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8
State-Local Partnership:
Problems and Possibilities
John M. DeGrove and Barbara C. Brumback
Some political analysts in the 1930s tolled the death
knell for the states when only the central government
seemed able to respond to the problems of the Great
Depression. Over the past 20 years in particular, the
states have outgrown their image as the weak link in the
federal system. States have improved their capability
to respond to problems through constitutional reform,
increasing professionalization, governmental reorganiza-
tion, and enhanced revenue systems (Warren, 1980). In-
deed, the states have improved their capabilities to the
extent that the U.S. Advisory Commission on Intergovern-
mental Relations, hereinafter ACIR (USACIR, 1982:52;
hereinafter USACIR) noted that it is the states that
prop up the operations of American government. and
predicted that the 1980s would see the states become
increasingly important as intergovernmental bankers,
regulators, and administrators.
Over the past two decades, the distinctions among the
functions of the local, state, and national governments
have become blurred. Federal grant-in-aid programs
increased state and local dependence on federal funds
and made these governments partners in such programs as
Aid to Families With Dependent Children (AFDC), Medi-
caid, or aid to the educationally disadvantaged, in
which the costs were shared with the federal government,
the program administered by the state or local unit, and
the program goals and acceptable operations determined
largely by the national government. It can be assumed,
then, that the problems those programs were designed to
address were largely perceived as national issues re-
quiring action by the national government in partnership
with state and local governments.
202
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203
President Reagan's national urban policy makes it
clear that this perception has changed. One of the
principles of this policy is That the states and cit-
ies, properly unfettered, can manage themselves more
wisely than the federal government can. (U.S. Department
of Housing and Urban Development, 1982:1; hereinafter
USHUD). The President's New Federalism is an attempt to
realign the federal system, to return to state and local
governments those programs that the administration views
as having local or state, not national, benefit. The
merging of 57 categorical grants into 9 block grants
passed through the states is but the first step in the
planned reordering of the functions of the federal sys-
tem (USHUD, 1982). The states play a role of increasing
importance as managers of intergovernmental aid programs
in the nation's revised domestic policy, and in this new
role the states can be seen as the fulcrum of the New
Federalism.
This paper sets forth the view from the states and
discusses their evolution in the federal system and the
prospects for a continued strengthening of the state-
local partnership. The paper focuses on the experiences
of eight states chosen from the ongoing studies of
Princeton University's Urban and Regional Research
Center, which has been monitoring the responses to the
New Federalism in a sample of 14 states and cities. The
paper explores the experiences and initiatives of eight
states in attempting to forge a new partnership with
local governments. (The next paper in this volume
examines the same subject from the perspectives of a
large city in each of these eight states.)
Much of the information for this paper was generated
through telephone interviews with, and the 1982 field
reports of, the field associates responsible for the
data on the states' responses to the New Federalism for
the Princeton study. We wish to thank Richard Nathan
and Fred Doolittle for their assistance and for making
the data available as well as for providing us with the
1982 field reports. We are also indebted to the field
associates of the 1984 study- Charles Orlebeke (Illi-
nois), John Kirlin (California), Lane Rawling (Washing-
ton), Steve Steib (Oklahoma), Richard Roper (New Jer-
sey), Susan MacManus (Texas), and Ed Montanaro (Flor-
ida), Lance deHaven-Smith (Florida), and Allen Imershein
(Florida)--for their assistance.
Responses to the New Federalism can be expected to
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204
vary among states. But the states are now in a better
condition to manage their expanded role due to the
enhanced capability of all three branches of state gov-
ernment that has been achieved over the past 25 years.
State legislatures, both more professionalized and
representative than ever before, have increased their
oversight responsibilities through such measures as the
appropriation of federal funds coming into the states
and sunset legislation. State court reforms, which
focused on streamlining court structures, bettering
management and administration, and improving the quality
of judges, have resulted in enhanced state court sys-
tems. Reorganization of the executive branch, an effort
nearly all states have made to some degree, shows the
states are willing to break with the past in efforts to
modernize the workings of state government (USACIR,
1982). In addition, state responses to the needs of
local government, including increased financial assis-
tance to local units, the development of urban strat-
egies in some states, and the establishment of a variety
of programs that are targeted to distressed areas, indi-
cate that the states are now in a better position to
respond to the needs of local government.
