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Urban Policy in a Changing Federal System: Proceedings of a Symposium (1985)

Chapter: 5. The Distributive Politics of the New Federal System: Who Wins? Who Loses

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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Page 133
Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Page 134
Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Page 135
Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
×
Page 136
Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Page 138
Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Page 139
Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Page 140
Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Page 145
Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Page 154
Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Page 155
Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
×
Page 156
Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
×
Page 157
Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Page 159
Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
×
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Suggested Citation:"5. The Distributive Politics of the New Federal System: Who Wins? Who Loses." National Research Council. 1985. Urban Policy in a Changing Federal System: Proceedings of a Symposium. Washington, DC: The National Academies Press. doi: 10.17226/598.
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5 The Distributive Politics of the New Federal System: Who Wins? Who Loses? Dale Rogers Marshall and John I. Kirlin INTRODUCTION President Reagan's domestic policies seek to promote economic growth, to cut federal domestic expenditures, especially on welfare, and to reduce the policymaking role of the national government while increasing that of states. In Reagan's view: Government is not the solution to our problems. Government is the problem. (Reeves, 1984:26-29). Reagan argues that the Taxing power of government must . . . not be used to regulate the economy or bring about social change. (U.S. Congres- sional Record, 1981:H510-H514). This traditional con- servative view suggests that Reagan's goal is not just to trim expenditures, but to redefine the role of the national government. Among those policies being revised are urban policies adopted in the past two decades to help disadvantaged places and persons. Some would argue that the objective is to dismantle the Welfare state,. an attack encompassing not only specific programs but the premises (theories) that have dominated recent policymaking. While definitions of the welfare state differ, a com- mon element is redistribution of society's resources through public policy. For example, Janowitz (1966:10) argues that The welfare state rests on the availability of some form of economic surplus . . . that can be real- located in terms of a set of principles.. Perceptions of both economic surplus and principles by which it should be reallocated are not immutable laws of nature. They are instead theories, social constructions contain- ing both descriptions of what is occurring and valua- tions. For example, does an economic surplus exist after subsistence needs are met or after investment in 127

128 capital goods for future production? Similarly, should reallocation of any surplus be on the basis of income, class, merit, or some other criterion? Policy choice requires closure that is inevitably political, although empirical evidence and analyses may intrude. While most discussions of the welfare state focus on redistribution, the concept of Distributive goods. is also useful. An activity of government provides dis- tributive goods whenever benefits of the activity are received by some individuals to the exclusion of oth- ers. Some theorists call these ~private. goods, noting that such goods can be produced by governments as well as by private firms. This is in distinction to goods whose benefits may not be appropriated by any individ- ual, but are instead ~public. goods. Among examples of the latter are legal systems or national defense: All members of society benefit from expectations of the security of contractual arrangements and from physical security and no one can be excluded. Few governmentally produced goods or services are pure public goods; most are distributive or private goods or ~mixed. goods with elements of general and individual benefits. Two examples of mixed goods are publicly funded education and urban redevelopment. Recipients of schooling and users of renewed physical structures and owners of adjacent property benefit in- dividually, but general or public benefits are also ac- crued in the form of a better-educated citizenry and labor force and in increased economic activity and gov- ernment revenues. Government action, thus, almost always has distribu- tive impacts: Some individuals are assisted more than others. While the total of benefits received from all governmental activities may balance out among individ- uals, it is more likely to be the case that some indi- viduals come out comparative winners and others compara- tive losers as a result of government's activities. This is ~redistribution. in the technical sense. How- ever, in common language and in most policy debates and policy evaluations, the term redistribution is defined more narrowly as the incidence of benefits received ver- sus costs borne in terms of an individual's income. One of the anomalies of politics in this nation is that income-related redistribution has come to be iden- tified almost exclusively with transfers to those of lower incomes. In the dominant theory, redistribution is equated with welfare. Governmental activities pro-

129 viding net benefits to individuals of higher than aver- age incomes are not perceived as Redistribution and certainly do not carry the negative label of ~welfare.. The dominant language of politics and policymaking em- phasizes two types of programs: welfare and public goods. If a program is targeted on the poor, it is wel- fare; if not, it is discussed as if it were a public good. This limitation of language is powerful polit- ically. It masks the reality that almost all govern- mental activities are distributive; they affect individ- uals differentially because they are mixed or private goods. Moreover, it blinds citizens and policymakers alike to the substantial redistribution to individuals of higher incomes that occurs as a result of many gov- ernmental activities. These limitations on common perceptions of govern- mental activities, joined with demographic factors (the poor are a minority) and differential rates of political participation and organization (which favor the better off), make it difficult to adopt and maintain programs that benefit the poor. This was true both before and after the election of Ronald Reagan. In this paper we examine distributive impacts of Reagan's domestic policies, particularly the effects on affluent and less affluent people and places and on changes in the dominant theory of domestic policies. To provide a baseline and context for comparison, we first review the distributive impacts and dominant theory of national policies in the 20 years prior to Reagan's presidency. This review reveals that economic growth made the major contribution to rising standards of liv- ing. Expanding social programs also contributed to a modest redistribution of society's resources toward the poor. However, the largest and most rapidly growing federal domestic programs were not pro-poor in opera- tion. In the same two decades, federal tax and expen- diture patterns encouraged equalization of incomes among cities, states, and regions. In that period, social policies were justified both as benefiting the general public and promoting redistribution to the poor, but there was little recognition that virtually all policies are mixed goods with major distributive effects, few of which help the poor. With the context established, we turn to an examina- tion of changes made during the Reagan presidency. We review current evidence on the distributive impacts of Reagan's cuts in entitlement and operating grants, and

130 the net effects of those plus changes in defense spend- ing and in taxes. Overall, the evidence confirms ex- pectations that Reagan has somewhat decreased redistri- bution from affluent to less affluent people and places (Palmer and Sawhill, 1982). Moreover, improving per- formance in the economy may not pull up the bottom of the income distribution. In part this is because the cuts that have been made have focused on pro-poor, re- distributive, welfare programs, while leaving relatively unscathed those programs whose distributive effects favor the more affluent. The political power of those with middle-class and better incomes has protected their programs. Reagan's policies have been pursued in the name of protecting a general interest in a public good, namely economic performance. Redistribution to the poor is attacked as undermining the work ethic. An expansive public sector is attacked as diverting for investment and reducing incentives ation. This represents an important shift in the domi- nant theory underlying domestic policy in the Reagan administration. We argue that the theory base of social policy has shifted more than the distributive impacts. Next, we consider variations in state and local re- sponses to Reagan's programs. They depended on the type of program, amount of fiscal pressure, and political ideology. Finally, we examine special problems of mi- norities and cities and close with a discussion of key issues that emerge from the analysis. The evidence of policy effects considered in this paper is limited to that which is available in previous analyses, a not uncommon limitation. But we have also sought self-consciously to include available evidence on the impacts of the full range of governmental activi- ties, not just ~urban. policies. Some of the conflict over the design and effects of redistributive policy results from varying definitions of the relevant poli- cies. If the focus is simply on pro-poor or urban pro- grams, much of the richness of policymaking in the Amer- ican political system is missed. Pro-poor programs make a modest contribution to improving life situations of the poor, so this focus is not sufficient if that is one's goal. To understand the effects of the Reagan policies, a broader net is mandatory, as those policies have emphasized the contributions that general economic growth, subnational policies, and nongovernmental efforts can make to reducing poverty and to improving the quality of life in cities. . . . , _ resources needed for income gener-

