revenue sharing for what

Revenue Sharing for WhatRevenue Sharing and the City by Harvey S. Perloff; Richard P. Nathan; Fiscal Issues in theFuture of Federalism: CED Supplementary Paper Number 23; Federal Grants-in-Aid:Perspectives and Alternatives by Deil S. Wright; Fiscal Balance in the American FederalSystemReview by: Norman BeckmanPublic Administration Review, Vol. 29, No. 5 (Sep. - Oct., 1969), pp. 540-546Published by: Wiley on behalf of the American Society for Public AdministrationStable URL: http://www.jstor.org/stable/973473 .

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540

BOOK REVIEWS and NOTES DEIL S. WRIGHT, Editor

REVENUE SHARING FOR WHAT

NORMAN BECKMAN, U.S. Department of Housing and Urban Development

REVENUE SHARING AND THE CITY, Harvey S. Perloff and Richard P. Nathan (eds.). Balti- more: The Johns Hopkins Press, 1968. Pp. 112, $2.50.

FISCAL ISSUES IN THE FUTURE OF FEDERALISM: CED SUPPLEMENTARY PAPER NUMBER 23. New York: Committee for Economic Devel- opment, 1968. Pp. 283, $3.00.

FEDERAL GRANTS-IN-AID: PERSPECTIVES AND ALTERNATIVES, Deil S. Wright. Washington, D.C.: American Enterprise Institute for Pub- lic Policy Research, 1968. Pp. 158, $2.00.

FISCAL BALANCE IN THE AMERICAN FEDERAL

SYSTEM, Advisory Commission on Inter- governmental Relations. Washington, D.C.: U.S. Government Printing Office, 1967. Pp. 355, $2.50.

A CONTEMPORARY FABLE by Wilfred Owen begins,

There once was a nation of 200 million people that was the most powerful country in all the world. At the national level the inhabitants were very rich, but at the local level they often turned out to be quite poor. And as luck would have it, they all lived at

The views presented here are solely those of the author and do not necessarily reflect the outlook or position of the U.S. Department of Housing and Urban Development.

the local level. Seventy percent of the people were crowded into one percent of the land, which they called cities. One-fifth of the city people were the victims of poverty. Many of them lived in slums where the housing was unfit for living, the schools unfit for learning, and the air unfit for breathing.... But the cities continued to grow uglier and the frus- trations greater. . . . And there were riots in the streets.

This fable was written about transportation problems and how cities can solve them. The moral of the story was that transportation is not just a matter of keeping things moving but rather that it should be a means of improving the urban environment.

A similar condition exists with respect to intergovernmental fiscal reform. Transporta- tion is not really the problem: technology and systems techniques have made it possible to solve our transportation needs. Similarly, the principal problems of cities cannot be money: we are an extremely wealthy nation. The problem in revenue sharing, as in transportation, should be what kind of an urban environment do we want at the local level where the people often turn out to be quiet poor. In Mr. Owen's fable the Chief Urban Worrier proposed a National Plan for cities which called for new communities that were pleasant to live in and easy to move around in, and joint public- private corporations to build these communities. Even so the fable concluded on a wistful note, describing the reception to the National Plan.

And they called themselves the Grateful Society. But there were some urbanites who refused to laugh or even to be grateful, and they stood around in small groups shaking their heads and wondering, If our Country is so rich, why are the cities so poor? And to this day, no one has been able to answer that question.

SEPTEMBER / OCTOBER 1969



BOOK REVIEWS 541

This review will examine the current writ- ings of Urban Fiscal Worriers, those who refuse to laugh, and even those who do not think that fiscal federalism begins and ends with revenue sharing schemes.

We live in an age of the antihero and the small solution. Even matters of public administration which we could never get anybody interested in are now enough to shake and topple institutions and bring public figures to their knees. Police administration around a convention in Chicago, school decentralization in New York City, and minipark administration near the Berkeley campus are among the national news stories of the year. That leader par excellence, Charles deGaulle, lost a national plebiscite over the question of reducing the number of administrative districts in France from 82 to 21.

