Unformatted text preview: tched the rhetoric. 3.2. Implicit (Incremental) Decentralization
Perhaps more important than the explicit devolutionary policy moves made by the federal government has been a
reduction in aid to local governments, a shift from federal grant programs aimed at state and local governments to those
directly aiding individuals, and an increase in the share of all US government revenues raised by state and local
From 1978 to 1990 federal aid declined from 17% of federal outlays to 10.8%, as a military buildup and entitlement
pressures claimed a greater share of resources. As a proportion of state and local outlays federal aid declined from 47%
to 26.9% during this period (TABLE THREE). Local governments were the hardest hit. Federal aid to local governments
fell from 10.6% of direct local general expenditure in 1978 to 3.7% in 1990. The reasons are many, and include the
deficit pressures on the national government that grew greatly in the 1980s and a general feeling that states should bear
the major responsibility of their local units of government.
Federal aid to state governments in particular grew in the 1990s, but most of this increase is due to the rapidly rising
cost of the Medicaid program (health care to the poor). Medicaid costs soared in the early 1990s in response to inflation
in the medical care field, as well as increased longevity. This is the key element of the aforementioned shift in federal
funding from places to people (from programs aimed at governments to payments to individuals). In 1978 more than
two-thirds (68%) of federal aid was aimed at state and local government programs; by 1998 nearly two-thirds (62.5%)
involved payments to individuals (TABLE THREE). Since 1980 federal government grant priorities have shifted from
education, training and employment, transportation, community and regional development, and general government, to
income security, and most dramatically, health care (TABLE FOUR).
Perhaps the most important devolutionary story to be told is the increasing share of total US government financing done
by state and local governments. Between 1987 and 1997 federal government revenue fell from 20% to 19% of GDP,
while state government revenue grew a percentage point from 8.6% to 9.6%, and local government receipts grew from
5.7% to 5.9%. State and local governments have thus been more willing to raise revenues than has their federal
It is important to remember that the US Constitution has always guaranteed concurrent tax and spending powers for the
national and state governments, and states have historically allowed their local units of government great discretion over
property tax revenues. Until the Great Depression local governments in the US raised by far the greatest share of
governmental revenue in the US fiscal system. Then, from 1946 to 1996, state government revenues nearly tripled as a
percent of GDP, compared to a 23% increase for the federal government.
The more recent increases in state revenue rai...
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