Introduction

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Woodrow Wilson said in 1908 that "the question of the relation of the states to the federal government is the cardinal question of our constitutional system." It cannot be settled, said Wilson, "by one generation, because it is a question of growth, and every new successive stage of our political and economic development, gives it a new aspect, makes it a new question." The focus of this book is on the way in which this central debate in federalism was reopened during the first term of the Reagan administration, a period in which basic changes were occurring in the mood of the country and the attitude of the public on the role of the government in domestic affairs.

The analysis presented in this volume is based on research begun in 1981 when it became evident that Ronald Reagan's new administration was likely to achieve significant cuts and changes in federal grants-in-aid. A network of field researchers was established to study a sample of state and local governments in order to assess the resulting changes in their policies, operations, and roles as the effects of the Reagan changes were felt. Two books and several other publications have been produced based on this research. This book, which presents the main findings of this research, is based on these earlier publications plus fourteen state-focused case studies summarizing the effects of cuts and changes made in federal grant-in-aid programs during the first term of the Reagan administration. The fourteen states in the sample are listed below:

Arizona New Jersey
California New York
Florida Ohio
Illinois Oklahoma
Massachusetts South Dakota
Mississippi Texas
Missouri Washington

The sample was chosen to be representative in terms of size, location, and economic and social characteristics. This volume includes nine individual case-study chapters written by the researchers who conducted the field research and six chapters of general analysis drawing on the findings of the case studies.

In both the study and in this book, we have tried to do two things. First, we have looked at budget cuts and other changes in federal grant-in-aid programs and how state and local governments responded to them. Much of the business of the federal government in domestic affairs is transacted in the form of grants-in-aid. Reagan's policies in this area, in effect, have two aspects. His efforts to cut spending under federal grants-in-aid (an area in which budget cuts have been concentrated under Reagan) reflect the administration's retrenchment objective. Also under grants-in-aid, Reagan has proposed changes reflecting his federalism reform objective of devolving power and responsibility from the federal government to state governments.

Reagan's biggest successes in pursuing both types of changes under federal grant-in-aid programs — retrenchment and devolution — came in 1981. The cuts made in grants-in-aid in Reagan's first year in office were historic. This was the first time in over thirty years that there had been an actual-dollar decline in federal aid to state and local governments. The cuts produced a 7 percent reduction for fiscal year 1982 in overall federal grants-in-aid to state and local governments as shown in table 1.1. This amounted to a 12 percent decline in real terms. The same legislation which contained these cuts, the Omnibus Budget Reconciliation Act of 1981, also included major changes in the structure of federal aid programs to create block grants that assigned a greater role to state governments.

In addition to describing and analyzing the effects of Reagan's cuts and changes in federal grants, our second objective in this book is to assess how changes in the domestic policies of the national government made during President Reagan's first term have affected the roles and relationships of the three levels of government in our federal system: national, state, and local. Although this subject was largely neglected in 1981 in the debate about the merits of eliminating or trimming particular programs and cutting taxes, we believe the policies of the Reagan administration in the domestic public sector have contributed to a fundamental shift in the balance of power and responsibility in American federalism. This shift involves the enhancement of the role of state governments vis-à-vis both the national government and local governments.

The purposes of the overview chapters in this volume are to describe the Reagan program, its roots and significance; to summarize the responses made by the sample state governments to the Reagan changes; and to analyze the reasons for the differences in these responses both on a program-by-program and a state-by-state basis. We begin by examining the theory of federalism advanced by the Reagan administration and its relationship to other objectives which the administration has pursued in the field of domestic policy.

Reagan's Theory of Federalism

President Reagan's domestic policy initiatives during his first term reflect a theory of federalism grounded in the Tenth Amendment to the Constitution which reserves to the states or to the people all powers not delegated to the national government. One of Reagan's major goals throughout his public career has been devolution to the states, that is to curtail the role of the federal government in domestic affairs and enlarge the role and responsibilities of state governments. As governor of California he argued strongly for such a shift. When he was running for the Republican presidential nomination in 1976, he delivered a speech calling for a "systematic transfer of authority and resources to the states." This set of proposals, affecting $90 billion in federal programs, evoked widespread criticism because of the inability of Reagan and his advisers to spell out the details and explain its consequences. But the proposals did accurately reflect the candidate's basic position.

These views had not changed by 1980 when Reagan was elected president. In his inaugural address in 1981, he promised to curb federal powers and to "demand recognition of the distinction" between federal powers and "those reserved to the states." News accounts at the time said that Reagan's...