S TATE—LOCAL PARTNERSHI P
The Finances of the Partnership
In their role as intergovernmental bankers, the
states provide the greater share of aid to local govern-
ments. Between 1971 and 1977, a time of rapid growth in
federal-to-local aid, net state aid to local governments
rose 72~4 percent. During this period, federal aid to
local governments rose 143.4 percent, nearly twice the
growth rate of state aid. Yet despite the increase in
federal aid to local governments, in terms of actual
dollars, state aid to local governments, excluding
passed-through federal aid, topped federal aid by over
$19 billion (USACIR, 1982).
Some of the ~traditional. state functions, such as
education, highways, welfare, and health and hospitals,
have received the bulk of state aid to local govern-
ments. Although these functions respond to statewide
needs, some of the functions, notably welfare and educa-
tion, are among those that Wolman (1984) has termed ~im-
plicit~ urban programs in that they are not confined to
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205
urban areas but are seen as having an ~urban. orienta-
tion. In addition to being the primary financier of
these services, states have also increased the amount of
funds passed on to local units for general support, and
the ACIR has identified 23 states as having some form of
state-local revenue sharing (USACIR, 1981, 1982).
State fiscal systems have undergone dramatic rever-
sals over the past decade. In the mid-1970s, many
states enjoyed large cash reserves. ~ ~ ~ -
_
od (Gold, no date).
_ ~ _ Particularly after
the approval of California's Proposition 13, movements
to control future growth were initiated, and legislative
or constitutional curbs on increases in state spending
or taxation were developed in 19 states. Between 1978
and 1982, taxes as a proportion of income dropped in 44
states as a result of changes in the states' effective
tax rates. Severance taxes alone rose during this peri-
Even during this spate of tax cut-
ting, state aid to local governments was the greatest
element in state budgets.
A strong state fiscal system is necessary for the
continuation of any meaningful aid to local governments,
but the tax reductions of the late 1970s reduced the
fiscal resilience of the states. When these tax cuts
were combined with the poor economic conditions that
stretched from 1981 to 1983 and with the cuts in federal
aid, in January 1983, 47 states found themselves short
of the estimates that had formed the bases of their bud-
gets. These shortfalls totalled nearly $8 billion.
After three years of tax cutting, states moved to reduce
expenditures and raise taxes (Matheson, 1983 ) . Only
three states have not passed a significant tax increase
over the past three years (USACIR, 1984 ) . In 1981 and
1982, state legislatures enacted measures designed to
garner at least $8 billion annually in tax yields. Tax
Foundation ( 1984) surveys indicate that in 1983 the
states enacted measures that would add an additional $8
billion a year.
It is not surprising, then, that the growth in state
aid to local governments has been uneven over the past
few years. The Joint Economic Committee surveys (U.S.
Congress' Joint Economic Committee, 1982, 1983) found
that in 1981, reversing the previous year's trend, state
aid had increased over 10 percent, making it one of the
fastest growing portions of city revenues. In 1982,
state aid was up only 2 percent on the average, but in
1983 state aid to cities was expected to have risen more
than 7 percent overall.
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206
Whether the states' recent moves to raise taxes sig-
nal an end to the tax-reduction movement is not clear,
however. Florida voters were to decide on a constitu-
tional amendment that would have limited all government
revenues to the 1980 level while restricting any revenue
increases to two-thirds of the change in the Consumer
Price Index. But the state supreme court struck the
amendment from the November 1984 ballot, declaring it to
be unconstitutionally broad. A poll by Florida's larg-
est newspaper found most voters disapproved of the
revenue-limitation measure. In fact, 67 percent of
those polled indicated a willingness to pay more taxes
to improve public schools (Miami Herald, 1984). None-
theless, the political mood is justifiably cautious, and
in April 1984 the governor's estate of the state. ad-
dress proposed no new taxes but also offered no new tax
reductions.
State Community Assistance
Aside from state financial aid to local governments
to help fund certain ~traditional. services and the in-
stitution of state-local revenue sharing in some states,
states may undertake other initiatives that can be cru-
cial to the continued strengthening of the state-local
partnership. These initiatives include the formulation
of an urban policy, the development and implementation
of policies and programs that target assistance to areas
of need, the lifting of restrictions that inhibit the
local government's capability for self-government or
taxation and taking steps that improve local government
capability.
One step in the state-local partnership that several
states have taken in recent years is the development of
a policy or strategy to address urban problems. The
National Academy of Public Administration undertook a
series of 10 case studies of state urban strategies.