131 DISTRIBUTIVE POLITICS IN THE PRE-REAGAN PERIOD In the 20 years prior to the Reagan administration, federal expenditures increased rapidly. How much redis- tribution from the affluent to the nonaffluent took place in this era of growth? Distributive impacts are complex and controversial, varying by program and over time under different admin- istrations. Assessments also change, as illustrated by the fact that some of those who were most critical of the earlier programs now criticize the Reagan adminis- tration for attempting to change them (Piven and Cloward, 1982; Auletta, 1983:296). Yet retrospective evaluations of the domestic programs from the Kennedy- Johnson administrations through Carter reveal some gen- eral patterns. This pre-Reagan period was a time of expanding fed- eral benefits for individuals and cities. The largest entitlement programs, Social Security and Medicare, were not means-tested and benefited the middle class without much of a downward tilt. But some of the smaller enti- tlement programs, such as Aid to Families with Dependent Children (AFDC) and Medicaid, were redistributive. Op- erating grants for state and local governments consti- tuted a much smaller proportion of federal domestic spending than entitlement grants. Distributive impacts were mixed, depending on the type of program and char- acteristics of the entities implementing federal initia- tives. Operating programs as well as entitlement pro- grams that provide services, such as Medicare and Medi- caid, provide benefits to provider groups and not just to the eventual recipients of services. Yet, modest levels of redistribution did occur and social programs contributed to those trends. There was a decline in absolute poverty and a move toward more equality of income (Plotnick and Skidmore, 1975). The federal government also played an income-equalizing role among cities, states, and regions and stimulated local jurisdictions to assume responsibilities for new pro- grams, some of which were oriented to disadvantaged groups. In this era, redistribution gained prominence on the political agenda. But the amount of redistribu- tion that actually occurred was more modest than com- monly recognized because the biggest programs were not pro-poor. The underlying theory in this era justified policies in terms of promoting both general public interests and

132 redistribution to the poor. The thrust was toward an expansion of the public sector without much knowledge of, nor concern for, the long-term costs. Despite a few explicitly distributive policies for poor people and places, the distributive impacts of the other policies, which were not pro-poor, were rarely acknowledged. Sup- port for the redistributive policies was quite fragile because they were often instituted Won the cheap. polit- ically and fiscally. Entitlement Grants Many people believe that most government spending has been for programs that benefit the poor, but they are wrong. The largest and fastest-growing portions of the domestic budget in the pre-Reagan era were entitlement grants providing cash or in-kind transfers to families and individuals. They constituted approximately 48 percent of federal budget outlays in 1976 (Palmer and Mills, 1982:65). The largest of these programs--Social Security and Medicare--represented 38 percent of the federal budget in 1978 and chiefly benefited the middle class (Page, 1983:88). Means-tested transfers--AFDC, Supplemental Security Income (SSI), Medicaid, and Food Stamps--were a much smaller share (10 percent in 1976) of the federal budget (Palmer and Mills, 1982:65). So, low-income assistance with a downward tilt was not the largest proportion of government spending on transfers; expenditures for the other programs were almost four times larger. Social Security involves regressive taxes and pro- poor benefits, but overall it Gives back to each income class roughly the same amount it takes away . . . there is not much net redistribution of lifetime incomes. (Page, 1983:29). Medicare, like Social Security, covers the elderly population and is directed mainly at the middle class. Like Social Security, it is financed by a regressive payroll tax, and the value of the insurance the average person receives from the program is roughly equivalent to the money paid in during his or her work- ing years (Page, 1983:75). Means-tested assistance programs expanded more rap- idly than did Social Security in the 1971-1979 period (232 percent versus 192 percent), though by the late 1970s their growth had slowed and benefit levels were not keeping up with inflation (Page, 1983:70). To-

133 gether, AFDC and SSI constitute only about one-tenth of federal expenditures on retirement and disability pro- grams or about 3 percent of federal expenditures (Page, 1983:70). Food Stamps, Medicaid, and housing assis- tance, being in-kind transfers, help provider groups as well as recipients. Medicaid, which provides a large transfer from high-income people to low-income people, may not have helped the poor as much as its costs would indicate because the rising fees went to doctors and hospitals (Page, 1983:76). Rent supplements, like AFDC and Food Stamps, helped mostly those with the lowest incomes, but they constituted a very small program and most of those who were eligible could not get supple- ments. The largest program of housing assistance, namely, homeowners' deductions of mortgage interest and property taxes (estimated at $33 billion in 1982), con- stitutes a subsidy to higher income individuals. Operating Grants In the highly decentralized U.S. federal system, the central government attempts to achieve some of its goals by providing operating grants to state and local govern- ments for many services, including employment, economic development, health, education, housing and community development, transportation, and social services. These grants are a much smaller proportion of the federal bud- get than entitlements (10 percent compared with 48 per- cent in 1976; Palmer and Mills, 1982:65). Each admin- istration in this period had its own version of New Fed- eralism, using different types of grants that varied the targeting on national goals versus discretion for local officials (Wright, 1982). Johnson's New Federalism spurred a rapid expansion of categoric grants for poverty and depressed areas, in- cluding cities. These grants involved high federal con- trol and a dual strategy of funding both city govern- ments and special entities, such as community-based organizations. The grants were oriented not just toward reducing poverty but also toward redistributing politi- cal resources and improving local capacity to plan, coordinate, and deliver services to the poor, goals that often were in conflict (Marris and Rein, 1967). Over- all, the grants did stimulate local spending and re- sulted in some redistribution of resources to needy people within cities and some redirection of federal

134 money to the poorer cities and regions of the country (U.S. Advisory Commission on Intergovernmental Rela- tions, 1978a, 1978b; hereinafter USACIR; Whitman and Cline, 1978). Block grants and general revenue sharing instituted in the Nixon and Ford era of ~decentralist. New Federal- ism decreased federal control and relied on formulas rather than project applications to determine the dis- tribution of funds. Block grants placed fewer restric- tions on local discretion than general revenue sharing, but more than categorical grants. Both kinds of grants spread resources to less needy people and cities (USACIR, 1977; Nathan and Adams, 1977; Nathan et al., 1977). A major consequence of general revenue sharing and formula-allocated block grants was that virtually all local governments received federal aid and became subject to both program-specific and cross-cutting federal regulations. Carter's ~economic. New Federalism continued the tripartite mix of grants, but emphasized programs to counteract structural and cyclical economic distress, including Urban Development Action Grants and Public Service Employment (Kirlin, 1982). Federal controls over Community Development Block Grants (CDBG) and the Comprehensive Employment and Training Act (CETA) were gradually increased in response to criticism for fraud and waste and resulted in more social and geographic targeting (Nathan et al., 1977; Dommel, 1982). Even though operating grants to state and local governments were a much smaller portion of the federal budget than transfer payments in the pre-Reagan era, interest groups (including program constituencies) focused intense political controversy on these discre- tionary funds. Evaluations of the programs continue to reflect those controversies. Proponents argue that operating grants supplement benefits from entitlement grants and help raise living standards of low-income groups. In this view, health (Davis and Schoen, 1978), education (Mazmanian and Sabatier, 1983), and community development (Dommel, 1982) programs have all benefited the poor. Even em- ployment programs, which have been harshly criticized, are seen as providing some assistance to low-income par- ticipants (Baumer and Van Horn, 1984). Critics hold that operating grants are an inefficient method of redistributing resources, i.e., that the costs are too large for the benefits received. They argue

