percent indicated the national government, 23 percent state government, and 19 percent local government. However, although state government ranked third as the first choice of citizen interest, it conlnlanded nearly a majority (45 percent) as the level holding the greatest secondary interest. Moreover, the semi-subordinated status of state government shifted sharply when the sample was asked which level of government was doing the best job: 37 percent said the state level, 18 percent the national, and 16 percent the local. State governnlent also ranked first in answers to the question of which level was doing the next best job: 27 percent indicated the state, 21 percent the national, and 19 percent the local. Thus, despite its lack of a prepossessing conl-

:{2 White, op. cit., pp. 43ff. :{:~ Wood. 1400 Goverllfnellts, op. cit., p. J 98. :{-! York Willbern. The Witherill[.? A way of the City (University, Alabama: University of Alabama Press, 1964), p. 70. 123 mand of citizen interest, or perhaps because of it, state govemme'nt was rated as the top governmental performer.35 A Gallup' Opinion Poll of January, 1967, reports findings con­ firming the Iowa results on a national basis. When asked which level of government, federal or state, spent the taxpayer's money more wisely, 49 percent indicated state and only 18 pe'rcent indicated federal. There also are favorable signs within the executive establishments of state governments. Slowly, but more assuredly, the executive office of the governor is being strengthened and over two-thirds of the states now have Departments of Administration or similar-type units. 36 Moreover, the debate surrounding the changing role of governors has tended to obscure equally significant trends occurring elsewhere in the state executive branch. A survey of exe'cutive department heads- in the 50 states disclosed several inte'resting findings about the education and experience of these executives: 37 1. 85 percent had attended college; 2. 64 percent held at least one college degree; 3. 40 percent held advanced or graduate degrees (including law and medicine); 4. 44 percent had undergraduate "professional" degrees; 38 5. 70 percent had graduate "professional" degrees; 6. 35 percent had undergradute degrees in "administration"; 39 7. 43 percent had held prior government jobs not at the state level; 8. 8 percent had held prior jobs in other state governments; 9. 44 pe'rcent had served in two or more state agencies.

35 Iowa Legislative Research Project, Laboratory for Political Research, Department of Political Science, The University of Iowa, 1967. Principal investigators for the research are George R. Boynton, Samuel C. Patterson, and Ronald D. Hedlund. 36 Joe E. Nusbaum, "State Departments of Administration: Their Role and Trends of Development," State Government, Spring, 1962, pp. 124-29. 37 Wright and McAnaw, Ope cit. See also two articles by the same authors: "American State Executives: Their Backgrounds and Careers," State Govern­ ment, Summer, 1965, pp. 146-53; and "Men at the State Capital," Nation's Cities, November, 1965, pp. 21-23, 26. 38 A "professional" degree includes the fields of accounting, education, journalism, law, physical education, and recreation, according to the Municipal Manpower Commission, Governmental Manpower for Tomorrow's Cities (New York: McGraw-Hill, 1963), p. 137. 39 A degree in "administration" means either business or public administra­ tion, idem. 124

These findings suggest that (a) the education and experience qualifi­ cations of state executives rank above those of municipal executives but do not quite match those of the- federal executives (e.g., 95 per­ cent of the federal executives attended college), and (b) it appears that the quality, experience, and training of state executives is under­ rated. Moreover, they do not square with L. D. White's statement, quoted above, that "the states, with some notable exceptions, do not command the administrative talent that is available to the general government." Looking beyond formal qualifications, additional findings from the Wright-McAnaw survey indicate that state administrators hold "progressive" views regarding the role of state government.40 For example: 1. 75 percent indicated that their own departments' programs should be expanded, with 30 percent favoring expansion of more than 15 percent above existing program levels; 2. 85 percent agreed to quicker affirmative state action in the area of civil rights; 3. 74 percent accepted the necessity for increased governmental activity at all levels in our federal system; 4. 65 percent agreed that "the national government should act in those areas where the states fail to perform their responsi­ bilities"; 5. 62 percent concurred in giving local units of government greater home rule powers. In addition, nearly 90 percent thought it was "very important" that national-local contacts be channeled through the states. In other words, state executives favored a strong, assertive- role for state government in intergovernmental programs. Reluctance to assume responsibility is clearly not a main theme in state administrative establishments. Legislative reapportionment is likely to provide a more receptive setting for these attitudes. We have examined fiscal, political, and administrative tendencies favorable to state government. In the structural-legal area there is little general progress to report. It seems likely that major constitu-

40 Wright and McAnaw, American State Administrators, op. cit. 125 tional and administrative reform will hinge, at least in many states, on forces even le'ss predictable than those about !which we have been speculating above. But certain developments on the edge of the structural-legal area-in the fields of interstate cooperation, regional­ ism, and interstate compacts--cannot be overlooked as a prospective avenue toward a stronger state role. Speaking to the' General Assembly of the States in December, 1964, James B. Conant called for a nationwide policy on education to be developed under state leadership through a formally-organized inter­ state compact commission. 41 Under the leadershi,p of the former gov­ ernor of North Carolina, Terry Sanford, the proposed "Compact for Education" is a reality. If all states participate, it will operate with a $600,000 budget and a staff of about 60. 42 Success in this venture could provide the catalyst necessary to establish interstate compacts as a "third-force" in American federalism. 43 In a related move, Sanford recently proposed the creation of an Institute of the States that would be more than an information and research clearinghouse. "It is a call," he said, "for leadership and action; for setting goals and directions; for taking advantage of the unique ability of the states to solve the same problems in different ways." 44 The first of several functional "institutes," the Institute on State Programming, was recently created with the support of a sub­ stantial Carnegie Corporation grant. We should also note the significant, growing, and. not unwelcome tendency to draw the federal government into interstate compacts as

41 James B. Conant, "Shaping Educational Policy," State Government, Winter, 1965, pp. 34-38. 42 "Interstate Compact: Educators and Governments to Join Forces," Science, December 3, 1965, pp. 1274ff. 43 For a range of views on interstate compacts see: Commission on Inter­ governmental Relations, Report, OPt cit., pp. 45-47; Frederick L. Zimmerman and Mitchel Wendell, The Interstate Compact Since 1925 (Chicago: Council of State Governments, 1950); Anderson, op. cit., Ch. 6; Richard H. Leach, "The Status of Interstate Compacts Today," State Government, Spring, 1959, pp. 134-39; Richard H. Leach and Redding S. Suggs, The Administra­ tion of Interstate Compacts (Baton Rouge, Louisiana: Louisiana State Univer­ sity Press, 1959); Guthrie S. Birkhead, "Extending State Boundaries-but not Horizons," Public Administration Review, Autumn, 1959, pp. 265-68; and William G. Carleton, "Centralization and the Open Society," Political Science Quarterly, June, 1960, pp. 244-59, especially pp. 248-49. 44 Terry Sanford, "A New Strategy for State Initiative," speech to the National Municipal League, November 15, 1966. See also, Terry Sanford, Storm Over The States (New York: McGraw-Hill, 1967). 126

an equal partner. A prominent example is the new Interstate-Federal Compact for the Delaware River Basin.45 Interstate regional cooper­ ation, with or without federal participation, has ample precedent and river basin development has probably commande'd primary attention in the literature because of the "natural" regions formed by drainage systems.46 But today, interstate regional cooperation on a much broader basis appears in the offing, with New England leading the way.47 The New England experience is especially noteworthy since extensive informal and formal channels of collaboration have been evolved, i.e., conferences, consultations, and associations as well as official agreements and compacts. Informal interstate cooperation on a nationwide basis, with and without federal participation, has also been noteworthy in recent years. Budgeting and standardized statistical data gathering are only two illustrations of interstate-federal working relationships.48 The impact of information technology, particularly automatic data process­ ing (ADP) has also prompted interstate consultation. For example, the Council of State Governments and the Michigan Commission on Interstate Cooperation jointly sponsored a recent conference for state executives on ADP and its impact on public policy.49 State interest in the topic produced an interstate Committee on Automation, Te'ch­ nology, and Data Processing. Two developments have potential for surmounting some problems

