A NEW VERSION of the "new federalism" swap, agreed to last week by negotiators for the governors and the White House, is a substantial improvement over its antecedents. You might view the plan as a new generation in its line. The proposal still faces huge political and budgetary obstacles, but negotiations are going in the right direction.
The White House started off bargaining on the apparent premise that the only interests to be reconciled were those directly represented at the bargaining table--the administration and state governments. But if both of these parties concerned themselves solely with reducing the fiscal burden of social programs, the beneficiaries of those programs would clearly end up as odd man out. Fortunately, negotiators for the governors took a broader view.
The administration, you may recall, originally proposed that states assume full responsibility for food stamps and welfare for families (AFDC). Since recipients of these basic forms of aid are poorly represented in state and local decision-making, this struck many people--including the governors--as a perverse move. States already set the level of AFDC benefits, and the results have not been edifying. AFDC benefits, pitifully low in many states, have lagged far behind inflation. This situation was tolerable only because of the federally funded, nationally uniform food stamp program.
Under the revised plan, the federal government would retain responsibility for food stamps and also assume most or all of the states' current responsibility for Medicaid--medical assistance for the poor. AFDC financing would be turned over to the states, but a new minimum benefit standard would raise payments in the states with the lowest benefits. A federal fund would help states with high unemployment or low tax capacity to pay for the program. To even up costs, states would take over more health, education, urban aid and other social programs. Only one big sticking point remains for the governors: how much of Medicaid would the feds take over--only a minimum program or the more generous versions now operating in most big states?
The new federalism is still a long way from becoming law. Even if a Medicaid deal is worked out, there are other hurdles. The White House has not fully endorsed the plan. Two-thirds of the nation's governors must also approve. Congress may yet balk at the transfer of many of its favorite programs to state hands.
Hanging over the entire proceeding, finally, is the specter of the unresolved federal budget. Thus far the governors have amiably agreed to treat the next round of budget cuts as a separate matter. The outline agreement reached last week by the president and Senate leaders, however, implies large cuts in all the programs involved in swap negotiations. When the details become clear, the federalism negotiators may find themselves back on square one.