135 that provider groups, which constitute the political base for the programs, benefit more than the actual clients. Defenders of operating grants point out that such grants also increase the capacity of local jurisdictions to respond to low-resource groups and redistribute po- litical resources to the poor. They add new services for the poor in education, health, housing, social ser- vices, and so on (Browning et al., 1984), though in many cases those services are kept separate from a jurisdic- tion's core activities, not supported by general funds, and not viewed as local programs. They also engender various kinds of citizen-participation structures and procedures that, however weak, contribute to subtle but not insignificant shifts in local political dynamics. The programs are seen as qualified successes because they promoted political change, stimulating local governments to provide new services for the poor and increasing the ability of the poor to organize and to promote local government responsiveness (Levitan, 1969; Haveman, 1977). Local governments became strong part- ners with the national government in an intergovern- mental system characterized by mutual dependence, an Uneasy partnership,. but one in which both the national and local governments were both individually strong and interdependent (Reagan and Sanzone, 1980; Williams, 1980; Leonard and Marshall, 1982; Fossett, 1983). The impacts of grants depend partly on the character- istics of the local entities implementing them. It is extremely difficult to force local entities to target their programs on the poor when their leaders oppose such redistr ibution . Grants facilitate changes in local organizations willing to move in the direction desired by the national government, but they cannot directly force that change on resistant recipients (Ingram, 1977; Browning et al., 1980; Williams, 1980; Mazmanian and Sabatier, 1981). The grants, however, do provide addi- tional resources to some local groups favoring redis- tributive programs, thereby helping them gain more poli- tical influence (Peterson and Greenstone, 1977; Browning et al., 1984). Impact on People and Places In the pre-Reagan period, economic growth was a major factor in the rising standard of living, the decline in

136 absolute poverty, and the overall movement toward rela- tive equality of income, but social programs, especially entitlements, also contributed to these results (Bawden and Levy, 1982:460). Thus. those who sav the ore- Reagan programs did ~ ~ not work are judging them too harshly; they did promote redistribution toward the poor. The economy grew steadily in the early 1960s to the early 1970s, the living standard of the average family improved, and the percentage of the population below the poverty level declined by almost half. During the 1970s, the standard of living increased only slightly, while the percentage of the population below the poverty line stayed rather stable, due particularly to growth of female-headed households (Bawden and Levy, 1982:461). Studies show that at the end of the 1970s government income transfers reduced the number of poor people below the official poverty line from about 20 percent in 1965 to 11 percent, or to 4.1 percent if income underreport- ing, taxes, and the value of in-kind benefits are con- sidered. However, relative poverty was the same as it was in 1965 (Page, 1983:89). Depending on their values, analysts reach conflicting conclusions about these impacts. Wilensky (1983) sees the achievements as substantial. Page does not. He says that the large sums spent on entitlement grants have contributed to redistribution, but have done Much less than most people imagine to increase the equality of incomes ~ . . they raised many people out of misery and guaranteed a minimum level of food, money and medi- cal care for most of the population. But . . . [they] have not brought about substantial increase in income equality. (Page, 1983:91). This picture of the distributive impact of programs on individuals is not changed by a consideration of taxes. Taxes have little if any effect on income redis- tribution: While federal taxes are somewhat progressive with a regressive social security payroll tax diluting the moderately progressive individual income tax (effec- tive rates as contrasted with the nominal scheduled rate), this progressivity is nullified by regressive state and local taxes (Page, 1983:22-34). The impact of pre-Reagan programs on regions, cities, and states was more clearly redistributive. Until 1980, federal tax collections were somewhat higher in the North than in the West and South. Nondefense federal

137 outlays during the 1970s were above the national average in the Northeast and the West. Defense outlays were highest in the South and West. Muller (1982:444) con- cludes that The combined effect of large tax contribu- tions by northern industrial states, the more regionally equal distribution of nondefense federal funds, and the concentration of defense outlays in the South and West resulted in a steady flow of federal dollars from north- ern regions to other areas.. Federal tax and expend) ture patterns helped to equalize incomes between the higher income industrial states and low-income states with large rural populations (Anton, 1980:33-35: U.S. Department of Housing and Urban Development, 1982:26; hereinafter USHUD; Muller, 1982:446). Federal operating grants also contributed to redistribution by targeting needy jurisdictions (Anton, 1980:100; Owens and Wade, 1984). In sum, the dominant theory of the pre-Reagan era emphasized centrally initiated social policy, which was justified primarily in terms of providing generalized benefits but also in terms of promoting redistribution, with the latter being equated with pro-poor activities. Program expansion was seen as good and little attention was given to the long-term program costs. Some policies were discussed in explicitly redistributive language (e.g., policies for needy cities and populations), but there was little recognition that virtually all programs and policies were mixed goods with major distributive effects, few of which helped the poor. Redistributive policies were often initiated by a few key individuals, which when combined with a weak fiscal base, made the policies very fragile. Financing came from increased revenues obtained not through a direct tax increase, but through an inflation-induced creep of personal income tax brackets, reductions in defense spending, or increased Social Security taxes. Political support was also weak because the full costs of social programs were not recognized, and because the programs' initiation preceded development of interest groups pow- erful enough to defend them. Goals were vague, con- flicting, and changing (for example, CETA-Public Service Employment was launched as an anticyclical economic stimulus program, but it was redefined as an income redistribution-training program). When economic perfor- mance faltered and fiscal strain increased, the politi- cal coalitions that had supported the policies and domi- nant theory of the pre-Reagan era were defeated.

138 DISTRIBUTIVE POLITICS IN THE REAGAN ADMINISTRATION Liberal critiques of the pre-Reagan policies often faulted redistribution as insufficient and predicted a rising concern with redistribution (Haveman, 1977). Events, however, have followed quite a different course. A strong economy, which had been taken as a given, became problematic. Starting in the late 1970s, even before the Reagan administration, generation of resources replaced redistribution of resources as a dom- inant issue on the national agenda. The foundation of President Reagan's domestic program was economic recovery based on tax cuts, reductions in domestic spending, regulatory relief, and monetary re- straint (USHUD, 1982). The program assumed that eco- nomic growth would promote the vitality of cities and citizens living in them by providing jobs and expanding the tax base. Cuts in domestic spending for cities and individuals, many predating Reagan, were accelerated in his administration. Reagan's version of New Federalism increased the role of states. His policy was to give Maximum feasible responsibility. for urban matters to states on the theory that states are more capable of meeting problems--more responsive, efficient, and accountable--than the more distant federal government. Reagan's urban policy asserted that states can mobilize broad bases of support to tackle their economic, finan- cial, and social problems and can correct imbalances in local fiscal capabilities (USHUD, 1982:56-57). The pol- icy presumed that federal assistance should not try to reverse urban decline but should complement rather than displace market forces through assistance that attracts private investment (USHUD, 1982:23). Reagan emphasized economic development, public-private partnerships, and a work-oriented theory of welfare that holds that poor people who are working, or who are able to work, ought to be excluded f ram the welfare system to discourage dependence (Nathan and Doolittle, 1983:3). The programs discussed in the remainder of this paper result from a complex policy process in which the Presi- dent proposes, and Congress disposes, so the resulting political compromises may not reflect the preferences of any of the participants. They are nevertheless called Reagan programs. What have been the distributive impacts of Reagan's