Strategies were defined as stemming from an articulated
framework with expressed goals and policies that were
implementation oriented and designed to deal with the
issues of community growth, development, or decline
(Warren, 1980). Eight of the states were found to have
or to be developing an urban strategy that met this def-
inition. The formulation of an urban policy is a fairly
recent innovation, with the oldest effort studied dating
back to 1973, when the Oregon legislature formally
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207
adopted that state's growth management initiative
(Warren, 1980). A 1981 review of these initiatives
found them to be, by and large, still in force, with
some states passing new measures. In both Florida and
Massachusetts, the strategies that had been developed
continued under the leadership of newly elected gover-
nors. In California, however, state revenue reductions
and legislative balking at funding urban improvements
slowed the implementation of many of the elements of the
state's strategy (USACIR, 1981).
State-funded programs that address urban problems
exist in many states in the absence of an overall policy
framework. The ACIR identified 19 ~targeted. programs
in 5 policy areas in which states can aid their dis-
tressed communities. All states had adopted at least 1
of those programs as of 1981, but no state had adopted
more than 15. Of course, states and urban areas vary in
their need for these targeted programs and in their
willingness to adopt them, and the programs themselves
vary greatly from state to state. Nonetheless, the
record shows that some states are moving to address the
problems of distressed communities on their own.
In the housing area, as of 1981, 47 states had estab-
lished housing finance agencies, and 31 states had hous-
ing rehabilitation programs that utilized grants, loans,
or tax incentives. In economic development, 16 states
direct state aid for industrial or commercial develop-
ment; 11, for the development of small businesses; and
11 states target industrial revenue bonds. Sixteen
states focus capital improvement programs on distressed
areas, and 14 states operate neighborhood improvement
programs. In the area of fiscal and financial manage-
ment and assistance, 14 states instituted mandate reim-
bursement; 35 states had made moves to improve local
access to credit markets through such measures as vali-
dating municipal bonds, guaranteeing municipal debt, or
establishing bond banks; and 36 states had authorized
local governments to levy either sales or income taxes
(USACIR, 1981).
Despite these innovations there are many deficiencies
in state aid programs. The Joint Economic Committee's
survey (U.S. Congress, Joint Economic Committee, 1983)
found that state aid to the nation's largest cities had
declined over 3 percent in 1982. The states' housing
programs have focused on single-family housing, leaving
the development of multifamily housing largely dependent
on declining federal dollars. The economic development
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208
activities of most states are not targeted to areas of
need. In the community-development policy area, there
were only two types of programs, capital improvement and
neighborhood improvement (USACIR, 1981).
States can do much to improve local capability to
address urban problems. In this area, the states'
record has been strongest in programs that neither re-
quire the dedication of substantial state revenues nor
constitute the total freeing of restrictions on local
governments. For example, 24 states have permitted tax-
increment financing, a tool most used by larger cities
to help pay for the capital projects associated with
large urban development. In addition, while many states
have some restrictions on the investment of local reve-
nues, approximately 20 have local investment pools that
enable local governments to reduce idle cash balances.
These pools tend to be most beneficial to smaller
governmental units, but they represent an important step
in allowing-local governments to find new revenues
(Roberts, 1983).
One of the frequent criticisms of the states in their
role in the partnership has been that they unduly re-
strict the authority of local governments. This crit-
icism is justified to a great extent. As of 1981 cities
in nearly half of the states did not have home rule.
States have also taken measures to restrict local
revenue-raising potential. Local property taxes have
been limited by some state measure in 36 states, and,
while most states authorize local governments to levy
either a sales or an income tax, only 6 states authorize
the levying of both taxes (USACIR, 1981).
The New Federalism provides new opportunities for
determining if states have loosened their hold on local
governments or are taking other measures critical to the
establishment of a strong, effective partnership.
First, in their new role as the initial recipient of
block grants, states have the opportunity to pass along
increased flexibility in reporting and application re-
quirements to the recipient local governments. Second,
in response to the cuts in federal funding levels,
states may respond by replacing lost federal dollars or
by allowing local governments greater flexibility to
raise revenue in order to replace those cuts. Finally,
states may develop or revise other policies and programs
in an effort to forge improved state-local relations.
Eight states' responses to these opportunities are ex-
plored in the next section.
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209
THE NEW FEDERALISM:
EIGHT STATES' RESPONSES
The eight states chosen for this analysis provide a
range of experiences in the level of replacement of fed-
eral funding cuts, political culture, fiscal capacity,
and geographic location. Of the eight states, two are
located in the Northeast, one in the North Central re-
gion, three in the South, and two in the West.