Now, even that more dismal science, economics, has cast up a subject for national debate: revenue sharing. Most people, certainly all central city mayors, agree that one of the answers to the problems of the urban poor is more money. Metropolitan reorganization, national or state assumption of various public services, basic restructuring of our tax system, or ignoring the riots appear unlikely as solutions to the urban problem. We therefore turn to fiscal reform.

Federal revenue sharing with the states on a nonearmarked basis has become the rallying cry for fiscal reform and for preserving a balance of power in our federal system. A considerable literature on this subject has grown in the last few years, of which the four volumes on improved fiscal balance, herein reviewed, are the most recent. They are also a bargain in price. In two books, Revenue Sharing and the City and Fiscal Issues in the Future of Federal- ism, revenue sharing through transfer of unear- marked federally collected grants to the states is the leitmotif. In a third, Federal Grants-In- Aid: Perspectives and Alternatives, revenue sharing is put into the perspective of a total federal grant-in-aid system, but nevertheless is identified as our last, best hope. The fourth, the Advisory Commission on Intergovernmental Relations' Fiscal Balance in the American Fed- eral System, in the ultimate rejection of the single, final solution, comes up with 39 recom-


mendations for rationalizing the nation's intergovernmental fiscal relationships.

The City

Revenue Sharing and the City is a product of a conference sponsored for the Committee on Urban Economics of Resources for the Future, Inc. Walter Heller, former Chairman of the Council of Economic Advisors, outlines the case for revenue sharing; Richard Ruggles of Yale University presents an opposing view. At the time, revenue sharing seemed to be a good "academic" subject.

The basic logic of the original revenue sharing plan is clear; in comparison to state and local governments, the national government en- joys a clear advantage when it comes to raising tax revenues. The federal income tax is both productive and inevitable in an expanding econ- omy, especially as compared to a somewhat regressive state and local revenue system. At the same time, the demand for more state and local services is irresistible. The credibility and viability of state and local government is at stake. The subsidiary issues flowing from this single solution are many and knotty. In his reappraisal, Heller fills in a number of unanswered questions about revenue sharing: It would not displace existing or future categorical grants; local governments should be given explicit recognition in the formula for revenue sharing; state and local tax effort would be a factor in determining the grants to each state.

Heller's most powerful argument for revenue sharing (usually left unsaid) is that it is one of the few alternatives to federal income tax reduction: "Revenue sharing would convert the two-way tug-of-war between expenditures and tax reductions into a three-cornered competi- tion for funds." Of course until federal sur- pluses are available, tax sharing advocates are in the classic economist's position of telling us what to do with our money after we have done something else with it.

The Heller piece is a major contribution to the subject in that it speaks to some of the details of revenue sharing. In an unfortunate conclusion, he asks to "let me stress again that it is the general case, not the particular plan,



542 PUBLIC ADMINISTRATION REVIEW

that matters." Does the revenue sharing plan displace other federal grants? Do we take city needs into account? Should we earmark the funds for education or welfare? Do we build in equalization? It is just these questions that the administration and Congress will have to deal with. Until we move on from abstractions and simplifications to these realities which are complex, political action in this subject area will not be possible. As the architect Mies van der Rohe observed, "Beauty is in the details."

Professor Ruggles of Yale, undertaking the opposition, feels the wrong question is being discussed. We should be examining not the nitty gritty of revenue sharing bills but rather the appropriate role of the federal, state, and local governments. Though writing in the city that federal urban renewal built, Ruggles slams the oven door on Morton Grodzins' marble cake interpretation of intergovernmental relations, causing it to fall. In turn he whips up a brand new old-fashioned layer cake of divided functions. Rejecting Heller's intolerable tinker- ing with percentage set-asides, etc., he concludes that: "encouragement of federalism through Federal tax credits and revenue sharing constitutes an avoidance of the basic problems rather than an acceptable solution to them."