139 programs over the past four years? The size and scope of the national social programs have been reduced and income taxes have been decreased. Social program bene- fits and the number of beneficiaries have been cut, and costs have been shifted to state and local governments and consumers of the programse These changes have de- creased the modest levels of redistribution that char- acterized the pre-Reagan period. Lower income groups (including minorities, the elderly, and women heads-of- households) are losing and higher income individuals are gaining. In addition' Reagan's programs are increasing disparities between affluent, growing regions and cities and poorer, less economically vital ones. This pattern reflects political realities. Programs with the least political support were cut and those with more support were largely spared. Administrations are most responsive to their own constituencies, their own base of political support. A Republican-controlled Senate helps the Reagan administration make its prefer ences prevail. However, the administration has been much less successful since the dramatic victories of the 1981 Omnibus Budget Reconciliation Act. Recently, cuts have been restored as constituencies that benefited from the pre-Reagan programs--public and private provider groups and related interest groups seeking to protect their core activities--have reasserted themselves. The underlying theory of Reagan's social policies is dramatically different from the theory of the pre-Reagan era. Reagan's policies are justified in terms of pro- moting the common good, not in terms of redistribution to the poor. Program cuts and a reduced national role are defended not simply on financial grounds but also on grounds that federal efforts to promote social change are harmful. Theory in this era, as in the earlier era, continues to ignore the distributive impacts of the broad range of federal activities, except in tax policy; some justify tax cuts to provide incentives for work, savings, and investment. The fragile support for redis- tribution that had existed previously was unable to block the ascendance of a new dominant policy theory. Entitlement Grants The largest Reagan dollar cuts were in low-income assistance entitlement grants--AFDC, Food Stamps,^and

140 Medicaid (these constitute about one-fifth of all enti tlement programs) (Palmer and Sawhill, 1982:14; U.S. Congressional Budget Office, 1983:19; hereinafter USCBO). Benefit payments for individuals were reduced by 4 percent, but low-income assistance benefits were reduced 7.3 percent (Palmer and Sawhill, 1982:14-15; USCBO, 1983:77). A U.S. Congressional Budget Office (USCBO, 1983:XII) study (hereinafter CBO) estimates that reductions in benefit payments were greatest for house- holds below $10,000, which make up 23 percent of the population. They lost $430 compared with an average reduction of about $300 for those with incomes between $10,000 and $20,000 and about $120-S140 per household for higher income categories. The Reagan administration made larger changes in AFDC than had been made by all the welfare reform efforts of the 1970s. These changes cut program costs by tighten- ing eligibility through more restrictive gross-income limits and by reducing benefits by raising the tax rate on welfare recipients' earnings. The administration estimated that nationally the AFDC caseload would be cut 10 percent and that 7 percent of the recipients would receive lowered benefits. Actual cuts experienced by the states varied depending on differences in the char- acteristics of recipients. Households with a working member were hurt most by the cuts. Most of the cuts in federal spending for AFDC were ratified or passed on to local recipients by states. Only a few states provided replacement funds to those people experiencing cuts (Nathan and Doolittle, 1983: 26-30). It is not clear whether people removed from AFDC because they are working will quit their jobs and go back on AFDC, thus increasing costs. One study estimates that only 10-15 percent returned to the rolls within 6-12 months (Nathan and Doolittle, 1983:14-15). A study of AFDC recipients in Wisconsin also finds that work disincentives are small; few recipients left jobs on their own but recipients not working have less incen- tive to begin work. Reagan's changes have reduced in- come not work effort. In Wisconsin, the number of re- cipients living below the poverty line increased from 82.5 to 87.1 percent and disposable income for recipi- ents with earnings was reduced by 30 percent (U.S. Congress, Joint Economic Committee, 1983:445-446). A U.S. General Accounting Office (1984a) study of termi- nated recipients found that they reported declines in health and nutrition resulting from a loss of eligibil-

141 ity for Medicaid and Food Stamps. The major strategy for reducing Medicaid expenditures was to decrease the federal government's matching share of Medicaid costs, but the actual cuts to states are particularly difficult to measure. Preliminary esti- mates indicate that only a few states replaced lost federal funds (Nathan and Doolittle, 1983:30-32). This has prompted fears that the United States is moving toward a two-tier system of care in which preexisting inequities in medical care across states and groups will be increased (Champagne and Harpham, 1984:73-76). The longer run effects may be to raise medical costs to those not covered be Medicare and health insurance Pre- miums. Such a shift is only possible while the private sector continues to be willing to accept higher expend) tures on medical services. Some employers and third- party which In payers are now seeking to limit medical costs, would reduce the possibility of cost shifting. response to new authority in the federal statutes, states made administrative changes in Medicaid designed to increase efficiency and cut state costs. Some of these initiatives would undoubtedly have occurred with- out federal changes and often represented a response to state fiscal strain rather than federal cuts (Bovbjerg and Holahan, 1982; Feder et al., 1982:286). In 1982, California extensively reformed its Medi-Cal (Medicaid) program, not in response to any national policy, but to contain costs of the $4 billion program ($2 billion state cost). The principal feature of the reform is contracting with hospitals for patient care at flat rates per day. These contracts are estimated to have reduced state costs by $90 million in 1983-1984. Transferring the care of medically indigent adults to counties saved the state $111 million. A study by Blum et al. (1983) of these Medi-Cal changes concludes that medical care for low-income people is deteriorating as access to care becomes more difficult. The number of people eligible for Medi-Cal was down 12.7 percent from the previous year due to tightening of eligibility re- quirements and increases in the amount of money people must pay before they are covered by Medi-Cal. Patients are delaying seeking care and providers are reducing services offered or stopping to see Medi-Cal clients completely because of the reductions in reimbursements. The study concludes that over the longer term, the ini- tial dislocations could be remedied by desirable struc- tural changes or a stronger economy could lead to the _ _ _