Elazar (1972) has identified three types of political
cultures, which represent an aggregate view of govern-
ment and politics: individualistic, moralistic, and
traditionalistic. The individualistic political culture
views government as being established solely for utili-
tarian purposes. The concept of the market place domi-
nates the individualistic political culture in that gov-
ernment is seen as fulfilling the demands of the people
with the least possible intervention in the private
In the moralistic political cul-
ture, government is seen as a means for achieving public
betterment, and government activities can be initiated
for the public good even in the absence of broad public
demand. The chief goal of the traditionalistic polit-
ical culture is the maintenance of the status quo, with
political power concentrated in the hands of established
elites. Permutations of political cultures, for example
a blending of individualistic and moralistic, occur more
often than do ~pure. cases; apparently in politics, as
in nature, things occur most often in combined form. Of
the eight states, only two have a ~pure. political cul-
ture.
There was great variation in the level of replacement
of federal funds; one of the eight states replaced 25
percent of the federal funding cuts with state dollars.
Other states experienced a net savings of state funds as
a result of the federal cuts (Nathan and Doolittle,
1983). The three traditionalistic-individualistic
states, all in the South, run the gamut on the replace-
ment of lost federal funds. The eight states, their
political cultures, and their level of replacement of
federal funds are shown in Table 8-1.
The eight states' fiscal capacities and willingness
to raise revenue vary greatly. According to the ACIR's
study (USACIR, 1983) of the states' tax capacity, the
two northeastern states in our study, Massachusetts and
New Jersey, have tax efforts that exceed their capac-
ity. For Massachusetts, this has been a historical
pattern that has held since 1967, and perhaps it
sphere of interest.
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210
TABLE 8-1 Political Cultures and Levels of Replacement
of Federal Funds in the Eight States.
LEVEL OF REPLACEMENT
POLITICAL CULTURE High Some Savings
Moralistic/ California
Individualistic Washington
Individualistic & Massachusetts
Individualistic/ New Jersey
Moralistic Illinois
Traditionalistic/ Oklahoma
Individualistic Florida
Texas
reflects the state's moralistic overtones in its polit-
ical culture. New Jersey's tax efforts began to exceed
its tax capacity, as defined by the ACIR, in 1977, but
the trend has held through 1981. For the first time in
almost 15 years, the ACIR found Illinois' tax effort of
105 had exceeded its capacity, but that capacity, which
had remained fairly steady, between 114 and 112, had
dwindled to 104. (The ACIR's index of tax capacity is a
fiscal yardstick that measures a state's capability to
raise revenues, so that one state's tax base can be com-
pared with that of another, regardless of the actual
types of taxes levied. The tax effort indicates the
actual burden of the total tax base, with 100 being the
national average.) Thus, Illinois' tax effort of 105 is
5 percent above the national average. California had
taxes that exceeded its capacity in 1975 and 1977. In
the wake of 1978's Proposition 13, the state's tax ef-
fort declined. Although the state's tax effort remains
below its capacity, the effort has clearly increased
between 1979 and 1981. Washington State, with a tax
effort of 97 and a capacity of 103, was close to capac-
ity. The lag between effort and capacity is greatest
among the three southern states. The institution of new
programs may be restrained by these states' tradition-
alistic-individualistic political cultures, which may
explain the gap between tax effort and capacity.
The economic conditions of these states have under-
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211
gone great changes in recent years, to the extent that a
medievalist could easily conceive of the states' econo-
mies as strapped to Fortune's wheel. in that those that
were up have been cast down. Oil-rich Oklahoma experi-
enced little fiscal pressure in 1981, but the petroleum
industry that had helped boost that state's economy,
sagged. By the beginning of fiscal year 1983, Oklahoma
was in trouble e Revenues from sales and severance taxes
and interest dropped to the extent that the state's
Omnibus Budget Bill cut appropriations by $152 million
(Kerr Foundation, 1983). Texas is also now suffering
economic woes, and its sales and severance tax revenues
have dwindled. In New Jersey, Massachusetts, and Illi-
nois the picture is brighter than it has been in recent
years--unemployment is down and state revenues are up.
In New Jersey, the big controversy now facing the gover-
nor and legislature is how large the state revenue sur-
plus will be. The improved economy and increase in
state revenues is largely explained by the ending of the
recession. Washington State has been slow to recover
from the effects of the recession, since increases in
construction activity have yet to fully boost its wood
products industry, and the state's agricultural sector
has not been strong of late. Temporary tax increases
have improved state revenues, however. Florida's im-
proved fiscal condition came about largely as a result
of increases in the sales, motor fuels, alcoholic bever-
age and corporate income taxes. The sales tax increase
alone brought in more than 10 times the revenues the
state lost through the cuts in federal spending.
The combination of the federal cuts and the recession
forced state leaders to make hard decisions. In both
Illinois and Washington State, the focus was more on the
effects of the recession on the states' economies than
on the federal cuts.