As any man who has read his Constitution and nothing else knows: "Federalism as a con- scious division of functions between levels of government is a reasonable approach." Ac- cording to Ruggles, the federal government should guarantee for every citizen adequate education and health care, and redistribute income to the extent required in order to eradi- cate poverty. The states are let off fairly easily; a considerable part of their task is to oversee the local governments "and, of course, they handle those matters which are of regional but not National importance." Local governments are directed to provide necessary community services to citizens. So what else is new?

A Collection of Readings

The Committee on Economic Development's Fiscal Issues in the Future of Federalism is modestly but accurately subtitled, Supplemen- tary Paper No. 23. It is a collection of more

than readings, but less than a book, on the subject. The fiscal essays include case studies of five metropolitan areas, a study of four rela- tively low-income states, and a staff analysis of the aggregate fiscal outlook for state and local governments.

The five metropolitan case studies were selected on the basis of regional diversity, fiscal and political differences, and the extent of suc- cess in fiscal reform. The major ingredients of the metropolitan trauma appear in all of the case studies: the familiar ills of the central cities, restrictions on taxing power, fragmenta- tion of local governments, and dim prospects for funding new antipoverty and housing programs.

James Papke of Purdue, in his study of In- dianapolis, provided a measure of encouragement. Beginning in 1963, the State of Indiana accepted increased responsibility in meeting local needs. Major revenue reforms included a personal and corporate income tax and a sales tax. This in turn made possible increased grants-in-aid, increased tax sharing, local sup- plements to the sales tax, and strengthened property tax administration. The theme of the Indiana profile is the normalization of state responsibilities toward its local governments. The overwhelming remaining problem for metropolitan Indianapolis is the increasing con- centration of southern migrants "in the older sections of the central city where obsolescence, high residental densities, congestion, inaccessi- bility, and low household income combine to generate vexing problems"; one of the vexing understatements of the year.

In Boston, Joseph Barresi of the Boston Mu- nicipal Research Bureau assigns to the state the role of "heavy." State limits on Boston's taxing powers have forced taxes on property; among the highest in the nation. The way out: regional solutions "with the State providing the direction and most of the funds."

In the Louisville story by Roy Bahl of Syra- cuse University, some horizontal accommoda- tion has been achieved by vesting comparable powers in city and county governments to finance services, some governmental consolidation, and new Council of Government ma- chinery to bring about interstate and interjuris- dictional cooperation in the metropolitan area.




BOOK REVIEWS 543

Another essay looks at "The Potential Im- pact of General Aid in Four Selected States." The author is Richard Nathan, then of The Brookings Institution and now Assistant Direc- tor of the Bureau of the Budget. The focus of the study is the potential impact of general federal aid on state public finances.

The local recognition of urgency in the metropolitan studies just described was found not to exist among the officials of the more poor and less "progressive" states. Even some of the already available federal categorical grants, especially those for welfare, were not fully matched. The study documents the major weakness of the earlier proposals for revenue sharing; making available a general revenue sharing grant to the states would at least partly result in a reduction in tax effort at the state and local level.

The final paper, "The Outlook for State and Local Finance," by Lawrence Kegan and George Roniger, both of the CED staff, proper- ly posed the question: Is there going to be serious crisis in financing state and local needs? If so, general federal revenue sharing is justi- fied. In aggregate, the authors found no crisis. For the most part, state and local governments have done a remarkable job in meeting their fiscal responsibilities. A state and local revenue structure responsive to economic growth along with projected increase in federal grants-in-aid make provision of public services through 1975 "well within the capabilities of state and local governments."

George Orwell's contribution as a journalist- writer was his recognition that honesty is very often the art of the obvious: "to see that which is in front of one's nose needs a constant strug- gle." Except for a thoughtful Foreword by Kegan, there is too little attempt in the CEA- sponsored studies at pulling together conclu- sions about the metropolitan or state scene, or even the generalization that no generalizations were possible. Nevertheless, the main elements are there.