142 restoration of cuts, but in the short run the problems have been substantial (Bellavita, 1983; Blum et al., 1983:1-8). Cuts in Foods Stamps, like the cuts in AFDC, involved tightening eligibility for those with other incomes and adding new administrative regulations. Though the cuts were large--5 out of 14 states in the Nathan and Doo- little (1982:33-34) study had cuts of 10 percent or more--the states did not replace the cuts, although nonprofit organizations sometimes expanded local feeding programs. The federal cuts were moderated in subsequent years with the breakdown in the conservative coalition in Congress (Champagne and Harpham, 1984). Budget authority for assisted housing was sharply reduced in 1981 and 1982, but outlays declined only slightly. Housing assistance was targeted more on low-income households, but increasing participant rent shares in the Section 8 program from 25 to 30 percent of income reduced the subsidy received by 14 percent (Struyk et al., 1983:73). The Nathan and Doolittle study (1983:115-116) had great difficulty in assessing the effects of these changes. The story of programs that did not face large cuts is just as significant as the story of those that did. Social Security and Medicare underwent fewer cuts and changes than did low-income assistance programs. The political firestorm that resulted when President Reagan proposed to cut Social Security was so huge that the effort was dropped in favor of minimal adjustments merely to keep the program solvent (Storey, 1983:5; Champagne and Harpham, 1984:13,27). Medicare was seen as part of the Safety net. and thus largely inviolate (Champagne and Harpham, 1984:73). Strong pressure from interest groups prevented cuts in these programs and forced budget cuts to be directed at programs for the poor (Greider, 1981). The Safety net. advocated to protect truly needy citizens worked better for the middle class than for those with low incomes. Operating Grants Reagan's largest percentage cuts were in operating grants for state and local government services. How- ever, those cuts did not have as much impact as the changes in entitlements, which involved smaller percent- age cuts but a great many more dollars. Reductions in

143 operating grants were estimated in advance to be about 25 percent, but the actual cuts varied widely by pro- gram. The biggest cuts were in grants for jobs, com- pensatory education, health, and social services--the pro-poor programs. Initial evaluations of the distributive impacts of changes in operating grants suggest that effects have been modest. As demonstrated in the pre-Reagan period, changes take ~ long time to work their way through the system. National cuts are not translated instantane- ously into local cuts; changes in national program de- sign do not necessarily affect local program implementa- tion. State and local governments have used three main strategies to minimize disruptions to their routines: · pass on funding cuts, · pass through effects and responsibilities, and · perpetuate old programs. As a result of these strategies and the existence of federal carry-over funds, the effects of Reagan's changes in operating grants have been smaller than expected. Programmatic and allocational changes that did occur were at the margins. Employment programs were cut the most at both the state and local levels. These cuts particularly hurt lower income persons, the working poor (the same group most affected by cuts in transfers), and the nonprofit organizations that had been most involved in employment programs (Nathan and Doolittle, 1983:92). The public service component of CETA was completely eliminated and training was cut approximately 46 per- cent. Nine out of 14 cities in the Nathan and Doolittle sample lost 25-50 percent of their CETA training funds (Nathan and Doolittle, 1983:20-21). Most states and cities did not replace the lost funds because they viewed CETA as a federal program lacking local political support. (After the 1978 revisions, which had targeted CETA more heavily on the disadvantaged, local govern- ments lost interest in the program and allocated more CETA workers to nonprofit organizations). The Nathan and Doolittle study (1983:54), however, did identify some cases in which state funds were used to replace lost federal funds. Massachusetts, New Jersey, and California expanded training programs but were careful to distinguish those efforts from CETA. Some cities, too, continued selected CETA services,

144 especially summer youth programs. For example, in Houston, the political strength of minority groups resulted in continuation of summer youth programs. In Chicago, CDBG funds were used to finance a summer jobs programs, and in Boston, city and private sector offi- cials raised money for the program. The cuts also stim- ulated some changes in services and new emphasis on quick payoffs or low costs, such as job-finding skills and placement services rather than training. Private sector influence in the CETA program also increased (Nathan and Doolittle, 1983:93-95). State employment services also had major cuts of about one-third, but political pressure from state officials and employees succeeded in reducing the cuts to about 10 percent (Nathan and Doolittle, 1983:54). In 1983, CETA was replaced by the Job Training Partnership Act; funding for the new program was 35 percent lower than for its predecessor, which represented a substan- tial reduction in aid for the disadvantaged (Baumer and Van Horn, 1984). Two types of education programs took large cuts: compensatory education (Title I) and the Elementary and Secondary Education Block Grant. Title I was cut 25 percent, concentration grants to counties with high pro- portions of low-income families were eliminated, and many statutory restrictions regarding targeting on low- income children were relaxed (Nathan and Doolittle, 1983:96). At least 11 of the 14 cities in the Nathan and Doolittle sample passed these cuts on without re- placing them with local funds. Some absorbed the cuts by serving fewer students and some cut services per child. Although the Elementary and Secondary Education Block Grant, which consolidated 29 small programs, was cut 38 percent (Nathan and Doolittle 1983:20), forward funding meant that the effects were not generally felt in 1982, except in those districts that had been receiving large desegregation grants, which were lost in the shift to block grants (Seattle, Rochester, and Boston, for exam- ple). Conflicts arose in many states, however, about how funds would be distributed among school districts. Some saw the funds as general support and spread funds evenly according to the number of students in districts; others saw the funds as compensatory for poorer dis- tricts and students. Some used formulas that combined the two approaches (Massachusetts, New York, Washington, Mississippi, and Florida, for example).

145 The education block grant was one of nine block grants initiated by Reagan that decreased funds and increased the role of states in order to improve respon- siveness and efficiency. Health block grants were cut 20-35 percent, but carry-over funds enabled states to protect existing services (Nathan and Doolittle, 1983: 38). Where programmatic shifts were made, they were in health outreach, health education, and other services with little short-term mpact (Nathan and Doolittle, 1983:41). The social services block grant had large dollar cuts in most states. Requirements restricting eligibility to low-income individuals and requiring state and local matching were also eliminated (USCBO, 1983:62). More replacement appears to have occurred in this block grant than in others. Six states in the Nathan and Doolittle sample shifted low-income energy assistance funds to social services. Four states replaced lost federal funds with state funds--Massachusetts, New Jersey, Arizona, and New York. Yet despite these shifts and replacements, cuts in this program were still substan- tial, affecting day care, outreach, and advisory and preventive programs (Nathan and Doolittle, 1983:42-43). Two other block grants, Community Services Block Grants tCSBG) and CDBG, illustrate the geographic spreading effects of Reagan's programs. Large cuts in CSBG (41~percent) had an immediate impact on these so- cial service programs. Carry-over funds provided only a cushion in 3 states and replacement occurred in only 1 of the 14 states in the Nathan and Doolittle (1983:45) study. States typically shifted funds out of big cities (Chi-ago's share of state community service funds went from 70 percent in 1981, to 55 percent in 1982, to 40 percent in 1983). Programs changed to services rather than advocacy. Community action agencies in most states had major reductions in funding, staff, and programs. These modifications reflected the fact that most commu- nity action agencies had not developed political ties with their state governments (Nathan and Doolittle, 1983:45,50). Cuts in CDBG were smaller (13 percent), but, as with community services, the proportion of funds going to big cities was also reduced--from 75 percent to 70 percent in the Nathan and Doolittle (1983:107) sample. Regula- tions requiring targeting on poor areas of the city were relaxed and tighter limits were placed on the use of funds for public services. In addition, the small-