, ~ ,
Many state leaders seemed to see
themselves in a crisis situation, and many state poli-
cies reflect this perception. Massachusetts reacted to
the devastating effects of Proposition 2 1/2 by increas-
ing state aid to local governments at the expense of
instituting additional policies in response to the fed-
eral cuts. New Jersey instituted state aid to 28 cities
to enable the cities to avoid the layoff of police and
firemen.
Block Grants and the States
In regard to federal block grants, most states have
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212
assumed most of the available block grants. The Primary
Care Block Grant was the least likely to be assumed by
the states; since federal funds were unavailable for
state administration, there was little incentive to
assume this grant.
The pattern of assumption provides an interesting
window into state politics, for political motivations
naturally affected the state posture. For example, I1-
linois' Governor Thompson, a strong Reagan supporter,
moved for the assumption of all block grants to put the
state in the forefront in responding to the New Federal-
ism. In 1981 the Governor of Texas was also a firm
Reagan supporter, but unlike Illinois, Texas did not
move to assume all available block grants as a show of
support. Texas has generally favored the President's
policies and the concept of limited government. There
is also the sentiment, however, that the state has not
fared well under federal grant distribution, a feeling
affirmed by studies showing that Texas citizens pay more
federal taxes but receive less grants than any state.
As a result, many Texans felt the state should restrict
its participation in federal programs. This sentiment
was reflected in appropriations language passed by the
legislature in 1981, affecting fiscal years 1982 and
1983, which did not permit the state to operate a pro-
gram that had not already been authorized or appropri-
ated. This language, in effect, prohibited Texas from
assuming the Community Services, Small Cities Community
Development, and Primary Care block grants (MacManus,
1982). Since that time, Texas has picked up both the
Small Cities Community Development Block Grant (Small
Cities CDBG) and the Community Services Block Grant
(CSBG).
In California, party politics played an important
role in that state's decision to phase in the assumption
of block grants. A legislative block grant advisory
committee was established to recommend a block grant
strategy, and their recommendations in 1981-1982 were
included in the conservative strategy passed by the
legislature. That strategy included the initial assump-
tion of two block grants, Social Services and Low Income
Energy Assistance Program (LIEAP), and the deferred
assumption of all remaining block grants but Primary
Care, which was not picked up by the state. This
decision to wait was based on fiscal and political con-
siderations. On the fiscal side, the estimated $500
million that would have flowed into California from the
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217
tressed or potentially distressed cities.
Other state initiatives affecting the partnership
represent responses to specific problems or areas of
state or local concern. New Jersey, the nation's most
urbanized state, has taken other actions with respect to
its cities. The state instituted an urban enterprise
zone program, and Governor Kean has proposed the estab-
lishment of a state transportation finance fund and an
Urban Development Corporation, which would coordinate
state agency actions in an effort to rebuild cities.
Oklahoma became more active in funding water projects
for local units. Illinois has provided a $75 million
operating subsidy for the transit authority that serves
the Chicago region, an action arising from one of the
mayor's few attempts to lobby for state assistance.
POLI TI CS OF TH E PARTNERS HI P
A certain amount of tension characterizes state-local
relations in many areas in the 1980s. This tension cen-
ters on the distribution of funds, the ability to raise
own-source revenue, and the mandating of programs. Sev-
eral major cities in the eight states perceive them-
selves as hurt by the states' block grant policies. In
Washington State, for example, larger urban areas have
viewed certain basic services as the responsibility of
the state, since the state limits their revenue-raising
power. The trend in three states to spread block grant
funds, particularly CSBG funds, has contributed to this
perception. Texas provides a notable exception to this
pattern. Texas cities feel the state, not the national
government, is better able to respond to their needs.
Several cities, including Los Angeles, Newark, Tulsa,
and Seattle, have attempted to increase their own-source
revenues, but when these initiatives require state ap-
proval, they are often denied. In order to meet fixed
expenses, such as pensions, local governments in New
Jersey have attempted to be freed from property-tax re-
strictions that were imposed when the state instituted
its income tax in 1975. Some cities have initiated law
suits against the states concerning the distribution of
funds and the ability to raise revenue (Wood and
Klimkowsky, in this volume). Many cities are turning to
user fees wherever possible. Orlando provides an inter-
esting example. Fees for certain health services were
instituted, thereby enabling health care to the medical-
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218
ly indigent to be increased, and sewer connection and
service fees were raised dramatically to help fund the
city's growing need for that service and to meet the
increased local match requirement, which Florida insti-
tuted one year earlier than required by the federal gov-
ernment.