45 The text of the compact and an analysis of its provisions appear in The Interstate-Federal Compact (Philadelphia: Water Resources Association of the Delaware River Basin, 1961). See also, Roscoe C. Martin, River Basin Development and the Delaware (Syracuse: Syracuse University Press, 1960); and Frederick L. Zimmerman and Mitchell Wendell, "New Horizons on the Delaware," State Government, Summer, 1963, pp. 157-63. 46 Lynton K. Caldwell, "Interstate Cooperation in River Basin Develop­ ment," Iowa Law Review, January, 1947, pp. 232-43. 47 Edwin W. Webber, "Regional Cooperation: A Modus Vivendi for New England," State Government, Summer, 1965, pp. 186-90. 48 William D. Carey and Abraham M. Vermeulen, "Intergovernmental Cooperation Through Budget Channels," State Government, Summer, 1963, pp. 166-71; Office of Statistical Standards, U.S. Bureau of the Budget, Federal-State-Local Cooperative Arrangements in Statistics (Washington, D.C., n.d.). 49 Donald Axelrod, "The First Interstate Conference on Automated Data Processing: Its Impact on Public Policy and Services," State Government, Summer, 1965, pp. 169-80; Freeman Holmer, "Interstate Initiatives in a Technological Revolution," ibid., pp. 167-69. 127 posed by interstate metropolitan areas. riO First, upon the recommen­ dation of the Advisory Commission on Intergovernmental Relations, the Congress included provisions in the Housing Act of 1961 giving advance consent to interstate compacts for metropolitan planning purposes where metropolitan areas cross state lines. Second, Profes­ sor Robert Dixon advocates interstate-federal agencies to meet transit, pollution, land-use planning, and water resource problems. More importantly, he suggests use of the interstate ~ompact device for levying a special tax within an interstate metropolitan area to finance environmental control and conservation within that area. He ex­ amines the Constitution's uniformity clause in considerable detail and argues that there is no barrier to a federal area tax earmarked for a specific project or program in the area taxed. In this latter proposal we see the melding of federal-interstate joint action, involving use of the broader fiscal powers of the national government in an effort to deal Iwith what to date has been a governmentally-unmanageable environment-the' large, interstate metropolitan complex. In summary, it would be folly to attempt a precise balance sheet of the states' assets and liabilities. But our discussion of the debit and credit side of the ledger does suggest that the criticisms of state government have been overstated and the positive features have been understated. In other words, the states are stronger than people think.

50 See Five-Year Record 0/ the Advisory Conlmissioll Oil Intergovernmental Relations. and Its Future Role, joint hearings before the Subcommittees on Intergovernmental Relations of the Senate and House Committees on Govern­ ment Operations, 89th Congress, 1st Session, May, 1965, p. 35; and Robert G. Dixon, Jr., "Constitutional Bases of Regionalism: Centralization; Interstate Compgcts; Federal Regional Taxation," The George Washington Law Review, October, 1964, pp. 47-88.

IX. GRANT ALTERNATIVES*

N GOVERNMENT AND ACADEMIC circles, criticism of categorical I grants-in-aid has reached a level where it approaches the currency of a popular pastime. This study has discussed many, if not most, of the factors responsible for the current vogue. But the purpose here is not to parade the list of horrors, if that they be, of present patterns in intergovernmental relations. Hopefully in a more constructive vein, this concluding chapter will focus on alternatives to present grant techniques, discussing both ways to improve the existing forms of grants and alternative approaches for providing aid to state-local governments. In this discussion, practical political considerations and the "art of the possible" must be kept in mind. Currently, two practical con­ siderations have darkened the prospects for early reform. The first is the harsh fiscal and political realities of the Vietnam war which are restricting policymakers' freedom and to some extent their interest in the field of intergovernmental relations. The second is the inlplications of "creative federalism." The term was born a twin of the "Great Society" in President Johnson's com­ mencement speech at the University of Michigan in May, 1964-but apparently not an identical twin. The Great Society has been elabor­ ated in detail and accorded equal status with the New Frontier, Fair Deal, and New Deal. But the ternl "creative federalism" has not been

::: Portions of this chapter were included in a paper delivered at the Southern Economic Association, New Orleans, Louisiana, November 16-18, 1967.

129 130 filled out. The conlmlSSlon of "distinguished scholars and men of public affairs" that was to develop the concept was never created and the long-promised presidential message on the subject never emerged. At the abstract level, the term seems to be a blanket phrase covering a fundamentally pragmatic and philosophically unguided approach to intergovernmental relations. At the action level, reading its mean­ ing from the decisions of the Johnson Administration and the Con­ gress since 1964, it appears to involve' (1) an extensive expansion of old and new categorical grants, and (2) the wholesale use of project­ type funding authorizations that are even more narrowly focused than categorical grants. The major block to early reform, then, is the continuing commit­ nlent by the federal executive to much more of the same in intergov­ ernmental fiscal relations. But that commitment can be provisional. In time, the priorities of our leaders and the leaders themselves can change-to produce a climate less receptive to the extremes of the categorical and project grant approach. As summary background, the author's views on the present status of federal-state fiscal relations are threefold: 1. Federal grants-in-aid are an integral part of our federal system, here to stay. 2. The majority party in Congress, plus the executive and signif­ icant numbers of the minority party, supports major expansion in grant programs. 3. Grant programs have reached a size where their consequences, both fiscal and administrative, have generated widespread ambiva­ lance and negative reactions among officials involved in them either directly or indirectly. Given these circumstances, what can be done to alleviate or elim­ inate some of the problems of federal grants, short of replacing this technique altogether with alternate financing devices?

Improvement of Existing Grant Programs For convenience and clarity, suggested improvements Play be dis­ cussed under three headings: congressional policy, executive branch structure, and administrative procedure'. 131

Congressional Policy The most prominent proposal to alter congressional policy on grants is the so-called "consolidated" grant approach. l This idea evolved largely in response to the large number of depression-born categorical programs in the health and welfare fields. Designed to overcome the incre'asingly specialized and fragmented character of categorical grants, the consolidated grant retains the conditional and matching features of standard grants but the strings attached to expenditures are restrictive only as to a broad functional field and not as to sub-categories or programs within that field. For example, instead of four or five categories of welfare recipients eligible for federal support, a single general grant for welfare would be substi­ tuted. The proposal for consolidated grants languished in academic liter­ ature and in the policy suggestion stage for many years. Finally, in 1966, a significant breakthrough occurred with the enactment of the Comprehensive Health Care Planning and Services Act. 2 This act eliminated more than a dozen categorical "disease" grants-for cancer, heart disease, mental illness, venereal diseases, neurological diseases, community health services, etc.-and substituted (t single grant for comprehensive health care services. Moreover, it stipulated that each state create or designate an agency to develop a compre­ hensive state plan for health services. These plans are expected to guide state and federal aid funds among the' various health services and to constitute the basis for federal review of state health program­ ming. Two other aspects of this legislation are worth noting. First, it incorporated the declared intention to decentralize significant decision-making activities to regional offices and, thereby, reduce the frequent necessity of "trips to Washington." According to the federal official re'sponsible for the program, "the Regional Office will be

