The Drive to Kill Revenue Sharing

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Still, there is a deeper argument over revenue sharing than the matter of whether the President or the Governors currently possess the most political courage. It centers on the question of just which governmental functions should be national, and financed by all taxpayers, and which are primarily local and should be funded locally. Federal grants to states and cities took root in the 1960s largely as Democratic programs aimed at particular problems, including health, nutrition, housing and jobs. Funds were earmarked for very specific purposes, and Washington set standards that had to be met to get the money. Richard Nixon instituted general revenue sharing in 1972; by next October $78.6 billion will have gone out to cities, counties and states. The rationale was mainly to give cities with impoverished property-tax bases a chance to provide local services comparable to more stable communities. Argues New Hampshire's Republican Governor John Sununu: "The whole point of the Federal Government is its being an equalizer. That's its role."

Two things went wrong, according to many specialists in the field. First, most of the money was expected to be used for buildings, sewers and other construction projects. But with no strings attached, cities often simply tucked the money into their general budgets, spending it on such traditionally local functions as police and fire fighters and even golf courses. Says Martin Anderson, a former Reagan adviser and now a fellow at California's Hoover Institution: "Revenue sharing is a pure grant; you don't have to take any responsibilities. That's why local governments love it."

Second, in the political struggle over the funds, nearly every city got a piece. A compromise formula based on population, tax base and per capita income led to a thin, scattershot dispersal of money. The recipients included not only down-at-the-heels municipalities but also gilded places like Palm Springs, Calif., Vail, Colo., and Greenwich, Conn. Critics point out that 25% of grants in 1983 went to cities in the ten wealthiest states.

Defenders of the program contend that this does not mean the principle is flawed but that the distribution formula should be changed. They concede, however, that federal income tax revenues, which once seemed limitless, can no longer provide the surpluses needed to prop up local budgets. At the same time, many cities have broadened their financial bases through sales or income taxes. In 1972, for example, sales taxes accounted for 8.6% of all local revenues; by 1983 they supplied 14.2%. Meanwhile, federal revenue sharing, which contributed 13.7% of all local government income in 1973, dropped to 6.4% in 1983. That leads the Administration to claim that cities really will not miss the dwindling federal funds as much as their officials fear. Contends the Hoover Institution's Anderson: "If a politician can't squeeze 5% or 6% out of a budget without a major tax increase, he shouldn't be in office."