Where mandates and state preemption are not accom-
panied by sufficient funds to carry out the function,
the new partnership comes under severe strain. Several
questions have yet to be resolved under the New Federal-
ism, and their resolution will help to determine how
well the new partnership fares. Perhaps the key ques-
tion is that of assuming responsibility for low-income
groups. Most states ratified cuts in entitlement pro-
grams (Nathan and Doolittle, 1983). Some states have
taken actions that suggest they no longer view the poor
as their responsibility, particularly in times when
state revenues are short and the costs of service are
rising. Washington State, which did away with noncon-
tinuing general assistance, is one example. Califor-
nia's transferring responsibility for medically indigent
adults to the counties is another example of this.
California, with its long tradition of human services
spending, had used the state general fund to finance
health care to medically indigent adults. Care was pro-
vided by the counties, the state's administrative arm
for the provision of human services. In 1981-1982, the
legislature required counties to provide health care to
this group with 70 percent state funding. Although Cal-
ifornia's action in this instance mirrored the action of
the federal government in that a program was shifted to
a lower level of government with a reduced level of
funding, taking this action had nothing to do with the
President's domestic policy.
The transfer, instead, was
the result of the effects of increasing health care
costs on the state's budget.
States have initiated many actions that concentrate
on economic development or job creation. Insofar as the
responsibility for low-income groups is concerned, the
focus seems to be to improve the state and local econo-
mies, and the benefits of the improved economies will be
felt by all, including low-income groups. The interest
in economic development and job creation can be found in
both block grant policies and other state initiatives.
The CSBG and Small Cities CDBG efforts, in particular,
now include these emphases in many states. Other,
entrepreneurial, approaches have also emerged.
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219
These entrepreneurial approaches are often evident in
relations between the state and local executive offi-
cers. In Texas, Governor Mark White, and the mayor of
San Antonio, Henry Cisneros, came together with business
leaders to raise funds for a public-private partnership
to attract high tech industries, by enhancing the
state's education and research base (Washington Post,
1984). Florida's Governor Bob Graham Joined efforts
initiated by Miami area businesses to establish a pri-
vate revitalization fund geared to assisting black busi-
nessmen and creating jobs in Liberty City, a depressed
section of Miami that was hit by riots in 1980. Gover-
nor Graham is attempting to raise $2 million to add to
the $8.5 million pledged by Miami's participating busi-
nesses. (Billitteri, 1984).
The field associates for the Princeton study report
that in New Jersey, Texas, and California local execu-
tives tend to turn to the state legislature rather than
to the governor for assistance. In both New Jersey and
California, the mayors of large cities and the state
legislators tend to share party affiliation. In other
words, the mayors of big cities and state legislators in
those states are usually Democrats. The governors are
Republicans, and the Democratic mayors turn to the
Democrat-controlled legislatures for assistance. In
Texas, the powers of the governor are strictly limited,
and local executive officers lobby the more powerful
legislature for assistance.
Relationships under the new partnership are under-
going change, and an apparent trend is increased legis-
lative involvement. Since 1981, more state legislatures
have taken or received greater appropriations author-
ity. After three vetoed oversight bills in 1982, for
example, the New Jersey legislature gained appropria-
tions authority over federal funds through language
included in the appropriations bill.
The Oklahoma legislature attempted to gain greater
oversight responsibility over federal funds and in-
creased appropriations authority over state funds with
mixed success. The Legislature Is 1982 effort to gain
increased control over federal funds failed when the
attorney general ruled it unconstitutional, declaring
that if the procedure was a legislative function, it
could not be executed by a committee, as the legislature
had designed the process. Efforts to gain appropria-
tions authority over state funds were more successful.
In fiscal year 1983, the legislature brought state funds
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220
for the Department of Human Services, which since 1936
had the receipts of Oklahoma's 2-cent sales tax ear-
marked for its use, into the appropriations process.
The 1983 recession found the governor, after maintaining
a fairly passive role in response to the initial federal
cuts, taking the lead in reassessing the state budget
with respect to the state's worsening fiscal condition
and strengthening his hold over federal funds
(Rittenoure et al., in press).
EM ERG ING MECHAN ISMS
The mechanisms that are emerging for increased state-
local cooperation, coordination, or communication include
state management initiatives and a variety of categorical
responses to pressing problems. A great deal of activity
has focused on economic development, especially on the
attraction of high tech industries. New Jersey provides
examples of all three types of initiatives. New Jersey's
governor established a science and technology commission,
designed to attract industries through labor-pool devel-
opment and research activities, and a management improve-
ment commission, geared to battling inefficiencies in
government; he also proposed the establishment of an
Urban Development Corporation to coordinate state agency
efforts to rebuild urban areas. In December, the state
also responded to concerns of 28 cities that police and
fire-fighter layoffs were forthcoming, due to capped
property taxes, by making S7.4 million available to the
28 cities Afield associate interview and New York Times,
1984).