1 The term consolidated grant has sometimes been called "block" grant. For a brief essay clearly distinguishing between block and consolidated grants, see Benson and McClelland, op cit. Also see: Mushkin, "Barriers to a System of Federal Grants-In-Aid," Ope cit., pp. 193-218; and Harvey E. Brazer, "The Federal Government and State-Local Finances," National Tax Journal, June, 1967, pp. 155-64. 2 S. 3008, 89th Congress; Public Law 89-749, 89th Congress, November 3, 1966; Comprehensive Health Planning and Public Health Services Amendments of 1966, 89th Congress, 2d Session, Senate Report No. 1665, September 29, 1966; and Comprehensive Health Planning and Public Health Services Amend­ ments of 1966, hearing before the Committee on Interstate and Foreign Com­ merce, House of Representatives, 89th Congress, 2d Session, October 11, 1966. 132 where the action is." 3 Second, accompanying the new single grant was a project grant supporting areawide health planning. The project character of this grant has one saving grace: the use of the funds must be related to the state's comprehensive health care planning pro­ gram. In sum, the act is an important positive step in the federal grant field, and its results will deserve careful study. Another area of congressional policy that deserves attention is the lack of consistency among grant programs with respect to allocation formulas and matching requirements. The variety in these formulas and requirements has grown like Topsy. The testimony of Governor John Chaffe of Rhode Island illustrates the problem: ... Let us take the case of a 15-year-old boy on aid to dependent children who has a hearing problem. ... [C]onfusion arises when one considers whether he should be referred to the public assistance medical care program administered by the Department, of Social Welfare, the Division of Vocational Rehabilitation administered by the Department of Education, or to the crippled children's pro­ gram administered by the Department of Health. ... [T]here is the temptation ... to refer such a patient not to the program which is best organized to meet his partic­ ular need, but to the program in which the State obtains the best financial advantage. The Federal Government will pay 50 percent of the cost when the care is provided by the Crippled Children's Division; it will pay 56 percent under title XIX since he is on aid to dependent children; and, if he is cared for by vocational rehabilitation, the Federal Government will soon pay 75 percent of the bill. Each of these programs has some variations in standards for eligibility but nonetheless the differences in Federal reimbursement seems extremely puzzling. 4 The Advisory Commission on Intergovernmental Relations found that for 13 diffe'rent variable matching grant programs, maximum

3 Address by James H. Cavanaugh, Director, Office of Comprehensive Health Planning and Development, U.S. Public Health Service, presented at the 4th Annual Institute for the Staffs of Areawide Planning Agencies, University of Chicago, Chicago, Illinois, December 12, 1966. 4 Investigation of HEW, hearings before the Special Subcommittee on Inves­ tigation of the Department of Health, Education, and Welfare of the Committee on Interstate and Foreign Commerce, House of Representatives, 89th Congress, 2d Session, April 18·22, May 27, and June 20, 1966, p. 4. 133 federal matching ranged from 66.6 to 82.9 percent; and for 16 equalization grants incorporating fiscal capacity in their apportion­ ment formulas, the proportion of the grant distributed on the basis of fiscal capacity varied from 17.8 percent to 100 percent, with only four grants having equal proportions (100 percent).5 The commis­ sion recommended: (1) "that uniformity in the mechanics of equali­ zation provisions is preferred over variety; and that statutory specifi­ cation is preferable to administrative discretion"; and (2) that the adequacy of need indexes, allocation formulas, and equalization provisions be reviewed periodically in conjunction with periodic (five­ year) congressional review of grant· programs (see below).6 If consolidation of grants is not feasible, then inter-grant consis­ tency in allocation and matching formulas is an important secondary means of grant improvement. Both require congressional action, which raises two sticky points. First, grants originate in and are acted on by several different committees in the House and Senate and the committee structure inhibits consistency and coordination, Second, the Congress has not explicitly imposed on itself the duty of regular review of grant programs. Grant programs are enacted for varying lengths of time and with comparatively few indications of precise objectives that permit meaningful evaluation. Of course, annual review through the budget and appropriations process does occur. But the marginal character of the annual budget review process, plus the growing number and diversity of grants, has stim­ ulated considerable recent interest in what has been called "periodic review." 7 Ten years ago, in its landmark report on grants-in-aid, the House Intergovernmental Relations Subcommittee (Fountain Committee) called upon Congress to (1) provide a clear expression of each grant program's goals, (2) establish a requirement for regular review of the program in order to assess accomplishment, evaluate met and unmet needs, and determine whether to continue the program, and

5 The Role 0/ Equalization, pp. 39-43. 6 Ibid., pp. 77·79. 7 Congressional Review of Federal Grants-In-Aid, hearings before a Sub­ committee of the Committee on Government Operations, House of Representa· tives, 87th Congress, 1st Session, July 25 and 27, 1961; and Periodic Congres­ sional Review of Federal Grants-In-Aid, hearings befcre the Subcommittee on Intergovernmental Relations of the C'ommittee on Government Operations, U.S. Senate, 88th Congress, 2d Session, January 14, 15, and 16, 1964. 134

(3) where appropriate and desirable, to specify a termination date.8 In 1961, the Advisory Commission on Intergovernmental Relations argued forcefully for legislative and administrative action to facilitate either the termination of grants once they had served their purpose or their appropriate modification as conditions changed. Noting that both the Congress and the executive had been lax in devoting systematic attention to the problem of grant review, the' commission recommended that grant programs be authorized for no more than five years. One year prior to the expiration of the grant, a thorough­ going review would be launched by the appropriate legislative com­ mittee in conjunction with the responsible administrative officials. In short, the commission strongly urged the appropriate congressional substantive committees to ask basic rather than marginal questions concerning the purposes and accomplishments of grants.9 This type of basic or fundamental review has its analogy in the budgetary sphere, where it is called comprehensive or zero-based budgeting as contrasted with the existing incremental approach so fully described by Aaron Wildavsky.10 Under existing budget review procedures, grant programs and their extension and expansion are subject only to incremental analysis. The Advisory Commission noted that, in instances where review had been undertaken, "efforts to redirect grant programs toward newer and more urgent problems within a given program area usually result in an additive rather than a substitutive appropriation." 11 In practice, congressional review and redirection has meant the automatic and cumulative continuation of nearly all grants. The pro­ posal for five-year periodic review is somewhat similar to Wildavsky's "radical incremental" approach to the budget process.12 He suggests that agencies automatically receive their prior year's appropriation and come to the Congress only for increases, but that the Congress, with professional staff assistance, conduct a thoroughgoing basic

8 Federal-State-Local Relations: Federal Grants-In-Aid, Thirtieth Report by the Committee on Government Operations, 85th Congress, 2d Session, House Report 2533, August 8, 1958, p. 51. 9 Advisory Commission on Intergovernmental Relations, Periodic Congres­ sional Reassessment ... Ope cit. 10 Aaron Wildavasky, The Politics of the Budgetary Process (Boston: Little Brown, 1964). 11 Periodic Congressional Reassessment, hearings, Ope cit. p. 22. 12 Aaron Wildavsky. "Toward a Radical Incrementalism: A Proposal to Aid Congress in Reform of the Budgetary Process," Congress: The First Branch of Government (Washington: American Enterprise Institute, 1966). 135 review of each agency on the average of once every five years. Such a review, if applied to the substantive program aspects of grants by the appropriate standing conlmittees, would serve grant objectives and the Congress well. One related development deserves brief mention here. Earlier, we identified the metropolitan review requirement of the Demonstration Cities Act of 1966 as a limited but positive step toward coordinating grants in urban areas. As further steps in this direction, the Congress could provide positive financial incentives, as well as negative require­ ments, and it could extend its newly expressed interest in coordinated review of grants from the local (metropolitan) level to the state level as well.