146 cities portion of the funds were spread more widely to less distressed cities than it had been when the U.S. Department of Housing and Urban Development administered the program. States shifted programs toward economic development and public works as opposed to housing. And cities expected that they were also going to have to reallocate funds to nonpublic service activities.- A decrease in the income and geographic targeting of CDBG hurt the poor and poor places (Nathan and Doolittle, 1983:44, 109). In sum, Reagan's changes in operating grants had smaller effects than expected primarily due to carry- over funds. States and cities typically delayed making decisions about how to allocate reductions and used pro rata reductions to spread cuts among existing provider groups. They protected their core activities and adapted federal policies to fit their existing organi- zational and political patterns, passing on the cuts to others (Kirlin et al., 1984). However, Reagan's changes in operating grants did contribute marginally to a de- crease in redistribution to poor people and places. Cuts in grant programs, as in entitlements, dispropor- tionately hurt those below the average income level, who lost services (Palmer and Sawhill, 1982:21). Since they were largely low-income groups and minorities, they were not well organized to protect themselves. Impact on People and Places President Reagan's position is that the immediate sacrifices entailed by his domestic programs will be offset in the long run by the resulting economic gains (Bawden and Levy, 1982:459). But Bawden and Levy sug- gest that gains from economic growth will not offset the economic losses Policy chances have caused for those with low incomes. Changes in the demographic composi- tion of less affluent groups, particularly the growth in female-headed households, mean that those groups will not benefit as much from economic growth in the future as they have in the past. And economic trends, such as changes in the types of production and employment, may increasingly disadvantage those groups (Teitz, 1984). Reagan's tax cuts will affect personal incomes in complex ways that are not yet fully apparent. The tax reforms involved a 25 percent reduction in personal tax rates spread over three years, a decrease in tax rates

147 on unearned income from 70 percent to 50 percent, and greater investment tax incentives for business (Palmer and Sawhill, 1982:268,460). These reforms lessen the progressivity of federal tax rates (Palmer and Sawhill, 1982:21 and Hulten and O'Neill, 128). Most discussions of the tax cuts are projections of effects as opposed to analyses of effects. A CBO (USCBO, 1984a) study projected that the Economic Recovery Tax Act and Tax Equity and Fiscal Responsi- bility Act combined result in net tax reductions that rise as houseshold income rises. One analysis of 1982 tax returns challenges the CBO projections. Pratt (1984) found that in comparison with 1981 taxes the actual 1982 average tax per return decreased 6.7 percent for those with less than $10,000 adjusted gross income versus 2.7 percent for those with adjusted gross incomes over $75,000. He asserts that the actual tax relief received in 1982 by the highest income group was only one-fourth that projected by CBO. Actual data for 1983 are not available for analysis at this writing, but con- tinuation of the pattern found by Pratt would mean that the Reagan tax cuts had made the federal tax system more progressive in incidence. Projections of the cumulative effect of program-and tax changes find that the poor will lose and the nonpoor gain. A 1982 Urban Institute study (Palmer and Sawhill, 1982:21; Bawden and Levy, 1982:478-480) of the tax and entitlement policy changes suggests the following: The middle class will have a small increase in their after- tax real incomes (2-3 percent). Higher income families will have substantial gains (4-7 percent). And families with incomes below $15,000 will have no change in their after-tax income, with the exception that those receiv- ing benefit payments--particularly those AFDC and Food Stamp families with earnings--will be worse off, experi- encing a decline in income levels of over 4 percent. Rates of economic growth will affect these results, how- ever. Iow growth would slightly increase the number of families in poverty in 1984 over 1980 but high growth would not (Bawden and Levy, 1982:482-483). A CBO (USCBO, 1984b) study projecting combined effects of tax and benefit changes also suggests that the lowest income group faces a net loss in income, losing more in cash benefits than they gain from the tax changes. David Stockman, director of the Office of Management and Budget, among others, has challenged the findings of both studies, arguing that increased real incomes due to

148 lower inflation offset the cumulative effect of benefit and tax reductions for those of low income. Stockman also argued that cuts in means-tested benefits did not affect those at or near the poverty line but went to those who had incomes above 150 percent of the poverty line when the value of the transfers was included. From this perspective, the reductions were designed to re- store fairness and eliminate the unintended windfall whereby some families at that income level were receiv- ing subsidies and others were not (U.S. Congress, Joint Economic Committee, 1983:629-632). Recent studies report that the distribution of income has become less equal as the size of the middle class has declined and both the rate and number of people at or near the poverty level has increased in the last few years. Levy and Michel find that the average disposable income for the poorest one-fifth of families has fallen from $7,546 to $5,833, a drop of 9.4 percent when ad- justed for food stamps, taxes, and inflation. The Cen- sus Bureau confirms that the number and proportion of Americans classified as poor has risen--from 24.5 mil- lion or 11.4 percent in 1978 to 34.4 million or IS percent in 1982. This change reflects demographic and economic trends that started before Reagan; however, Reagan's policies contributed to the increases in income inequality (U.S. Congress, Joint Economic Committee, 1983:449; San Francisco Chronicle, 1983). Muller's (1982) analysis of regional impacts of the Reagan program concludes that they are not trivial. He estimates that the program reductions equal 1.4 percent of personal income nationally and will range from 1-2 percent in specific states. Increased defense expendi- tures average $32 per capita, but range from $6 in Ar- kansas to $80 in California. Tax reductions average $172 per capita but vary from $121 in Vermont to $207 in Texas. Muller (1982:442) concludes: Both the tax cuts and expenditure shifts will be unequally distributed among regions and states. The tax reductions will benefit higher income states the most, in particular those in the ~Sun- belt. region. The defense outlay increases will be concentrated among a small group of states. The largest per capita losses due to the domestic program reductions will be borne by the Northeast and by low-income southern states. The net result generally will be to widen fiscal and economic

149 disparities between the more affluent and growing regions of the country, on the one hand, and the poorer and less economically vital regions, on the other hand. In sum, the dominant policy theory of the Reagan era assumes a much reduced federal role and justifies poli- cies in the name of the common good. Redistribution to the poor is attacked and distributive impacts, except in tax policies, are not explicitly recognized. Costs are given a great deal of attention and used to legitimize program cuts. The cuts are also defended on moral grounds. A belief in social engineering is replaced by a belief in the virtue of work (Glazer, 1984). This theory assumes that enough jobs are available that re- ceiving means-tested transfers is a stigma unless one is truly needy, i.e., aged, blind, or otherwise incapaci- tated. In our view, the language base of Reagan's social policies represents a greater change than the distribu- tive impacts. The actual effects of program revisions have been moderated by complex political and economic pressures in the federal system. The language or ideol- ogy, even when not fully realized, can be very power- ful. It is responsive to the new political constituency that brought the Reagan administration to power--a more conservative, middle class, white constituency located in suburbs, newer metropolitan areas, the South, and the West. Big cities, the poor, minorities, and the North- east are not part of that constituency. Constituency- building is central to Reagan's New Federalism, as it was to the earlier versions (Mollenkopf, 1983:288; Anton, 1980:121-122). VAR IATI ONS IN S TAT E AND LO CAL RES PONS ES TO REAGAN' S PROGRAMS In both the pre-Reagan and Reagan periods, national programs and economic trends have constrained state and local government responses, but they have not dictated particular policy choices. Subnational governments, after all, are not simply agencies of the national government, but separate governments with their own political dynamics (Kirlin and Winkler, 1984:25). State and local responses to Reagan's programs have shown substantial variation reflecting their own politi-

