The state of the states in the post-Reagan era

The following is excerpted from remarks by Neal R. Peirce at the "The State of the States" Intersession of Sangamon State University in Springfield on March 15, 1988.

In the '90s as in the '80s the focus for much of the critical investment decisions of the United States will remain in the hands of those organs of American government which don't have a $2 trillion debt on their backs — no matter who wins the presidential election of 1988. Borrowing the analogy of John Shannon, recently retired head of the Advisory Commission on Intergovernmental Relations, if the entire flotilla of state-local systems fails to move ahead at a fairly heady pace, the collective national future may be imperiled.

There is also the question of holding the states truly accountable. As Stephen Farber, former director of the National Governors Association, suggests, the states' collective performance now becomes as vital as Congress's and the president's. On every issue from child care to the progressivity of a state's tax code to regulation of insurance companies, Farber suggests, we need resolute, independent performance testing of what the states are, in fact, accomplishing and not accomplishing.

The perplexing question of the future arises: What form of federalism might accommodate our needs in the 1990s? How do we operate in an era when our need for investment policies is imperiled by our lack of national funds for discretionary projects? My answer might be called "challenge federalism" — the federal government finding ways to combine its now limited resources with the potential of states.

Take housing as an example. The free market system continues to work pretty well for most of the middle class in the nation. In fact, tens of billions of dollars each year are lost to the federal treasury in the form of federal tax concessions on housing, especially the tax-deduction for the interest costs of personal home mortgages. But for lower income Americans, the situation is grim and about to get a lot worse. Not only are some 70,000 units of public housing in a state of abandonment, the victims of neglect and emaciated rehabilitation budgets, but as many as 900,000 units of federally subsidized, privately owned low-income apartments could vanish over the next decade.

So what is the likely answer? Is the answer one we would have identified in the '60s or '70s — to prime the housing pump with billions of fresh federal housing dollars?

The record doesn't speak very well for the efficacy of what we did before. Big chunks of public housing built the way Washington once dictated are social disaster zones today. And in an era of gargantuan federal deficits, who's to believe that Congress — or a president — will want to renew federal housing subsidies that primarily benefitted lenders, developers, landlords and speculators?

The post-Reagan America will be different. When the feds first plunged into the housing game back in the '30s with their first public housing units, the landscape at the state and local

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level was radically different from what it is today. No one had ever talked of "sweat equity housing" — the potential for low-income tenants to assist in building their own units. Urban homesteading was an oxymoron. The technique of forcing developers to include low-rent units through "inclusionary zoning" hadn't been invented. No states assumed strong leadership in low-income housing as do several today. We had just begun with the buildup of activist, skilled community development corporations, the CDCs, which, with their allies in Neighborhood Housing Services and other nonprofits, are the major suppliers of low-income housing in the United States today. Nor did we, back then, have the major national "intermediaries" that today provide vital assistance to local nonprofits in the low-income housing area, from the Enterprise Foundation to the Local Initiatives Support Corporation.

All these form the nucleus of an alternative national low-income housing supply system. Measure them by Washington's billions and they aren't great yet. Measure them in terms of innovation and capacity to produce and run housing at dramatically reduced cost, with the community support and social stability that so often elude federally sponsored projects, and you see the potential of a radically improved national housing future.

One of the most promising new funding ideas, for example, is the state housing trust fund. Here's the formula: Set up a tax tapping a tiny percentage of the value of all real estate sales and exchanges in a state. Feed that revenue into a trust fund. You'd have an extraordinarily promising, long-term source of funding for low-income housing which the normal real estate market can't service.

There's a parallel in potential revitalization strategies for the deeply troubled Main Streets of rural America. We seem to be politically willing to make massive appropriations for farmers, but to grant only pennies for merchants literally devastated by rural decline. Some towns, even in the face of adversity, are trying valiantly to cope. Selected small economic development grants for as little as $5,000 or $10,000 can often be matched with local investment to get a business opened, a handful of jobs created. It's the kind of grant-giving Washington is so notoriously inept at doing. The states ought to be helping, but precious few of them are. It would seem logical that Washington, in the post-Reagan era, might try to set up a small grant development fund — but one available only to those state governments willing to match the grants from their own treasuries.

The model of some national help dependent on strong and clear local response seems entirely appropriate for the times, not only fiscally, but because we have learned that without a significant state and local "buy-in," programs are likely to be run in indifferent and inefficient ways.

Yet even if states continue to respond more, matching in the '90s some of the advances we've seen in the '80s, we are still faced with the Achilles' heel of New Federalism — the immense disparities in wealth between various regions and states of America. It's fine to say that the New Yorks, Californias and New Jerseys of America should be able to pick up more and more responsibilities if Washington is strapped, but what about the West Virginias, Montanas and Mississippis? One idea would be a system of federal equalization grants to the states that simply lack the taxable wealth to provide service on a par with national norms. Most likely there is no political constituency for that idea.

Despite the advances by states in the last decade and the potentials of the states in expanded policy frontiers, there still remain important national agendas. They include not only defense, trade, fiscal policy and income security policy, but agendas assuring in today's turbulent economic world that no group of Americans, no group of states, is left too far behind in the race for jobs, investment, security in peoples' lives and a sound future.

Woodrow Wilson said: "The question of the relations of the states to the federal government is the cardinal question of our constitutional system. At every turn of our national history we have been brought face to face with it, and no definition of either statesmen or of judges has ever quieted or decided it. It cannot, indeed, be settled by the opinion of any one generation because it is a question of growth, and every successive stage of our political and economic development gives it a new aspect, makes it a new question."

The '80s have brought us far indeed in the revival of the states as strong, significant factors in our system of governance. But the challenges, and the need for a supporting federal role, remain as real as ever. To switch from politician Wilson and to paraphrase poet Robert Frost, we do indeed have miles to go before we sleep.□

Neal R. Peirce is an author, lecturer and columnist and the nation's expert on America's states since his book, The Megastates of America, was published in 1972. That work began a nine-volume series on the states, and the last volume, The Great Lakes States of America (1980), includes the chapter, "Illinois and the Mighty Lakeside City: Where Clout Counts."

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