Executive Branch Structure Improvement in the review and management of grants also requires change within the federal executive to offset typical aid official atti­ tudes of functionalism, professionalism, protectionism, and indiffer­ ence. Senator Edmund Muskie (D.-Me.) has proposed, in brief, that high-ranking individuals be located at critical points in the federal administration to represent the "intergovernmental interest." His ten-point recommendation for "Coordination at the Federal Level" can be summarized as follows: -a special assistant to the President, a top Bureau of the Budget official and a deputy undersecretary (or his equivalent) in most departments and agencies-all with full-time responsibility for inter­ governmental programs and policies, -creation of a' National Intergovernmental Affairs Council (NIAC) within the Executive Office of the President, along with a federal regional coordinator (attached to the NIAC) charged with establishing across-the-board coordination of national programs in accordance with state and local comprehensive plans, -a computerized information clearinghouse to make available a wide array of data relevant to intergovernmental decision making, -greater .~oordination at the local, state, and regional level along the lines being developed in the Department of Housing and Urban Development, -federal program coordinators at local, metropolitan, and state levels to guide local officials through the maze of federal pro- 136 grams, to expedite grant applications, and to stimulate area-wide planning, and -the possible re-establishment of Bureau of the Budget field offices to support the federal regional coordinator. Senator Muskie's program addresses itself to the failure of the executive to "staff-up" and build into the federal administrative system a genuine concern for intergovernmental relationships. Per­ ceptively he put his finger on a critical aspect of the "great society" and "creative federalism" dilemma: "During the past two Congresses we have concentrated prin1arily on the substance of government; now the spotlight must be turned on the [structure and] procedure. Here is where the new challenge lies." 13

Aclministrative Procedure Administrative reform offers promIsIng prospects for improving federal grants. Specific changes in the procedural area (but having obvious policy implications) were recommended by the Advisory Commission and incorporated in the Intergovernmental Cooperation Bill of 1965.14 This bill passed the Senate but not the House in 1966 and is up for reconsideration in the 90th Congress. In addition to procedural changes, the bill also provides for periodic review of grants, coordination of metropolitan and urban development, area­ wide review of grant applications in metropolitan areas (a title sub­ sequently inserted into the Demonstration Cities Act), and policies governing the use and disposition of federally-owned land in urban areas. Here we will consider only its procedural provisions. First, the bill would require full disclosure to governors (or other state officials) of information about federal funds received by state departments and agencies, and it explicitly states (sec. 101) that "No act of Congress shall be construed to prevent the governor or other designated officer from participating in the state's determination of

13 Congressional Record, daily ed., March 25. 1966. pp. 6500ff. 14/fl ten?oVernnlefltal Cooperation Act of 1965, hearings before the Subcom­ mittee on Intergovernmental Relations of the Committee on Government Operations, U.S. Senate, 89th Congress, 1st Session, March 29, 30. 31, and April 1, 2, 1965; 11ltergovenlfne1ltal Cooperatio1l Act of 1965, Senate Report No. 538, 89th Congress, 1st Session, August 3, 1965; and l1lterRO\'er1lnlellfal Cooperation, hearings before a Subcommittee of the Committee on Govern­ ment Operations, House of Representatives, 89th Congress, 2d Session, March 1. 2, 8, 9, and October 5 and 18, 1966. 137

Its financial needs in the same manner as he does with respect to the budgeting of state funds." If "knowledge is power," greater information in the hands of political and administrative generalists should reduce the autonomy of program administrators. Senate hear­ ings on the bill produced startling documentation of such autonomy. For example, according to a 1965 study, in only 14 of 41 states surveyed were all requests for and receipts of federal funds channeled through customary state fiscal review procedures.]" But Massachu­ setts provided an extreme example: There, state public health and mental health personnel used the device of the private corporation to obtain federal (and other) funds free from state controls. The corporation president was the state health commissioner and five of the six-man administrative committee were department of health eOl­ ployees. A state auditor's report declared that ... the formation of the Massachusetts Mental Health Research Corp. was undoubtedly inspired by a desire on the part of the incorporators to have complete freedom in mental health research. By eliminating formal State par­ ticipation in this research, expenditures could be made without adhering to State regulations on personnel, pro­ curement, etc., and the funds received as the indirect cost allowance could be retained by the coorporation.1G A second procedural improvement would provide that all federal grant funds be paid to the state treasurer or other designated state official rather than directly to a particular agency or into other special accounts. (States would be permitted, however, to authorize direct receipt of federal funds by state institutions of higher learning.) Third, federal funds would have to be deposited with the other moneys administered by the state rather than in separate bank accounts. An associated fourth improvement would provide for better scheduling of fund transfers to the states and thus eliminate a long-standing controversy over the interest earned on grant funds transferred to the states prior to their actual expenditure. The intent of these four proposals is not to force states to conform to a particular accounting or budgeting scheme, but rather to make it easier for a state, if it so desires, to take steps to centralize control

1;) Intergovenl1nental Cooperation Act of 1965, hearings, Ope cit., p. 347. Hi lde,n. 138 over federal funds. These in1proven1ents would make state adminis­ tration more responsible to governors and legislatures and reduce the amount of friction in federal-state fiscal operations. An additional change (sec. 106) would ease the single agency requirement. The bill would permit a federal department or agency head to waive, at the request of a governor (or other state official), the single agency provision and to approve alternative administrative arrangements. As of I 965, eight major grants required that a "single" or "sole" agency be nao1ed to operate or supervise the program, and 20 grant programs specified a particular functional agency by 1 statute. i While only one-third or less of all grant programs contain single agency provisions, nearly three-fourths of all grant funds are disbursed under this restrictive provision. Sometimes federal statutes even require that the state agency be a "board," further fragmenting and limiting the states' administrative structure. Commenting on the Intergovernmental Cooperation Bill, Charles F. Schwan, If., director of the Washington office of the Council of State Governments, stated that these proposed procedural changes "are addressed to specific problems of long duration; to be candid, the wonder is that at this late date it should be necessary that Con­ gress consider them." lH The persistence of these problems reflects, among other things, the unimportance attached to intergovernmental relations in both the federal executive and the Congress. If relatively minor procedural changes are so difficult, what amount of effort and influence will be required to institute reforms of greaterconse­ quence, i.e., federal structural changes and congressional policy consistency?

Grant Alternatives Grants are an institutionalized part of our federal systen1 backed by a half-century of solid precedent. This in itself is a practical rea­ son for settling for the minimum change required to ease the strain that grants are i01posing on federal-state-local relations. Yet, entirely different financial techniques for aiding state-local governments might serve the nation far better. The underlying case for alternative tech- . niques is the hard fact that prosperity produces both fiscal benefits

li Ihid., p. 63. lH Ibid., p. 255. 139 and fiscal burdens-and the benefits tend to be national, the burdens state and local. In short, economic growth swells federal revenues while the problems and demands for services tend to pile up at the state-local level. The question is: How, other than by the much-used grant device, can we bridge this revenue/responsibility gap?

Direct Federal Expenditures One approach would be for the national government to assume direct and full responsibility for more public programs. Medical assistance for the aged, for example, was ultimately resolved in this fashion after an unsuccessful attempt to work through the grant tech­ nique. However, while appealing to political liberals, this approach contradicts America's tradition of channeling most civilian functions of government through state and local units-of nourishing oppor­ tunities for local diversity and experimentation. Moreover, if the snail's pace at which medicare moved through Congress is a reliable mea­ sure, states and local units would be inundated with problems and/ or tied in fiscal knots before federal "relief" was forthcoming.

Federal Tax Reduction In what way is tax reduction an alternative to grants-in-aid? First, federal tax cuts may stimulate economic expansion. Second, in those 19 states that treat federal income taxes as a deductible item against the state income tax, federal tax cuts increase the tax base and thus tax revenues. Discussing these two effects, Professor Walter Heller estimates that "$3 billion extra a year is flowing into state-local cof­ fers from the 1964 tax cut alone, a 7 p·ercent increase for both state and local tax revenues." 19 If his estimate is correct then the federal tax cut was responsible for nearly 90 percent of the $3.5 billion in added tax revenue obtained by the state-local sector in fiscal 1965 over 1964! 20 This is an unusually high proportion. However, since most state legislatures were not in session in 1964 to enact tax in­ creases effective in fiscal 1965, the percentage is not as unreasonable as it might seem. Thirdly, lower federal taxes provide the opportunity for states

19 Walter W. Heller, New Dimensions of Political Economy (Cambridge: Harvard University Press, 1966), p. 140. 20 U.S. Bureau of the Census, Governmental Finances in 1964-1965, Series GF-No. 6 (Revised, Washington, February, 1967), p. 18. 140 and localities to take up the "slack" by increasing their tax rates. For example, Senator Jacob Javits (R.-N.Y.) has estimated that "in 1964, state-local tax increases siphoned off one-third of the $6.5 bil­ lion Federal tax cut." 21 Given the number of new and increased taxes enacted by state legislatures since 1965, the proportion must be considerably higher by now. The tax reduction approach to bridging the revenue/responsibility gap has the advantage of allowing states and localities maximum dis­ cretion to make their own choices about increasing service levels and taxes. But, in the eyes of some observers, it reduces the federal role without providing any guarantee that states and localities will in­ crease their taxes and services. Others point out that it contains no element of interstate equalization of fiscal burdens. For all its merits, therefore, federal tax reduction does not appear-at least, at this time-to be a realistic solution to state-local revenue problems.