The central cities are in trouble. At the same time, the states have additional tax capability and a perhaps irrepressible tendency to substi- tute federal grants for state and local efforts if given complete discretion. In short, there is little comfort in the CED volume for an uncom-


plicated, pristine (no pass through to the cities, little equalization, no link to tax effort), unear- marked revenue-sharing grant to the states.

A Review of Contemporary Literature

The purpose of Deil Wright's useful study Federal Grants-In-Aid: Perspectives and Alter- natives is to review the contemporary literature, to assess the overall impact of proliferated federal grant programs on the other parts of the federal system, and to offer some possible reforms.

Wright puts revenue sharing in the much larger perspective of the total complex federal grant-in-aid system. Surveying past unsuccess- ful efforts at reform of individual bits and pieces, he draws a logical (but not necessarily correct) conclusion. If marginal grant-in-aid reforms cannot be accomplished, then funda- mental reforms, such as federal tax reduction, state income tax credits, and federal revenue sharing, is necessary.

The volume is in the grand tradition of the traditional literature: simplification, uniformity, overall direction, and accountability. Individual grant programs are not examined, so not too much attention is given to the specifics of the politics of federal grants, i.e., who gets what, where, and how. The questions raised are not, "How should we change the welfare program?" or "How effective has the Economic Oppor- tunity Act been?" The value orientation of the author is stated early: the concern is for the adverse impact of proliferated federal programs on the vitality of state and local governments and on the continuance of our system of divided powers.

The analysis traces the expansion of the federal grant system from the 1930's to the present. Proliferation into upwards of 500 separate grant programs administered by over 150 agencies and bureaus and over 400 federal offices in the field is accounted for by triple alliance of pressure groups, congressional sub- committees, and federal agencies.

A dour view is taken of federal program administrators. They suffer from functional in- sensitivity and indifference to the complexities of intergovernmental relations; professionalism which leads to a dislike for coordination; and




protectionism, which discourages proposed reforms. Data is amassed to prove that the overall effect of federal grants is no longer equalizing to any important degree. Here the reviewer must question whether sufficient account was taken not only of the allocation and matching formulas in federal grants but also the progressive system of tax collection and the increasingly social-concern-oriented program purposes to which the tax funds are put.

Wright identifies a number of incremental adjustments needed in the grant-in-aid system. These include consolidation of the present specific categorical grants into broader functional grants, as has been done in the public health field. Consistent matching allocation and other formulas should be established. Full standing committees on intergovernmental relations, or even a joint committee is proposed. In the Executive Office and in each Department, there should be key individuals charged with responsibility for coordinating grant-in-aid programs. A number of developments along these lines have taken place in recent months and are noted below.

Dispairing of the existing ossified structure which is crippled by "hardening of the categories," more drastic medicines are prescribed. Federal tax reduction and tax credits to encourage state and local income tax effort are be- grudgingly rejected as not being politically realistic solutions at this time. Tax sharing; unrestricted, unconditional federal grants to the states are proposed as the last best hope for the federal system.

Wright concludes by quoting Walter Heller. The issue is simple: "Do you want stronger States." But, as we have seen above, Mr. Heller in his reappraisal of revenue sharing has suggested adding a number of federal and local elements to the revenue-sharing approach.

Helpful Recommendations

The Advisory Commission on Intergovern- mental Relations' Fiscal Balance in the Amer- ican Federal System is a result of a two-year study effort aimed at reducing intergovernmental fiscal tensions. Volume I covers the federal and state scene and Volume II (not covered here) examines metropolitan fiscal

disparities. The best part of ACIR reports are their recommendations. This one contains, like that famous British movie thriller, "39 Steps" toward rationalizing the present nonsystem.

The ACIR report meets a great need. The literature in the general field on reform of state and metropolitan government is, by and large, repetitive and stale. In the areas of federal urban policy and federal program administration, it is almost nonexistent; no decent text has yet appeared. The most valuable contribution of the ACIR potpourri of proposals are those calling for federal action.

