WASHINGTON -- State and local officials pleaded with Congress yesterday to ease up on unfunded federal mandates to help them weather their worst fiscal crisis in a decade, but even the mayor of Bridgeport, Conn., stopped short of asking for federal aid.
Moreover, economic analyst testifying before the House Budget Committee asseted that the financial crisis can be blamed in large part on poor state and local management and might actually be useful in forcing some badly needed changes in state revenue and spending patterns.
Bridgeport Mayor Mary Moran appeared along with officials of the National Governors' Association, National League of Cities, and National Conference of State Legislatures to urge a moratorium on "unfunded mandates," which force cities and states to finance Medicaid, correctional facilities, education, infrastructure, and other programs with little or no federal assistance.
She listed such mandates as the top contributor to her city's fiscal problems, as well as the woes of many other cities, while state officials blamed "one-way federalism" as a major cause of the $15.3 billion of cumulative deficits now facing 31 states.
But ever mindful of the federal government's own ballooning budget deficit -- estimated at over $300 billion this year and next -- the state and local officials did not ask for any further federal assistance. That contrasts with New York City's request about 15 years ago for a federal bailout to avert bankruptcy.
Rather, the governors' association and other groups urged Congress only to maintain current levels of assistance, such as freezing matching-share requirements for grant programs and preserving the tax-exemption for municipal bonds. And they asked the committee to help relax some costly new Medicaid and other funding requirements to help soften the economic crisis.
Private analysts at the hearing said the crisis in fiscal 1991 will produce a cumulative deficit for state and local governments of $36 billion -- the most difficult fiscal scenario since 1983 for most states.
Regions such as New England, the Middle Atlantic states, and the West Coast are doing worse than they did during the last recession, while the Midwest generally is doing better, said Steven Gold, director of New York State University's Center for the Study of the States.
Mr. Gold agreed with the state officials that spending pressure is strong and growing, particularly in three program areas -- Medicaid, corrections, and elementary education. However, he said this trend is fueled as much by inflation in health services, the drug war, and growth in elderly and student populations as it is by unfunded mandates being handed down by the federal government.
Edward Gramlich, economics professor at the University of Michigan, said the amount of unfunded mandates is "just too small" to account for the $30 billion cumulative shortfall expected this year. "Even the most fervent governors will not claim that this factor is worth more than $5 billion or so," he said.
The economists said inadequate foresight and planning and overly narrow tax bases in may states, were largely responsible for the crisis. "States seem to be in a chronic underbalance situation" and no longer have the reserves to weather recessions, Mr. Gramlich said.
The problem could be attributed to "anti-tax fervor," coupled with the increasingly mandatory nature of spending, he said, as well as the "anti-saving disease" pervading all levels of society.
John Shannon, senior fellow at the Urban Institute, said the crisis could actually "provide significant benefits" by serving to wring out poor management practices in many states and cities and paving the way for badly needed structural reforms in spending and taxes.
"By creating large deficits that must be closed quickly, the recession breaks the iron grip of status quo politics and gives reforms on the right and on the left a green light," he said.
"The crisis provides liberals a unique opportunity to push their tax reform agenda in the non-income tax states" like Connecticut, Tennessee, and Texas, he said, while conservatives in liberal spending states like New York get "the chance to slam the spending brakes."
Mr. Gold agreed that "states can do a great deal to restore fiscal health by reforming their tax, spending, and intergovernmental policies." However, he agreed with state officials that "it is important that the federal government not make the already bleak picture even worse by increasing unfunded mandates."