Tax Credits A tax credit, in contrast to a tax deduction, is a decrease in tax liability to the full extent of the allowable credit. Two long-standing examples are the federal tax credits for state death tax and unem­ ployment insurance tax payments.22 In addition, seven states have experimented with this device, primarily to afford tax relief to eco­ nomically disadvantaged groups. Colorado, Hawaii, and Indiana allow per person tax credits (both positive and negative) against a taxpayer's state income tax liability as a means of softening the regressivity of sales taxes. Wisconsin adopted the device to give property tax relief to senior citizens. Massachusetts, Minnesota, and Nebraska also adopted tax credit legislation in 1966 or 1967. These new ventures at the state level have much to commend them, espe­ cially on economic and administrative grounds. An ingenious proposal of the Advisory Commission on Inter­ governmental Relations is generating interest in wider use of tax credits on the federal-state scene. 23 The commission recommended

21 Congressional Record, October 11, 1965, p. 25618. 22 James A. Maxwell, Tax Credits and Intergovernmental Fiscal Relations (Washington: The Brookings Institution, 1962). 23 For supplementary discussions of the ACIR, see Daniel J. Elazar, "The Continuing Study of the Partnership: The Publications of the Advisory Com­ mission on Intergovernmental Relations," Public Administration Review, March, 1966, pp. 56-68; and Deil S. Wright, uThe Advisory Commission on Intergov­ ernmental Relations: Unique Features and Policy Orientations," Public Admin­ istration Review, September, 1965, pp. 193-202. 141 that taxpayers be given the option of either (a) continuing to itemize state and local income tax payments as deductions on their federal returns or (b) claiming a substantial amount (from 25 to 50 per­ cent) of such payments as a direct credit against their federal income tax liability. The commission suggested a 40 percent credit which would, at 1965 tax rates, put about $700 million at the disposal of state and local units levying income taxes. The amount would, of course, be larger if more states enacted income taxes. Under the commission's most liberal assumption about new and increased in­ come taxes, the states would gain an anticipated $2.7 billion while the federal revenue loss would approach only $2 billion.24 This proposal has three major advantages. The first is its ease, simplicity, and high degree of taxpayer visibility. The taxpayer would simply specify all state-local income taxes paid, take 40 per­ cent of that amount and then subtract the result from his previously calculated federal tax bill. The second is the incentive bias of the proposal. In contrast to the traditional form of tax credit as a ceiling percentage of the federal tax liability, this idea ties the credited per­ centage to the state-local income tax liability. Thus, no matter how high state and local income taxes rise, 40 percent of that amount could be subtracted from the federal tax. This approach would stimulate state-local effort in the income tax field. The third advan­ tage of the plan is its income base. Since the income tax is highly responsive to economic growth, the proposal contains a built-in growth factor. States could more assuredly hitch "their tax revenue wagons to the rising star of national economic growth. Against these advantages must be weighed at least three limitations. First, 15 states do not currently have income taxes, a few because of constitutional barriers and others because of policy, ideological, or other reasons. Adoption of the Advisory Commission's otherwise excellent proposal would, in practice, induce or coerce these states to adopt the income tax in order not to "lose" revenues to the federal treasury. Such a "shotgun marriage" between the tax credit and state income taxes produced a dissent from four of the commission's 26 members: "It is up to each state to determine the degree to which, if any, it wishes to use the income tax as a source of revenue,"

24 Advisory Commission on Intergovernmental Relations, Federal-State Coordination of Personal Income Taxes (Washington: Government Printing Office, October, 1965). 142

and it is inappropriate "to presume upon the independence of state governments in suggesting the types of taxes which they employ." 25 Two other limits on the tax credits may be quickly noted. Like federal tax reduction, it does not allow for interstate income redistri­ bution. It does allow for some interpersonal equalization because of the greater marginal value of the credit to low-income taxpayers but this is relatively modest for most and nonexistent for those who pay no federal (or state) income taxes. Finally, the device would provide an initial windfall benefit to taxpayers, rather than to state-local governments, in those 35 states already taxing income. On balance, while this novel proposal deserves further study, it appears to fall short chiefly on the practical ground of state autonomy in tax as opposed to expediture policy.

Tax Sharing Revenue sharing is not a novel concept. As early as 1887, William H. Jones proposed a system of centrally-collected revenues shared on a per capita basis among the states.26 In Australia, about three­ fourths of all federal fiscal aids to the states are in the form of unre­ stricted general revenue payments based on income tax collections. 27 Canada, too, relies heavily on a type of revenue sharing, moving only recently toward the more conditional grants. 28 In contrast, there are only nine revenue sharing programs in the United States, all in the natural resources field and amounting to less than $200 million in 1968. But the idea is gaining favor. Here we will describe major proposals for federal-state tax sharing, examine the pros and cons, and discuss briefly how the idea fits the criteria for making federalism more effective in the United States.

The Plan In the last few years, revenue sharing has been most closely associated with Professor Walter Heller, economist and chairman of

25 Ibid., p. 14. 26 James M. Buchanan, "Federalism and Fiscal Equality," in Fiscal Theory and Political Economy (Chapel Hill: University of North Carolina Press, 1960), p. 178. 27 Albert J. Robinson, "Implementing Policies of Growth and Stability in a Federation," National Tax Journal, March, 1965, p. 63. 28 R. M. Burns. "Inter-governmental Relations in Canada: Further Develop­ ments," National Tax Journal, March, 1965, pp. 15-24. 143 the Council of Economic Advisers from 1961-64. Heller calls it "per capita revenue sharing.":w The proposal, however, has gone by a number of different names: block, general, unconditional, unrestricted, non-tied, no-strings, and unencumbered grants. What­ ever the name, the essential idea is the same-to return to the states a "substantial" amount of federal revenues with minimal restrictions on the use of the funds. The immediate purpose is to relieve state-local fiscal pressures; secondary purposes-depending on the particular plan-often involve fiscal equalization, improved income distribution, and greater state autonomy. A revenue sharing plan entails five major factors: form, revenue base, amount, distribution formula, and limiting conditions. As to the first, there seems to be considerable agreement that revenue sharing funds should be placed in a trust fund from which distributions to the states would be made. This arrangement would represent a type of contractual understanding on the part of the federal government that the funds were due the states as a matter of right, free from the vagaries of the annual appropriation process. It would also give the states a prior claim, a fractional tithe, upon federal funds in advance of general expenditures, tax reduction, debt retirement, etc. As to the base to be used for calculating revenue sharing funds, three alternatives have been proposed: ( 1) all federal revenues, (2) federal personal income tax revenues, and (3) the federal personal income tax base. Walter Heller-as well as Senator Iavits in his 1965 Federal Tax Sharing Bill-recommended the last, on the grounds that it offered a more constantly growing and less variable base than the other two.30 On the other hand, the Republican Coordi­ nating Committee's plan used total personal and corporate income tax revenues as its oase,31 and the plan proposed by Representativ~ Charles Goodell (R., N.Y.) used personal income tax collections. 32

2U Heller, Ope cit., pp. 144-72. A recent description and discussion of revenue sharing proposals is Legislative Analysis, No.7, Federal Revenue Sharing Proposals: General Grants to the States with "No Strings" Attached" (Washing­ ton: American Enterprise Institute, July 31, 1967). 30 Heller, Ope cit., pp. 145-46; and Javits, Congressional Record, daily ed., October 11, 1965, pp. 25608-19. :n Republican Coordinating Committee, Financing the Future of Federalism: The Case For Revenue Sharing (Washington: Republican National Committee, March, 1966). ;{2 Charles E. Goodell, "A Proposal for General Aid to State and Local Governments Through Sharing of Federal Taxes," press release, November 27, 1966. 144

