A devolution revolution?

Get ready for the newest "new federalism." With support from governors, Congress and the White House, 1995 could be the year for a major overhaul of federal and state responsibilities.

Talk about who's going to do what - the federal government or the states - and who's going to pay for it has been going on for years. Now, with strong support from many new governors and the new majority in Congress as well as some interest by the White House, 1995 could be the year for a major overhaul through new block grants and program consolidations and possibly even a major "sorting out" of responsibilities between Washington and state capitols.

Republicans have placed a heavy emphasis on "devolution" themes in many aspects of their platform (the "Contract with America"), most notably in welfare reform. For his part, the president, a former governor, has often expressed support for the general principle of consolidating grant programs and giving more authority to the states.

Add to that the increasing pressure to reduce the federal budget, heightened by the debate over the balanced budget constitutional amendment, and the possibility arises that the intergovernmental grant-in-aid system may not be the same by the time the 104th Congress is finished.

From the Robb-Evans Commission of the early 1980s to the National Performance Review report in 1993, proposals have been put forward that would, to varying degrees, realign the fiscal system. Some of these relied upon converting various agglomerations of categorical grant programs into block grants and "devolving" the attendant responsibilities to state government. Others contemplated a grand "swap" of responsibilities between the two levels of government over a variety of program areas.

In his 1991 State of the Union address, then-President Bush called for the conversion of a substantial portion of federal grants to state and local govemments into a broad block grant. This led to a proposal developed by the National Conference of State Legislatures and the National Governors' Association that envisioned a number of large block grants in broad issue areas. The proposal was not acted upon, and no legislation was ever submitted by the Bush administration.

At the outset of the Clinton administration, NCSL and NGA revived their earlier consolidation proposal and suggested the creation of six Federal-State Flexibility Grants. The proposal combined 55 programs totalling almost $13 billion and covered education reform, workforce quality, air and land environmental management, water quality, defense conversion and housing. In addition to giving states more flexibility over programs, the two organizations proposed giving individual state governments the ability to initiate consolidations from the "bottom up."

These proposals found their way into Vice President Gore's National Performance Review. In the first two years of the Clinton administration, however, those recommendations did not appear to be a high administration priority, and little interest was shown on Capitol Hill.

The 1994 mid-term elections have changed priorities in Washington for both parties, and consolidation and devolution initiatives are sprouting up all over. Three initiatives in particular bear watching.

Welfare reform may be the No. 1 domestic policy issue debated this year (and perhaps next) in Washington, key to the debate over devolution. The main action to watch is the attempt by GOP governors and Republicans in the U.S. House to craft an agreement. More than 70 social service programs, involving AFDC, child care and child welfare would be consolidated, and new discretion given to states (though the money would not be entirely without strings).

The proposal raises a major question that has surrounded possible block grants for federal entitlement programs such as Medicaid, AFDC and food stamps. (These programs now constitute the majority of federal payments to state and local governments.) The problem is that federal law gives individuals the legal right to receive payment: simply convert the federal expenditure to a block grant and states could face an open-ended, essentially unlimited obligation to pay - an obligation controlled by Congress.

Of course, this particular concern could be eliminated if Congress were to remove the legal entitlement. Before this year such an action was, in the language of Washington, a non-starter. The issue changed fundamentally with the announcement in February of an agreement between Republican governors and GOP House members that would do just that - eliminate the individual entitlement for welfare. The proposal is highly controversial and will provide much fuel for an intense, highly partisan debate over the nature of welfare reform. Good or bad, though, ending the entitlement would remove a practical obstacle and pave the way for a major shift of responsibility for social services to the states.

On the Senate side, Senator Nancy Kassebaum of Kansas, who now chairs the Committee on Labor and Human Resources, has proposed a "swap" between the federal government and the states that is reminiscent of the early Reagan administration and Robb-Evans proposals from the 1980s. The plan would basically give states responsibility for income security programs like AFDC, WIC and food stamps while Washington would take over Medicaid.

Finally, there is the administration, which, though it does not control Congress, can probably sustain a veto of any legislation in this area. In his budget proposal for FY 1996, President Clinton speaks both of "consolidation" and "devolution," and calls for "performance partnership" grants to state and local governments in six areas; almost 300 individual grants would be pared down to a couple of dozen.

Does the current round of interest signal a coming block grant boom? Or, like earlier episodes, will it result in little more than the expression of much sorting-out sentiment and a few minor program consolidations? Developing a plan that is both practically and politically workable will not be easy. But now more than ever before, it is possible to imagine that a substantial "sorting out" of the intergovernmental system, of fiscal federalism as it is practiced in America, is in the offing. Whether the ultimate result for state government may be a boon or a quagmire will depend on the nature of any compromise and the role state officials play in its crafting.

Christopher Zimmerman covers fiscal issues in NCSL's Washington, D.C., office.