Education continues to be a major concern in many
states and will be the focus of many upcoming legisla-
tive sessions. Chicago schools project deficits between
$100 million and $300 million over the next few years,
and as yet there has been no ~give. in the state's posi-
tion not to provide additional funding. California will
consider whether to step up its funding for K-12 educa-
tion. The state share was increased $800 million last
year, and several reforms, such as lengthening the
school day and school year, were initiated. on review
of last year's reforms, the state may increase its in-
tended contribution to local education. Oklahoma is
considering property-tax equalization reforms, which are
opposed by rural areas. A move by Washington's governor
to reduce state funding for K-12 education was found
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221
unconstitutional, and the state is now considering in-
creasing state support.
Efforts to revitalize cities often take an entre-
preneurial approach and attempt to join business and
government. Urban enterprise zones represent one such
initiative, and as of 1983 nine states had enterprise
zones in operation (Sabre Foundation, 1983). Of the
eight states under discussion, five had adopted some
type of urban enterprise zone initiative as of 1983
(Revzan, 1983).
In New Jersey, Newark and Jersey City are participat-
ing in that state's urban enterprise zone program, which
offers a combination of tax incentives, low-interest
loans, and eased regulatory and permitting processes
(New York Times, 1984). Florida was the first state to
pass an urban enterprise zone initiative.
In Florida, three bills, passed in the wake of 1980's
Liberty City riots, offer incentives to corporations in
an attempt to revitalize distressed areas. Two of the
bills relate to enterprise zones and allow corporations
to take deductions from their state corporate-profits
taxes for either hiring people from designated, dis-
tressed areas or locating operations in those areas.
Almost all metropolitan areas in Florida have estab-
lished enterprise zones. The third bill was designed to
encourage corporations to make donations that would af-
fect community redevelopment by granting corporations a
50 percent tax credit for donations to eligible proj-
ects. To be eligible, a project must be related to eco-
nomic development or physical development or redevelop-
ment, and since fiscal year 1981 donations to those
projects have totaled over $3.5 million. The largest
such project to date is Miami's Business Assistance
Center, geared to providing employment opportunities and
small business development in LibertY CitY.
The full impact of Florida's enterprise zone initia-
tives is difficult to assess, since corporations are
allowed to take the tax deduction up to five years after
undertaking the eligible activities. Despite the fact
that the figures to date may understate the impact, the
record is quite impressive. Under the enterprise zone
job credit, $4,143,829 in credits have been claimed from
1981 through 1983 for the creation of 4,679 jobs in dis-
tressed areas. The state's other enterprise zone initi-
ative resulted in 13 corporations' locating or expanding
operations in distressed areas between 1981 and 1983.
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222
Florida's Housing Finance Agency (HFA) has also be-
come active in both single-family and multifamily hous-
ing and has increased its focus on low- and moderate-
income people. Through the combined efforts of the HFA
and local governments, Florida issued bonds for financ-
ing single family housing to the full extent allowed by
the federal government, $547 million in 1983 alone. The
Housing Finance Agency has narrowed the target popula-
tion for its single-family program by reducing the in-
come eligibility level from 150 percent to 120 percent
of the median family income. Contrary to the conven-
tional wisdom concerning housing finance agencies, this
agency's bonding efforts are concentrated on rental
housing.
In 1983, Florida ranked second in the nation in the
dollar value of bonds sold for multifamily rental hous-
ing. This statistic almost understates the Florida ef-
fort in that Florida sold nearly two times more in bonds
than did the state that ranked third. Since 1981, the
Florida HFA has issued $365 million in bonds for single-
family housing and $400 million in bonds for rental
housing. While the agency has issued bonds for financ-
ing federally assisted housing, the greater portion of
its efforts has focused on market rate, nonsubsidized
rental housing. Since 1981, $285 million in market rate
bonds have been issued with the requirement that 20 per-
cent of the rental units be set aside for low-income
people, those with incomes up to 80 percent of the
median family income. The remaining units are then
available to those with incomes that are not greater
than 150 percent of the median.
Other initiatives to provide low-income housing in
Florida come about through the Development of Regional
Impact process and the state review of development in
Areas of Critical State Concern. Through these proc-
esses the state, regional, and local governments can
issue development orders or permits on the condition
that a certain percentage of low- and moderate-income
housing be provided. This mechanism helps to make up
for the federal withdrawal of assistance in low-cost
housing.