The last two proposals contain provisions protecting the trust fund (and the state-pledged revenues) against shrinkage in the event of economic downturns and/or federal tax reductions. The amount of revenue to be returned to the states is obviously the product of a specified rate applied to a given base. Heller judged that a 1 percent rate applied to the federal individual incon1e tax base would have yielded $2.8 billion in 1966. The Republican Coordinating Committee estimated that a 2 percent rate applied to all income tax collections would have provided about $2 billion in fiscal 1967. The committee also proposed that the rate be ad­ vanced two percentage points each two years, to a ceiling of 10 percent in fiscal 1975. Heller's proposal also contemplates an escalat­ ing rate':~3 while Senator Javits' bill does not. A gradually increasing rate during the first few years of revenue sharing has merit. It would provide a predictable build-up capacity that the states could rely on over and above economic growth. It would also permit orderly rather than sudden fiscal management and allocation choices at the state level. What support levels should be targeted? Most thinking centers on a beginning annual figure in the neighborhood of $2 billion, or about $10 per capita. Escalating rates plus economic growth might legitimately put the annual amount around $6 billion, or $30 per capita, in six to eight years. The distribution formula is perhaps the most difficult question because it determines the proportion each state would receive. Tax sharing funds could be distributed according to (I) federal personal income taxes paid within a state, (2) state population (per capita), or (3) various combinations of population, personal income, and tax effort. The federal income tax formula would produce reverse geographic equalization, that is higher rewards for the richer states. Very few seriously discussed proposals for revenue sharing urge the primary use of this formula.:~-! The most widely accepted formula is population, which produces a moderate degree of equalizing. This is Heller's formula and it gives rise to the title of his plan, "per capita revenue sharing." I ts greatest virtue is its simplicity. State officials and citizens alike can quickly grasp the concept of (x) dollars per person coming to the state from the revenue trust fund.

a:~ Heller, Ope cit., p. 149. :~-! The Republican Coordinating Committee recommended that one-half of the shared revenues be distributed on the basis of income taxes and the other half on a combination of population and personal income. 145

Varying the straight per capita forn1ula slightly, Senator Javits and Representative Goodell would set aside, respectively, 20 percent and 10 percent of the trust fund to be allocated separately to either one-fourth or one-third of the states with lowest per capita personal incomes. The purpose of the extra "bonus" for low income states is to introduce a greater degree of equalization than that resulting from the simple per capita formula. The extent of equalization produced by the different distribution formulas is shown in Table 25. It is clear that the federal personal income tax formula produces reverse equalization. The ten states with highest per capita incon1es would receive .2375 percent of total personal income in those states, while the ten states with lowest in­ comes would receive only .1714 percent. The population formula sharply shifts the balance in favor of equalization, with the ten highest income states receiving .1756 percent and the ten lowest .3124. The greatest equalization is achieved by a combination of population, personal income, and tax effort-because the lower income states are also exerting, on the average, greater tax effort. The final factor in a revenue sharing plan is the conditions to be attached to the use of the funds by the states. The rationale of the plan dictates that conditions be held to the absolute minimum. But what is the "absolute minin1um"? There is general agreement about the advisability of requesting reports (not detailed audits) on how the money was spent, of requiring compliance with Title VI of the Civil Rights Act of 1964, and of preventing use of the funds for highway purposes (since a federal trust fund already exists for that purpose). Beyond this point, however, there is a wide variety of suggested conditions.

Senator Javits would restrict funds to health, welfare, and educa­ tion uses. This seems neither feasible nor desirable. Representative Goodell would earmark 45 percent of each state's share for redistri­ bution to local governments, a proviso designed to meet the demands from cities for their "share of the pie." This may be practical politically, but it is probably unnecessary. About one-third of all state expenditures currently go to local units and it is highly proba­ ble, should revenue sharing come into being, that local units would obtain a significant share. In addition, it would be unwise to restrict such a large proportion of the revenues to any particular use. 146

TABLE 25 Percentage of 1963 State Personal Income Obtained by States from a Hypothetical $1 Billion Revenue Sharing Program Based on Four Distributional Criteria

Distributional Criterion States Ranked Federal Population, by Per Capita Personal Population Personal Population & Personal Personal Jncome I Income & Income Taxes ncome Tax Effort (average percentage of personal income from revenue sharing) 1st Quintile .2375 .1756 .1355 .1270 2nd Quintile .2143 .2152 .2039 .2053 3rd Quintile .1949 .2366 .2445 .2738 4th Quintile .1801 .2656 .3114 .3518 5th Quintile .1714 .3124 .4376 .4552

Source: Adapted from George F. Break, lntergovernnlental Fiscal Relations ill the United States (Washington: The Brookings Institution, 1966), p. 259. The Goodell proposal further required that 5 percent of each state's share be earmarked for state "executive staff and management purposes as a means of improving the central staffing and manage­ ment functions of state government.":15 This would be a unique way of strengthening the governing capabilities of the states. But it would seem equally desirable to provide a smaller percentage for the state executive branch, say 3 percent, and a similar percentage for the legislative branch. State legislatures deserve and could use improved staffing and better research in most if not all states. A 5 or 6 percent restriction appears minor enough to leave intact the underlying concept of a "pure" unrestricted aid to the states. Public opinion appears to be on the side of confidence in the states' abilities to use funds wisely. According to a 1967 Gallup Poll, when asked whether state or federal government spent the taxpayer's money more wisely, 49 percent responded state and only 18 percent said federal (I 7 percent said "neither") .:16 The same poll also asked this question about tax sharing: "It has been suggested that three per cent of the money which Washington collects in federal income taxes be returned to the states and local governments to be used by these state and local governments as they see fit. Do you favor or oppose

a5 Goodell, Ope cit., p. 4. :w Des Moines Register, January 1. 1967, p. 6G. 147 this idea?" The response was a solid 70 percent in favor of the plan and only 18 percent against it. These general public endorsements of state government, together !with our evaluation of the capabilities of the states, argue for very few restraints on revenue sharing funds. Reporting requirements, nothing for highways, the application of Title VI, and perhaps state executive-legislative staffing come close to the upper limit of such restraints.

Pros and Cons of the Plan

We repeat below, with minimal comment, the major arguments drawn from the revenue sharing debate. For revenue sharing: 1. Simplicity. The plan is straightforward, clear, and direct in its conception and operation. 2. State discretion. It allows the states more discretion and greater fiscal autonomy in meeting their particular needs as their state (and local) officials see them. 3. Major needs. It would be a continuing rather than a stop-gap measure for providing substantial funds to those governments that carry the major responsibilities for civilian services. A healthy fiscal shot-in-the-arm, it would enhance public confidence in state and local governments by enabling them to meet public demands more effectively. 4. Revenue growth. Not only would revenue sharing furnish major sums but those sums, hitched closely to economic growth, would automatically increase at a pace greater than the growth rate. 5. Flexibility. As we have seen, the base, rate, and distribution criteria governing the funds can be employed to achieve desired policy goals-for example, more or less stability and growth, more or less interstate equalization. 6. Progressivity-regressivity. The plan would have the effect of financing a greater share of state and local services from the progres­ sive federal income tax rather than regressive sales, consumer, and property taxes. 7. Grant relief. Enactment of revenue sharing is likely to forestall further major grant-in-aid programs and therefore prevent more 148 proliferation, conlplexity, and problenls in the grant field. Whether revenue sharing would eventually replace existing grants is an open question. 8. Economic stabilization. By tying a greater portion of state­ local receipts and outlays to the business cycle, revenue sharing would act as an additional built-in cOlnpensator. It would also reduce "fiscal drag" brought on by surplus federal revenues, a development that some economists anticipate with foreboding when ~vietnam costs can be reduced. 9. Less distortion. By providing relatively unrestricted funds to the states, revenue sharing would constitute a nlajor step in reducing (or compensating for) the distortion in state budgets brought about by federal grants-in-aid. 10. Administrative econonlies. One study has estimated the overhead costs on ten grant programs at about 1.6 percent.:n Assum­ ing this percentage holds across the board, then about $300 million is consumed annually in collecting and administering grant-in-aid funds. This conservative estimate does not count conlpliance costs at the state level. Because of its basic simplicity, the revenue sharing device would hold federal-state overhead costs to the bare minimum. 11. Income redistribution. The net budget of the state-local sector -the combined effect of taxes and expenditures-is estimated to be more beneficial to lower income groups than is the federal budget.:-l R Given the nature of state-local responsibilities, revenue sharing could be expected to reinforce this effect. 12. Attitudinally acceptable. Revenue sharing not only is accept­ able to the public at large but fits well with the views of state and local officials connected with existing grant progranls. Moreover, it does not directly threaten any power bloc in the sense of reducing benefits being received under current grant programs. Yet it is opposed in varying degrees by such status quo groups as organized labor, the NEA, big city mayors (who are demanding "pass through formulas" as a condition of their support), and federal aid adminis­ trators. What it needs is support from a solid pro-state lobby. Only