150 Cal and economic contexts. Some jurisdictions replaced lost federal funds, some did not. Some initiated pro- grammatic shifts, some did not. These variations de- pended on three main factors: · type of program (the more redistributive the pro- gram the less political support it was likely to have so the less replacement occurred); · the amount of fiscal pressure (the more fiscal strain the less replacement); and · political ideology (liberal officials were more likely to replace cuts for social programs and protest redistributive programs). Local government responses were also shaped by the role of overlying governments (Nathan and Doolittle, 1983: 189-204). Liberal states that were experiencing large deficits just when liberal programs were being cut, like Cali- fornia, simply did not have the financial capacity to fill the gap left by federal retrenchment, but they did try to minimize the negative effects on low-income groups and poor cities by protecting the preexisting grant patterns. Conservative states that were also fiscally pressed, on the other hand, like Missouri, moved quickly to capitalize on the opportunity to decrease redistribution, shifting resources to small towns and rural counties and away from programs serving low-income, predominantly black populations, as happened in Kansas City and St. Louis (Nathan and Doolittle, 1983:47-48). Considerations of political strategy also clearly influenced initial subnational responses. Officials were reluctant to replace lost federal funds even for programs they valued and even if they had the re- sources, because they knew this would reduce the pres- sure on the federal government to restore cuts (Nathan and Doolittle, 1983:193). A great deal of posturing went on initially. Over a longer time period, we expect that the amount of replacement will increase, especially as fiscal conditions in states improve. And indeed, studies of fiscal year 1983 found somewhat higher levels of replacement than studies of 1982 (Nathan, 1984; Palmer and Sawhill, 1984; U.S. General Accounting Office, 1984c, 1984d). Because states and cities have been frustrated by the volatility of the federal programs, they have adapted

151 programs to fit their own needs and resisted disliked policies. This adaptability partially reflects the fact that even though grants-in-aid provide substantial por- tions of state and local revenue (25.3 percent in 1982) (USACIR, 1984a: 120), they are not central to state and local activities. Changes in federal programs are pe- ripheral, for several reasons (Kirlin et al., 1984): · Changes introduced by any federal administration are always quite small compared with the revenue shifts experienced by state and local governments in response to economic cycles and their own decisions to increase or decrease revenues. · Even in block grants, state and local discretion is limited and subnational governments see the programs a national rather than as their own. · Federal dollars arrive off cycle for many state and local governments, making them hard to incorporate in routine decision processes. · Federal operating grants change frequently, so state and local governments minimize uncertainty by various routines that buffer the federal programs from their core programs. As a result, shifts in the redis- tributive dimension of federal programs are moderated as they work their way through the intergovernmental sys- tem. SPECIAL PROBLEMS OF MINORITIES AND CITIES We have argued that decreases in redistribution under Reagan have been modest but that cuts have fallen dis- proportionately on the poor and near poor. We have also suggested that Reagan's domestic policies have been as- sociated with a dramatic change in the dominant-theory base, and that state and local governments have been able to adapt to the changes in policy and theory. How- ever, the human and political impacts have been felt particularly intensely in cities where poor people and minorities are found in large concentrations. Minorities, particularly blacks, have been affected by three aspects of domestic policies. They have been affected as program clients, as public employees, and as participants in electoral politics. The three facets are related, but important distinctions can be made among them. Reagan's policies have reduced program benefits

152 received by black clientele. Even small cuts in big programs for the poor, like AFDC, can have substantial impact on minorities. The people who lose benefits, receive reduced benefits, or are out of work put new demands on city services and pressure on city officials whether the services in question are provided by the city or not. Mayor Schaeffer of Baltimore reports that soup kitchens in his city used to serve 70 meals a day and now serve 700 a day. He says that even though he tells people to complain to the federal government or the state, they come right to his office (U.S. Congress, Joint Economic Committee, 1983:402 and 408). Worries about a permanent underclass are particularly acute in cities. Opinions differ on the size of the problem, but even if there is more movement into and out of the ranks of the poor than commonly believed, a seg- ment of the population is persistently poor. And this phenomenon is particularly acute among blacks and among families headed by black women (Gershman, 1980; Auletta, 1983; Hanson, 1983:16; Duncan, 1984:50). If you also consider those who have recently become poor due to loss of jobs and add the overlay of race, gender, and age, the situation in cities can be explosive. It may be true that a rising tide lifts all boats, but many ser- vice providers point out that not everyone has a boat, not all boats are afloat, and more boats are sinking all the time. A second impact of Reagan's programs on minorities results from changes in public sector employment, which have a disproportionate impact on minorities, particu- larly blacks. In the pre-Reagan period, expansion of operating grants to state and local governments created public sector employment for many blacks. This was im- portant for their mobility, moving them into the middle class. Between 1960 and 1976 black employment in the public sector increased from 15 to 27 percent compared with an increase for whites of from 13 to 16 percent. While 55 percent of the net employment increase for blacks since 1960 occurred in the public sector, for whites it was only 26 percent. And the figures undoubt- edly underestimate the employment effects of programs because they exclude indirectly generated employment in community-based organizations receiving public funds thrown and Erie, 1981:305-306). The exact impact of Reagan's programs on public sec- tor employment are hard to determine, but since 1980 the cuts and the recession have led to modest declines _

1S3 at the federal, state, and local levels (total public sector employment declined 1.7 percent between 1980 and 1982). Employment cutbacks in social programs have a heavy impact on blacks because they often were the last hired and thus are the first to be fired. At the fed- eral level in 1981, minorities were laid off at a rate that was 50 percent higher than for nonminorities (Brown, 1982:21-22). A third aspect of minority experience with the public sector has been in electoral politics. During the past 20 years, the number of minority council members and mayors (and women as well) has grown dramatically (Bu- reau of the Census, 1984). Blacks and, to a lesser extent, Hispanics have been winning city elections in increasing numbers (Joint Center for Political Studies, 1981). Cynics would note that the new groups entered the governing elite just when city problems were becom- ing more acute, but the question remains as to what dif- ference Reagan's policies have made for minority offi- cials and vice versa. Minority elected officials are typically Democrats who support redistribution to the less affluent (Conyer and Wallace, 1976). And since political ideology has been important in shaping local responses to Reagan's programs, it seems likely that local black elected of- ficials will attempt to mitigate negative effects on low-income groups by maintaining targeted services even if that requires increased revenues (Peterson, 1982:196; Glazer, 1984). A recent study of 10 large northern California cities allows some inferences about the impacts of Reagan's cuts even though it does not directly examine them. The study finds that in the pre-Reagan period social pro- grams facilitated the electoral success of minorities and that minority elected officials made a difference for policy (Browning et al., 1984). National programs generated demand-protest activity and electoral mobili- zation, which helped liberal coalitions of minorities and whites successfully challenge more conservative, white-dominant coalitions on councils. Dominant liberal coalitions used the programs to promote policy respon- siveness to minorities, commonly defined as redistribu- tion. As an example, they tended to target federal pro- grams even when targeting was not required by the fed- eral government. It appears that despite external eco- nomic and political limits on cities, minority officials make a difference for policy and that cities with high

