Magazine article Government Finance Review

The Coming of the Devolution Revolution

Magazine article Government Finance Review

The Coming of the Devolution Revolution

Article excerpt

A quiet revolution is underway that will radically transform our intergovernmental system of government. Devolution - the return of power and responsibility to state and local governments by the federal government - will bring new challenges as major shifts in program and funding responsibilities occur. There will be new opportunities to improve program efficiency with greater flexibility and clearer lines of responsibility and accountability; nevertheless, the main concern is still financial. Who will pay for the revolution?

All state and local officials have a stake in the outcome of federal budget decisions that will affect our intergovernmental partnership. As efforts move forward to devolve and downsize federal programs, finance officers at the state and local levels will play a pivotal role in designing and implementing the new programs. To prepare for these sweeping changes, finance officers need to understand the extent of the changes and the potential impact on their governments' budgets and long-term financial plans.

Larry Naake, executive director of the National Association of Counties, outlined some of the expected impacts of devolution in a recent County News editorial. He noted that federal spending is expected to decrease by more than $900 billion over the next seven years and this will be accomplished by slowing the growth of Medicaid and Medicare from 10 percent to 4 percent per year, reducing welfare funding by $82 billion over the same period, and shifting more program and funding responsibility to the state and local level. Medicaid and welfare would become block grants to the states rather than continue as entitlement programs to individuals.

In a December 27th editorial entitled, "Federalism 101," The Washington Post questions whether the states will have the financial resources to take on the new burdens this Congress and those governors who want greater flexibility would impose. They cite a report by the Center for the Study of the States at the State University of New York that finds that Medicaid was 9.1 percent of state spending in fiscal year 1990. By 1994, this percentage had risen to 12.8, a 40 percent increase. The center's study also brings into sharp focus the hard choices that will have to be made as the federal budget problem is solved at state expense. It notes that state budgets are already pinched. For example, higher education's share of state spending fell from 1990 to 1994 causing tuitions to rise rapidly, and the share going to elementary and secondary education remained the same despite almost a 7 percent increase in enrollment.

Local governments, as the providers of last resort and the government closest to the people, will be significantly affected by the devolution revolution, too. How many states will cut back on assistance to local governments, forcing them to make their own hard choices involving reduced services, staff reductions, and tax increases?

To highlight the local impacts of devolution, a first-ever Conference of Local Governments was convened in Chicago in mid-November by the National League of Cities (NLC), National Association of Counties (NACo), and the U.S. Conference of Mayors (USCM). This conference was preceded by a federalism summit for state officials held in October in Cincinnati. Now is the time for the states and localities to join forces in working with the Congress and the administration to shape the new federalism.

At the local government conference, participants developed a set of recommendations to guide the national debate over realigning federal policy and pledged to work together to urge Congress and the President to balance the federal budget and to evaluate carefully the impact of any federal tax cuts. …

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