While some of the federal recommendations will be filed away, the ACIR volume identifies most of the new directions likely to be taken in the next few years to improve federal administration of grants-in-aid. These five Commission recommendations are pending before Congress or have otherwise been acted on by the new administration:

authorizing the President to submit grant consolidation plans to Congress, such plans to go into effect unless vetoed by either house.

-authorizing a single grant application by state and local governments permitting joint funding of projects containing components de- riving funds from several federal sources.

-bringing Federal Executive Boards under Bureau of the Budget supervision.

decentralizing to federal regional offices approval of formula-type grants.

requiring review and comment by state planning agencies on project proposals imping- ing upon state and local comprehensive plans. Three related recommendations are also likely to be given serious consideration: reducing the number of separate authorizations for functional grants; simplifying and systematizing the varied matching and apportionment formulas for existing grant programs; and consolidating planning requirements applicable to existing and future grant programs.

The Commission's overall federal strategy is three-fold. To achieve the classic objectives of federal aid-equalization, stimulation, and general support, these functions must be sorted out. Three groupings of grants would be established to replace the existing 400 blows to the body politic. First, a reformed system of categorical grants to stimulate and support pro-




BOOK REVIEWS 545

grams in specific areas of national interest (such as air and water pollution abatement) and to promote experimentation and demonstration. Second, bloc grants, through the consolidation of existing categories (along the lines of the partnership in Health Act of 1966) to give states and localities greater flexibility in meeting needs in broad functional areas. Finally, general support payments (revenue sharing on a per capita basis, adjusted for variations in tax effort) to allow states and localities to devise their own programs and set their own priorities.

Conclusion

Most books on intergovernmental fiscal relations lend themselves to review about as much as a critique of a potato bag race, performance of the Canadian Air Force exercise, or the food in a government cafeteria.

The above volumes are an improvement, especially because their batting average in terms of dealing with relevant current political issues and offering of achievable solutions is high. "It is," as Oscar Wilde once pointed out, "much easier to have sympathy with suffering than it is to have sympathy with thought." None of the authors have copped out by simply wringing their hands over the problem. Even these volumes, however, suffer from the lack of refer- ence to national goals and to individual people. It is a fact that in many neighborhoods in Phila- delphia the infant mortality rate is three times that of the rest of the country. Which grant reform will get at that problem? The emphasis is on the overall system, and one is tempted to consign such writers to lakes that average three feet in depth, and hope that they can swim.

And yet these books on improved intergovernmental relations do deal with real, live issues. In May of this year common regional boundaries and headquarters were set up for the five agencies-HEW, HUD, Labor, OEO, and the Small Business Administration-pri- marily concerned with administering urban- oriented social, economic, and development programs.

Regional Councils made up of the Directors of these same agencies have been established in four regions, with additional councils to be created. Federal program decision making is


being decentralized at express presidential direc- tive.

The Grant Consolidation Act, submitted to Congress on April 30, 1969, would give the President power to initiate consolidation of closely related federal assistance programs. Either House of Congress would have the right to veto any proposal for consolidation within 60 days. It would parallel existing legislation giving the President initiative in reorganizing Executive Branch functions. Joint funding simplification legislation is also before the Con- gress. At presidential direction, major efforts are now underway to simplify and reduce the number of federal grants available for comprehensive and functional planning and to achieve greater uniformity in planning requirements. The Budget Bureau is now implementing the Intergovernmental Cooperation Act of 1968 which establishes uniform federal procedures for setting up of state bank accounts and scheduling the transfer of funds to states, pro- vides a waiver of statutory requirements that a single state agency administer a particular grant program, makes full information available to the governor on all federal funds sent to the state, and authorizes provision of reim- bursable technical assistance by federal agencies to their state and local counterparts.

Other recent legislative and Executive Branch actions provide for review by metropolitan councils of governments of proposed federal applications, conformance to state-designated substate districts in federal grant programs, governmentwide uniform overhead allowances for all federal grants, creation of the Urban Affairs Council and the Office of Intergovern- mental Relations. There is considerable evi- dence that the road to the strengthened federal system will most likely continue to be paved by individual good works rather than a new throughway which causes more relocation problems than it is worth.

