The coming of the devolution revolution.

• Author: Esser, Jeffrey L.

A quiet revolution is underway that will radically transform our intergovernmental system of government. Devolution - the return of power and responsibility to state and local governments by the federal government - will bring new challenges as major shifts in program and funding responsibilities occur. There will be new opportunities to improve program efficiency with greater flexibility and clearer lines of responsibility and accountability; nevertheless, the main concern is still financial. Who will pay for the revolution?

All state and local officials have a stake in the outcome of federal budget decisions that will affect our intergovernmental partnership. As efforts move forward to devolve and downsize federal programs, finance officers at the state and local levels will play a pivotal role in designing and implementing the new programs. To prepare for these sweeping changes, finance officers need to understand the extent of the changes and the potential impact on their governments' budgets and long-term financial plans.

Larry Naake, executive director of the National Association of Counties, outlined some of the expected impacts of devolution in a recent County News editorial. He noted that federal spending is expected to decrease by more than $900 billion over the next seven years and this will be accomplished by slowing the growth of Medicaid and Medicare from 10 percent to 4 percent per year, reducing welfare funding by $82 billion over the same period, and shifting more program and funding responsibility to the state and local level. Medicaid and welfare would become block grants to the states rather than continue as entitlement programs to individuals.

In a December 27th editorial entitled, "Federalism 101," The Washington Post questions whether the states will have the financial resources to take on the new burdens this Congress and those governors who want greater flexibility would impose. They cite a report by the Center for the Study of the States at the State University of New York that finds that Medicaid was 9.1 percent of state spending in fiscal year 1990. By 1994, this percentage had risen to 12.8, a 40 percent increase. The center's study also brings into sharp focus the hard choices that will have to be made as the federal budget problem is solved at state expense. It notes that state budgets are already pinched. For example, higher education's share of state spending fell from 1990 to 1994 causing tuitions to rise...