;~7 Federal-State-Local Relations . .., op. cit., p. 60. 38 W. Irwin Gillespie, "Effect of Public Expenditures on the Distribution of Income," in Richard A. Musgrave (ed.), Essays ill Fiscal Fee/eralisnl (Wash­ ington: The Brookings Institution, ] 965 ), pp. 122-86. 149 the governors can furnish such support and there is some indication that they are moving in this direction. Other than the governors, who lobbies for the states in Washington? The answer seems to be-nobody! 13. Ample precedent. Experience with tax sharing in other countries, at the state-local level in this country, and in an infi­ nitesimal form at the federal-state level provides a wealth of material upon which to draw in undertaking full-fledged consideration of the proposal, in both academic and public circles. Against revenue sharing: 1. National drain. Revenue sharing would absorb funds that could be put to better use at the federal level. In its extreme form, this argument holds that "If the federal government spends it, it must be good!" 2. Leaky purses. On the other side of the coin, revenue sharing with the states would put money in hands that do not exercise proper care, responsibility, and foresight. In a stinging expression of this view, Christopher Jencks attacked the Heller plan because the states were "unfit to govern" and represented "a kind of cancer." 3D 3. Reduced effort. More money to the states under revenue sharing would cause them to reduce their tax efforts just when those efforts should be stepped up. 4. Local needs. By giving money dir~ctly to the states, tax sharing fails to recognize the pressing fiscal needs of the cities, who traditionally have gotten short shrift from state legislatures. Reap­ portionment, it is argued, will not help much because it favors suburbia, not central cities. 5. Rat hole theory. Even if significant amounts of money trickle down to the local level, much of it will disappear in the rat hole of local government overlapping, duplication, mismanagement, and just plain waste. 6. Tax reform. Revenue sharing would greatly reduce the pressure to bring about much-needed state (and local) tax reform. The only

:W Christopher Jencks, "Why BailOut the States?" The New Republic, De­ cember 12, 1964, pp. 8-10. Jencks' attack was a rejoinder to an article favor­ able to revenue sharing by Edwin L. Dale, Jr., "Subsidizing the States," The New Republic, November 28,1964, pp. 11-12. 150 way to get these reforms is to keep the pressure on, even if it means precipitating fiscal crisis and occasionally near-bankruptcy. 7. Grant cuts. Increased state revenues via tax sharing might gen­ erate skepticism regarding old as well as new grants, perhaps to the point of undermining existing grant programs. 8. Responsibility. Under tax sharing, the responsibility for raising revenues is divorced from spending authority, a situation that could produce ill-advised expenditures and less responsiveness to the electorate. 9. Tax reduction. One version of this argument says that revenue sharing is just a way of plucking the goose with the least amount of squawking. All taxes are too high and should be reduced. A second version, as we saw above, holds that federal tax reduction is a prefer­ able (though indirect) alternative for expanding state-local fiscal resources. 10. Debt reduction. Similar to the first version of the tax reduc­ tion argument, this view gives top priority to debt reduction. 11. Prosperity assumed. Tax sharing rests heavily on the assump­ tion of continuous prosperity tied in with a federal surplus. But prosperity is by no means assured, there has been only one balanced budget (either administrative or cash) in the past decade, and it is spurious to talk about sharing a nonexistent "surplus" with the states. These appear to be the major arguments for and against revenue sharing. In this writer's opinion, revenue sharing comes off best of all the possible alternatives to grants-in-aid, with the unique tax credit proposal of the Advisory Commission running second. Revenue sharing is simple. It is consistent with a body of attitudinal perspec­ tives broadly distributed among officials and the public. It recognizes the interrelatedness of our federal-state-Iocal fiscal system and seeks to deal with that system in a manner calculated to broaden the auton­ omy of the states. It holds out the prospect of a better federal system by enhancing the existing strengths of the states. The basic question, as Walter Heller has put it, is this: "Do you want stronger states?" One vote here is cast in the affirmative.

Concluding Observations The theoretical base for fiscal equity within a federal system has been adequately argued by James Buchanan. He demonstrates that 151 the policy objective of equality formulated in interpersonal terms can be served through interstate fiscal equalization and discusses tax sharing on a per capita basis as a means to this end.40 There is strong justification on equity grounds for unconditional equalizing grants to the states. With state-local tax effort built into the distribu­ tion formula, unconditional grants would become a vehicle for achieving a degree of equalization that is not now even approximated by categorical and conditional grants. The contrasting equalization impact between current grants and proposed unconditional grants was recently identified by James Plummer. As of 1964, he found a positive correlation of only .09 between per capita personal income and per capita federal grants but a positive correlation of .274 between per capita personal income and revenue sharing based on a population/tax effort formula. If 10 percent of the funds were distributed among the 17 poorest states and the remainder allocated on the population/effort formula, the correla­ tion rose to .708.41 Only slight adjustments are necessary, then, to produce powerful equalizing effects in unconditional grants. Furthermore, the inclusion of tax effort as a factor in the distribu­ tion formula would produce a modest reactivity effect-that is, it would reduce the possibility that states would use the unrestricted funds to decrease taxes or forego tax increases. 42 In other words, the tax effort factor would induce states to increase their tax levels in relation to personal income at a rate at least equal to the national average or else incur the penalty of receiving a smaller proportion of available shared revenues. Perhaps the greatest obstacle to revenue sharing stems from do~bts about the adequacy and responsibility of state governments. We have observed that states possess more strengths than weaknesses from the standpoints of political tradition, fiscal effort, administrative capa­ bility, and institutional position. Their one important weakness re­ mains their structural disabilities. 43

40 James Buchanan, Ope cit., pp. 170-89. 41 James L. Plummer, HFederal-State Revenue Sharing," "Southern Economic Journal, July, 1966, pp. 120-26. 42 See Charles J. Goetz. "Federal Block Grants and the Reactivity Problem," and James L. Plummer, "Federal-State Revenue Sharing: Further Comment," Southern Economic Journal, July, 1967, pp. 160-65 and 166-68. 43 For a blueprint of remedies for this weakness, see Committee for Eco­ nomic Development, Modernizing State Government, July, 1967. 152

