The Drive to Kill Revenue Sharing

Budget Director David Stockman said it first when he unveiled the Administration's proposals for radical cuts in domestic spending. Treasury Secretary James Baker picked up the refrain in Senate testimony. But no one has voiced the argument against federal revenue sharing more often or more forcefully than Ronald Reagan. He said it again last week when he met with the National Governors' Association at the White House: "There's simply no justification for the Federal Government, which is running a deficit, to be borrowing money to be spent by state and local governments, some of which are now running surpluses."

As with so many of the President's sweeping pronouncements, his comparison of federal and state finances contained much appeal, some merit and considerable oversimplification. To be sure, the federal red ink is overflowing. The Congressional Budget Office predicted last week that even if the President gets all the spending cuts he wants, which seems highly unlikely, deficits will average about $185 billion a year for the next five years, rather than declining to $144 billion by 1988, as the Administration projects. Meanwhile, the states, all of which except Vermont are forbidden by their own laws or constitutions to operate with deficits, ended their last fiscal years with a total surplus of $6.3 billion. The Administration has used this contrast as its main argument for ending the 13-year-old program of general revenue sharing, under which 39,218 cities and counties last year split a pot of $4.5 billion in unrestricted federal grants. As Baker told the Senate Appropriations Committee, "Stated simply, we have no revenue to share."

The Governors, 34 of whom are Democrats, issued no outcry against the proposed cutoff. "Revenue sharing has got to be on the table with everything else," said Colorado's Richard Lamm, a Democrat, about the concerted need to reduce the national deficit. But the Governors are by no means idle spectators in the fight over the program. They know that if cities lose their customary Washington pipeline, they will turn first to their state capitals to try to close the gap. Many Governors contend that their state surpluses are small relative to their budgets, and that they are required to set aside much of the extra money in "rainy day funds" for emergencies. To give greater help to the cities, the Governors say, they would have to raise taxes. Pennsylvania's Republican Govenor Richard Thornburgh said he was worried the Administration might be considering "some kind of bizarre reverse revenue sharing that would make this supposed pot of state surpluses available for solving the federal deficit."

The states lost their cut of $2.3 billion in revenue-sharing funds in 1981, and many Governors and legislatures began passing tax increases at the time. More hikes followed when the recession further reduced local and state revenues. Democratic Governors, in particular, complain that if Reagan will not take the unpopular steps of raising federal taxes and freezing Social Security benefits, as well as holding down military spending, it is unfair to expect the states to raise money once again to replace the federal funds.