154 minority control will be more likely to continue redis- tributive policies when it is feasible. Since increases in minority influence were partly stimulated by federal programs, it is interesting to speculate whether minor- ity control has been sufficiently institutionalized to withstand the shift in federal policy. The growing pro- portion of minorities in cities suggests that there will not be a complete reversal of minority influence in local politics, but the absence of supportive federal activities certainly makes the environment more hostile, as do other contemporary political and economic develop- ments (Brown and Erie, 1981:323). In addition to the three impacts on minorities, Reagan's programs have diminished the position of cities in the intergovernmental system. While urban policy had been a high national priority in the 1960s and 1970s, that is not the case in the Reagan administration. Cities become, in effect, a residual category; urban policy is, even more, the inadvertent result of a vari- ety of other policies not primarily concerned with cit- ies. Distressed cities can no longer expect compensa- In addi- tion, New Federalism, by funneling aid to cities through states, increased the cities' dependence on states, thus accelerating the trend resulting from tax-limitation measures (Kirlin, 1982; Gold, 1983). City officials do not believe that savings due to efficiency will compen- sate for the cuts, that the private sector can provide the best services, nor that states will pursue redis- tributive policies responsive to the mismatch between problems and resources in cities (U.S. Congress, Joint Economic Committee, 1983:404; USACIR, 1984b:10-13; Marshall, 1984). tory attention from the federal government. KEY ISSUES This review of distributive politics serves to under- score the difficulty of redistributing resources to the poor even in periods of economic growth. Reagan's New Federalism has, in a period of economic stress, somewhat decreased this kind of redistribution while protecting programs that redistribute upwards, reflecting both Reagan's ideology and the realities of American politics in the l980s. Early in the Reagan administration supporters said that his domestic policies would quickly improve the

155 economic position of citizens, including those with low incomes. Opponents said that Reagan would dismantle all the gains of the welfare state. The extreme predictions of both sides--overstated for understandable political reasons--have been proven wrong. What lessons can be learned from this review of dis- tributive politics? What issues emerge from the analy- sis? We suggest three: e The need for variegated policy objectives. Dis- tributive programs benefiting the middle class will con- tinue, but the middle class, along with other affluent groups, should be willing to bear a fairer share of the sacrifices. Perhaps distributive programs for these groups should be limited to socializing risk (e.g., major medical or minimal retirement incomes) rather than major subsidies (e.g., homeownership). Some pro-poor redistribution should, and probably will, continue. The importance of economic growth and expenditure limita- tions should be recognized and balanced against distrib- utive goals. o The need for variegated policy means and strat- egies. The national government should be a partner in efforts to promote economic performance, redistribution, and the socialization of major risks. Recognizing the deleterious effects of centralizing all issues, it should promote state and local capacity to undertake political, service delivery, and economic development activity. Similarly, it should explicitly provide for the use of private (individual, group, firm) energies in achieving public ob jectives. However, the federal gov- ernment has responsibilities that cannot be abdicated. If the pre-Reagan dominant theory went too far in seeing the national government as the solution, the Reagan the- ory has gone too far in seeing the federal government as the problem. It is neither the solution nor the prob- lem, but it is one partner in the enterprise. · The need to straighten out the language used to discuss distributive impacts. More explicit language concerning the distributive effects of public policies, redistribution, and the value of diverse objectives and strategies would serve to educate the public and dimin- ish the political risk in discussing the beneficiaries of public policy. The old, narrow ways of talking about redistribution have just led to frustration and danger- ous dichotomies--redistribution versus growth, affluent versus nonaffluent, national versus subnational govern-

156 meets. Distributive issues must be thought about in more comprehensive, sophisticated ways that increase awareness of the multiple direct and indirect benefits and costs associated with all government activities over time and that promote a willingness to explore various mixes of objectives and strategies. Addressing such issues will be difficult and the temptation to be narrowly partisan may be irresistible, but 20 years of experience should enable the country to see the strengths and limitations of policies in both the pre-Reagan and Reagan eras. Different theories of social policy have been pursued, however incompletely, and the impacts are there to be examined. Just as the pre-Reagan social pa licies were judged against their lofty goals, Reagan's initiatives must be subjected to similar analysis. The challenge is to learn from these experiences and adjust goals, strategies, and language so as to make better policy choices and translate them into practices that help or at least do not harm disad- vantaged persons and places. REFERENCE LI S T AND B IB LI OGRAPHY Anton, J., Cawley, J., and Kramer, K. 1980 Moving Money. Cambridge, Mass.: Gunn and Hain . Oelgeschlager, Auletta, K. 1983 The Underclass. New York: Random House. Baumer, D., and Van Horn, C. 1984 The Politics of Unemployment. D.C.: Congressional Quarterly. Washington, Bawden, L., and Levy, F. 1982 The economic well-being of families and indiv- iduals. Pp. 459-483 in J. Palmer and I. Sawhill, eds., The Reagan Experiment. Washing- ton, D.C.: Urban Institute Press. Bellavita, C. 1983 California's health policy reform and the poor. Public Affairs Report 24(5). Institute of Governmental Studies. Berkeley: University of California. Blum, H., Butler, L., Brown, E., Roemer, R., Couseneau, M., and Price, W. 1983 Medi-Cal Legislation Report. Institute of Gov- ernmenta' Studies. Berkeley: University of California.

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159 Levitan, S. 1969 The Great Society's Poor Law. John Hopkins University Press. Marris, P., and Rein, M. 1967 Dilemmas of Social Reform: Poverty and Com- Baltimore, Md.: munity Action in the U.S. New York: Atherton Press. Marshall, D. 1984 Block grants: Reagan's, Deukmejian's and choices for the future. Pp. 157-177 in J. Kirlin and D. Winkler, eds., California Policy Choices, 1984. School of Public Administra- tion. Los Angeles: University of Southern California. Mazmanian, D., and Sabatier, P., eds. 1981 Effective Policy Implementation. Lexington, Mass.: D.C. Heath. 1983 Implementation and Public Policy. Glenview, Ill.: Scott, Foresman and Company. Mollenkopf, J. 1983 The Contested City. University Press. New Jersey: Princeton Muller, T. 1982 Regional impacts. Pp. 441-457 in J. Palmer and I. Sawhill, eds., The Reagan Experiment. Wash- ington, D.C.: Urban Institute Press. Nathan, R. 1984 Overview: Effects of the Reagan Domestic Program on States and Localities. Regional Research Center. New Jersey: Princeton Uni versity Press. Nathan, R., and Adams, C. 1977 Revenue Sharing: The Second Round. Washington, D.C.: The Brookings Institution. Nathan, R., Dommel, P., Liebshutz, S., Morris, M., and Associates 1977 Block Grants for Community Development. Wash- ington, D.C.: U.S. Department of Housing and Urban Development. Nathan, R. and Doolittle, F. 1983 The Consequences of Cuts: The Effects of the Reagan Domestic Program on State and Local Governments. Princeton Urban and Regional Research Center. New Jersey: Princeton Uni versity. Owens, J., and Wade, L. 1984 Federal spending in congressional districts. Western Political Quarterly 37(3):404-423.

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When the United States' founding fathers set up a federal system of government, they asked a question that has never been satisfactorily settled: How much governmental authority belongs to the states, and how much to the national government? In an atmosphere of changing priorities and power bases, the Committee on National Urban Policy convened a symposium to address this division. The symposium examined the "New Federalism" as it relates to the Supreme Court, urban development, taxpayers, job training, and related topics. "Throughout the symposium the future evolution of the American federal system was debated," says the book's summary. "Yet whatever new idea or theory emerges, it is likely to continue to include the inevitable conflict between the allegiance to a national government and the respect for state and local loyalties."

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