The Bush White House and Congress are quarrelling with governors and mayors in what may be the federal system's most bitter conflict in a century or more.
While Washington talks economic stimulus, including politically expedient tax cuts, the recession is ripping into state and city budgets, triggering immense deficits--a cumulative shortfall as high as $67 billion for the current fiscal year, according to the National Conference of State Legislatures.
"Nearly every state is in fiscal crisis,'' reports the National Association of State Budget Officials. With a stalled national economy, state tax collections have plummeted.
And all that Washington is doing seems to make matters worse.
The Bush administration's signature tax relief bill, together with anti-recession legislation that Congress passed this year, created huge revenue gaps for the states that had linked their inheritance and business taxes to federal formulas. Some states took political heat for tax increases necessitated by "uncoupling'' from the federal formulas; others are accepting billions in lost revenue.
Buckling in to the big Internet operators, Congress and the Bush White House have deprived states of the potentially rich new revenue flow from taxing Internet services.
Then there's federally forced spending. State outlays for Medicaid, largely mandated by Washington but costing about 20 percent of state budgets, zoomed up 13.2 percent in 2002, the largest increase in a decade.
A bill in the Senate to shift some of Medicaid's expense to the federal government, at least temporarily, was recently blocked by the White House.
And now the states are being forced to finance expensive new tests under President Bush's "No Child Left Behind'' education law, to fund costs of new federally mandated voting reforms, and to cover a sudden surge of homeland security measures.
"I realize the federal government can't go in and rescue everyone,'' Arkansas Gov. Mike Huckabee, a Republican, said last week. "But when we hear the government is going to bail out the airlines, to heck with the airlines. We're providing the services. ... Help us out.''
The pain, in fact, is being felt in intensely bipartisan form across the nation.
Take California, where Democratic Gov. Gray Davis has been forced to recommend a staggering $10.2 billion budget cut. He's asking for layoffs, salary cuts and cutting deeply into Democrats' own priority areas of education, social services and health.
In Connecticut, facing a $500 million deficit projected to grow to $1.5 billion next year, Republican Gov. John Rowland is not only recommending nearly 3,000 layoffs of state workers with deep cuts in services. He's just reversed course and embraced a "millionaire's tax''--upping the tax on earnings over $1 million by 22 percent.
A trigger point for cities has been Washington's failure to release the $3.5 billion that President Bush specifically promised for local police, fire crews and other emergency services as part of the homeland security program.
"We are outraged,'' declared outgoing National League of Cities President Karen Anderson, mayor of Minnetonka, Minn., at the NLC's conference in Salt Lake City last week.
A recent NLC survey of 221 cities showed more than half have had to shift personnel to make up for added security duties. Thirty-eight percent predict they'll soon be forced to cut services to cope with homeland security needs.
"I don't think anyone could have predicted that national defense would be paid for by property taxes,'' said Mayor Michael Guido of Dearborn, Mich. "We are quite angry about it.''
Behind all the disputes is the immense irony noted by Ray Scheppach, executive director of the National Governors Association--that state governments will be forced to raise taxes and cut spending at the very moment that Washington, ostensibly to alleviate the recession, cuts taxes and increases spending.
If a central goal is to alleviate and then end the recession, Washington and the states will be working at cross-purposes.
Ex-Gov. Bush might have used the moment to propose emergency anti-recession aid to the states. But he's not done so.
It is true that the states, enacting deep tax cuts through the boom years of the '90s, depleted their revenue bases--by $40 billion a year, according a study by the Center on Budget and Policy Priorities. The states that cut the most deeply are almost uniformly the ones in the worst fiscal crisis today.
Still, if the state tax cuts of the last decade were revoked right now, the impact would be to deepen the current recession all the more.
Standard political wisdom says the gross miscommunication between Washington and the states is inevitable. Given the Bush administration's apparently incurable infatuation with tax cuts as the cure for all economic ills, that may be so--right now.
But a sane nation ought to be able to devise a more sane and sensible way to run a federal system.
Neal Peirce's e-mail address is nrp@citistates.com.
(c) 2002, The Washington Post Writers Group
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