But the states can do little more than demonstrate that they are ready for more responsibility. The power to solve the major fiscal and non-fiscal problems of federalism rests not with the states, but with the President and the Congress. They are the basic arbiters of the federal system and, unfortunately, the forces of functionalism make it difficult for these institutions to bring about the needed reforms. The organization of the Congress, as we have seen, is such that the "intergovernmental interest" tends to be ignored in the legislative decision process. To take this point further, the House and Senate Subcommittees on Intergovernmental Relations, units that have contributed significantly to understanding federal problems, are subsidiaries of their respective parent Committees on Government Operations. And these parent committees can only review problems and legislation after substantive programs have been in operation for varying lengths of time. Moreover, the fate of revenue sharing will rest with the House Ways and Means Committee and the Senate Finance Committee, both of whom are wrestling with the problems of an overcommitted budget. When we look past the Congress to the executive branch, we also find little institutional evidence of concern for the complexities of intergovernmental relations. The White House staff, the Bureau of the Budget, and most major agencies are not equipped to deal effec­ tively with the increasing conlplexity of multi-system government. Senator Muskie's proposal for "staffing up" to the task of program coordination deserves serious consideration. The one voice that has made an articulate case for intergovernmen­ tal relations is the Advisory Commission on Intergovernmental Rela­ tions. Its accomplishments, and there are several, arise from solid research and mature recommendations. Yet it does not possess, nor can it marshal, the necessary power to achieve more than marginal adjustments in intergovernmental conflicts. However, in the author's opinion, major rather than marginal re­ forms are needed in our federal fiscal system. The commission's tax credit recommendation was an effort to grapple with the need. In spite of its merits, however, the tax credit approach lacks appeal on the same three counts that favor the eventual adoption of some form of revenue sharing: (1) simplicity, (2) attractiveness to the public at large and to state-local elected officials, and (3) party sponsor- 153 ship. Only the last needs a brief concluding comment. Republicans in the Congress have been vocal and active in behalf of revenue shar­ ing and some leading Democrats are beginning to come around. A subcommittee of the Joint Economic Committee has held brief al­ though relatively unnoticed hearings. What will happen in the future is anyone's guess. But certainly the problems to which revenue shar­ ing is addressed can no longer be ignored.

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155 156

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STUDIES The Federal Antitrust Laws-Second The New United Nations-A Reap­ Revised Edition, Jerrold G. Van Cise praisal of United States Policies, -1967 George E. Taylor and Ben Cashman -1965 ($1.00) Prospects for Reallocating Public Re­ French Planning, Vera Lutz-1965 sources. A Study in Federal-State Fis­ ($1.00) cal Relations, Murray L. Weidenbaunz -1967 The Free Society, Clare E. Gri/fin­ 1965, 138 pp. ($4.50) Economic Policy for the Farm Sector, Hendrik S. Houthakker-1967 Congress and the Federal Budget. Murrav L. Weidenbaurn and John S. SalOnlQ 111-1965. 209 pp. ($4.00) The Swedish Investment Reserve-A Device for Economic Stabilization? Poverty: Definition and Perspective, A1artin Schnitzer-1967 Rose D. Friednlan-1965 ($1.00)

Japan: Prospects, Options, and Op­ The Responsible Use of Power: A portunities, Willianl J. Sehald and C. Critical Analysis of the Congressional Nelson Spinks-1967 ($1.00) Budget Process. John S. Salonza III -1964 ($1.00) Public Debt in a Democratic Society. Federal Budgeting - The Choice of James M. Buchanan and Richard E. Government Programs, Murray L. Wagner-1967 ($1.00) Weidenbaunl-1964 ($1.00) Inflation: Its Causes and Cures. With The Rural Electrification Administra­ a New Look at Inflation in 1966, tion-An Evaluation. John D. Gar­ Gottfried H aberler-1966 ($1.00) wood and W. C. Tuthill-1963 ($1.00) The U.S. Balance of Payments and The Economic Analysis of Labor International Monetary Reserves, Union Power, Revised Edition, Ed­ Howard S. Piquet-1966 ward H. Chanlberlin-1963 ($1.00) 157

United States Aid to Yugoslavia and *United States Aid and Indian Eco­ Poland-Analysis of a Controversy, nomic Develooment, P. T. Bauer­ Milorad M. Drachkovitch - 1963 1959 ($1.00) ($1.00) Improving National Transportation Communists in Coalition Govern­ Policy, John H. Frederick - 1959 ments, Gerhart Niemeyer 1963 ($1.00) ($1.00) The Question of Governmental Oil Subsidized Food Consumption, DOll Import Restrictions, William H. Peter­ Paarlberg-1963 ($1.00) son-1959 ($1.00) Automation-The Impact of Techno­ logical Change, Yale Brozen-1963 Labor Unions and the Concept of ($1.00) Public Service, Roscoe Pound-1959 ($1.00) Essay on Apportionment and Repre­ sentative Government, A lfred de Labor Unions and Public Policy, Ed­ Grazia-1963 ward H. Chamberlin, Philip D. Brad­ ley, Gerard D. Reilly, and Roscoe American Foreign Aid Doctrines, Ed­ Pound-1958 ward C. Ballfield-1963 ($1.00) The Rescue of the Dollar, Wilson E. National Aid to Higher Education, Schmidt-1963 ($1.00) George C. S. Benson and John M. Payne-1958 ($1.00) The Role of Gold, Arthur Kemp­ 1963 ($1.00) Post-War West Germany and United Kingdom Recovery, David McCord Pricing Power and "Administrative" Wright-1957 ($1.00) Inflation-Concepts, Facts and Policy Implications, Henry W. Briefs-1962 The Regulation of Natural Gas, Ja,nes ($1.00) W. McKie-1957 ($1.00) Depreciation Reform and Capital Re­ Legal Immunities of Labor Unions, placement, William T. Hogan-1962 Roscoe Pound-1957 ($1.00) ($1.00) * Involuntary Participation in U nion­ Consolidated Grants: A f\1eans of ism, Philip D. Br(ldley-1956 ($1.00) Maintaining Fiscal Responsibility, George C. S. Benson and Harold F. *The Role of Government in Devel­ McClelland-1961 ($1.00) oping Peaceful Uses of Atomic Ener­ gy, Arthur Kemp-1956 ($1.00) *The Patchwork History of Foreign Aid, Lorna Morley and Felix Morley *The Role of The Federal Govern­ -1961 ($1.00) ment in Housing, Paul F. Wendt­ 1956 ($1.00) U.S. Immigration Policy and World Population Problems, Virgil Salera­ *The Upper Colorado Reclamation 1960 ($1.00) Project. Pro by Sen. Arthur V. Wat­ kins. Con by Raymond Moley-1956 Voluntary Health Insurance in the ($1.00) United States, Rita R. Campbell and W. Glenn Cafnpbell-1960 ($1.00) *Out of print.

LEGISLATIVE AND SPECIAL ANALYSES 90th Congress, Second Session, 1968 Program Priorities in the Budget for Legislative History, 90th Congress, Fiscal 1969. Special Analysis First Session, and Index of AEI Pub­ lications Presidential Measures on Balance of Payments Controls. Special Analysis. The Debate on Private Pensions By Gottfried Haberler and Thonlas Willett 158

The Debate on Private Pensions. A The Federal Budget for the 1969 Condensation of AEI Analysis No.4. Fiscal Year. Statistical Supplement. (50 cents) Special Analysis The Federal Budget for the 1969 Fiscal Year. Special Analysis

90th Congress, First Session, 1967 *Legislative History. 89th Congress, The Price of the United States Gov­ 2d Session, and Index of AEI Publi­ ernment, 1948-1967. Special Analysis cations ($1.00) ($3.00) *The Federal Budget for the 1968 The Proposed National Home Owner­ Fiscal Year ($1.00) ship Foundation. Bills by Sell. Percy; V.S. Foreign Trade Policy After the Rep. Widnall ($1.00) "Kennedy Round" ($1.00) A Proposed Approach to the Spend­ Proposed Social Security Amend­ ing Problem. H.R. 10520 by Rep. ments of 1967 ($1.00) Mills to Create a Commission to Evaluate Federal Programs ($1.00) A Convention to Amend the Consti­ tution?-Questions Involved in Call­ Proposals that Deal with National ing a Convention V pon Applications Emergency Strikes ($1.00) by State Legislatures. Special Analysis ($1.00) Combating Crime. National High School Debate Series. Special Analy­ The "Truth-in-Lending" Bill. Bill by sis ($1.00) Sen. Proxmire ($1.00) Federal Revenue Sharing Proposals­ Should the Federal Government Guar­ General Grants to the States with '"No antee a Minimum Cash Income to all Strings Attached" ($1.00) Citizens? National College Debate Series. Special A llalysis The President's 1967 Tax Proposals ($1.00) Unless otherwise indicated, all Studies and Analyses-$2.DD per copy.