FORGING THE PARTNERSHIP
The difficulties associated with forging a new part-
nership between state and local governments are similar
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223
to those encountered in modern marriage. In both these
partnerships, changing social conditions are forcing a
reconsideration of roles and responsibilities. Rela-
tions are sometimes strained by the combined demands and
restrictions one partner places on another. In both
cases, the need to forge a new partnership is great, and
the character of the partnership will be derived through
the painstaking deliberations that occur between the
partners throughout their union. However, relations
between states and local governments, like relations
between marriage partners, not only evolve over time but
also differ from case to case.
If the states' reactions to the trials of the 1980s
provide any indication, states' responses to local gov-
ernment can be expected to vary greatly. Indeed, state
responses to local government can take such polar forms
as increased state aid, as in Massachusetts and Florida,
or of state retrenchment, as in Washington. In strug-
gling to contend with statewide issues, a state's ac-
tions may not paint a coherent picture of its responses
to local government. California, for example, provided
increased financial aid to local governments after the
passing of Proposition 13 and also transferred some of
the financial responsibility for medically indigent
adults to the counties. New Jersey is another example.
That state has developed an array of programs to aid
local governments but has also pressed them to repay
debts to the state and raised the interest penalty from
6 percent to the market rate. As of 1983, Newark owed
the state $7.75 million (New York Times, 1983). Thus,
state responses to local government can be expected to
change over time, to vary state by state, and, within a
single state, to differ from issue to issue.
The states' responses to the challenges of the New
Federalism have been so varied, so tied to state issues,
that generalities are hard to draw. The picture is
mixed. To some extent, this is due to the fact that the
story is still in the telling; the states are still in
the process of responding. Perhaps to a greater extent,
the challenge of the New Federalism was overshadowed by
other challenges, particularly the recession and state-
revenue shortfalls, that confronted the states.
In reviewing the states'-actions with respect to their
increased authority under the block grants, it becomes
apparent that many state decisions, as in California and
Illinois, are politically based. One of the reasons
Nathan and Doolittle (1983) cite to explain the alloca-
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224
tion changes in CSBG funds, the block grant that had the
most notable changes in its allocation struc- ture, was
that the recipients, community action agen- cies, had no
political base in the states.
Although the states' records are mixed, the prospects
for a strengthening of the state-local Partnership are
better than ever.
_
The states have improved their capa-
bilities and have shown some willingness to respond to
the problems of local government through the development
of a wide variety of initiatives. The mechanisms the
states develop will probably increasingly include man-
agement initiatives, a focus in both block-grant poli-
cies, such as Illinois' emphasis on the proven effec-
tiveness of programs in refunding decisions under the
CSBG, and other state programs, such as New Jersey's
Urban Development Corporation. Other state initiatives
may well include greater private sector involvement
through state-developed incentives, as in enterprise
zones or, as in Florida, requirements of the Development
of Regional Impact or Areas of Critical State Concern
processes. In general, the states now seem more apt to
respond to specific problems than to take a comprehen-
sive approach to urban problems, or, in grant terminol-
ogy, states tend to take a categorical, not a block,
approach.
The states' responses to the challenges of the New
Federalism are uneven. In some cases, local governments
may perceive themselves as the estranged but still de-
pendent partners in this new partnership. Some states
have shown a willingness to grant local governments a
larger measure of independence in the form of increased
revenue-raising options, but these options have seldom
been broad based. Where states place strict revenue
restrictions on local governments, those governments can
come to view the very provision of basic services as a
state, rather than a local, responsibility.
Aside from public-private sector initiatives, the
states remain the only potential, external source to
which cities and other local governments can turn for
responses to the problems they cannot solve themselves.
Increased federal aid to local government is unlikely if
not impossible given the changing national fiscal pri-
orities. Local governments could profit by the sharp
lesson learned by community action agencies: A strong
state political base is vital when the states become the
principal dispersers of aid.
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225
There have been enough favorable responses on the part
of the states, including those states without a strong
history of providing what Wolman would classify as
~urban. aid, to justify the optimistic position that
cities and other local governments should concentrate on
building new relationships with the states. Through
their recent efforts, the states have shown that they
are becoming and will continue to evolve as strong part-
ners in the federal system. The states have emerged as
the chief partner in the federal system from whom local
governments can expect a favorable response to local
needs.
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Billitteri, T.J.
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Bradbury, K.L., Ladd, H.F., with Christopherson, C.
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Matheson, S.M.
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Representative terms from entire chapter:
state aid