The public dissatisfaction with our present grant-sharing practice and these volumes which both reflect and heighten this dissatisfaction has had a number of spillover benefits. Some action toward revenue sharing will undoubtedly be taken within the next year or so. These revenue- sharing studies have focused the spotlight on the need to put the state and local fiscal house




in order. At the national level, the issue is whether these and other reforms can come quickly enough to deal with the urban turmoil that is no further away than the next long, hot summer.

Our Urban Fiscal Worriers have spoken, but

as in Wilfred Owen's contemporary fable, many of us are still standing around, shaking our "heads and wondering, If our country is so rich, why are our cities so poor? And to this day, no one has been able to answer that question."

THE STUDY OF URBAN GOVERNMENT: FIRST STEPS TOWARDS AN INTERNATIONAL DISCIPLINE

STANLEY SCOTT University of California, Berkeley

THE URBAN CHALLENGE TO GOVERNMENT: AN INTERNATIONAL COMPARISON OF THIRTEEN CITIES, Annmarie Hauck Walsh. New York: Praeger, 1968. Pp. 279, $10.00.

URBAN GOVERNMENT FOR GREATER STOCK- HOLM, Hans Calmfors, Francine F. Rabino- vitz, and Daniel J. Alesch. New York: Praeger, 1968. Pp. 176, $12.50.

LENINGRAD: A CASE STUDY OF SOVIET URBAN GOVERNMENT, David T. Cattell. New York: Praeger, 1968. Pp. 171, $12.50.

URBAN GOVERNMENT FOR ZAGREB, YUGOSLA- VIA, Eugen Pusic and Annmarie Hauck Walsh. New York: Praeger, 1968. Pp. 149, $12.50.

URBAN GOVERNMENT FOR THE PARIS REGION, Annmarie Hauck Walsh. New York: Praeg- er, 1968. Pp. 217, $12.50.

URBAN GOVERNMENT FOR METROPOLITAN LA- GOS, Babatunde A. Williams and Annmarie Hauck Walsh. New York: Praeger, 1968. Pp. 182, $12.50.

THESE SIX BOOKS ARE THE RESULT of a four- year study of 13 metropolitan areas conducted

by the Institute of Public Administration in New York, with support from the Ford Foundation. It would be difficult to over-estimate the importance of this research-and especially of Ann- marie Hauck Walsh's The Urban Challenge to Government, which presents the project's find- ings and insights in a necessarily complex, but extremely well-organized pattern. In one sense, the project is very ambitious. It is, in effect, a worldwide study of urban and metropolitan governance, carried out through 13 case studies.* The nations and metropolitan areas were deliberately chosen to encompass "a broad spectrum of human conditions and urban-settle- ment patterns. New nations and old, poor nations and rich, socialist and open-market economies, and each major continent of the world are represented" (quoted from galley proofs of Mrs. Walsh's general volume).

Although ambitious in geographic scope, in other ways the project's stated goals are modest: the methodological orientation is described as "exploratory and descriptive." In the Foreword Lyle Fitch comments: "It is hoped that the project has succeeded sufficiently to provide students of comparative administration and government with raw material for proposition building" (Walsh).

It has done this and a lot more. The project should advance both the understanding of urban government, and its further study on a com-

The 13 areas are: Calcutta, India; Casablanca, Morocco; Davao, Philippines; Karachi, Pakistan; La- gos, Nigeria; Leningrad, U.S.S.R.; Lima, Peru; Lodz, Poland; Paris, France; Stockholm, Sweden; Toronto, Canada; Valencia, Venezuela; and Zagreb, Yugoslavia. The exact list of titles to be included in the series is still not definite, although it appears that separate volumes will be published for most, if not all, of the 13 urban areas studied. Volumes on Casablanca, Karachi, Lima, Lodz, and Valencia are now planned for forthcoming publication in the series.




revenue sharing for what

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