Interview With Reporters on Federalism

November 19, 1981

Q. Mr. President, a lot of the local government officials who have been listening to you talk about your dream of returning responsibilities and resources are saying that they've received the responsibilities, and now they are wondering when the next shoe is going to fall. Will your 1983 budget have a definite source of revenue for the local government?

The President. Well, we've been meeting with them, and they have been here in meetings with our people at OMB and with Don Regan of Treasury about these. And I can't say that any actual or final decisions have been made. I know that there has to be some pain for them also. But during these 10 months, I have met with over 1,200 State and local officials, going from Governors on down through counties and mayors and so forth, legislators, on all of these. And we have a commission, as you know, appointed to see how we can turn back tax sources to the local government.

This is what it comes down to. We wanted and asked the Congress for far more block grants than we got, a block grant where they can set the priorities within that and the method of using it. I'd learned as Governor that the categorical grants -- where the government ties the red strings to it and tape to it and says this is exactly the way you have to spend it and so forth -- results in a large administrative overhead cost. And we didn't get all that we wanted. We did get a certain number of categoricals into block grants, but there still remains too many categoricals.

And, then -- maybe this is more than you bargained for in this answer, but let me get it all in -- my dream is that the block grants are only a means to an end. And the end is that the government, which has preempted over the years so much of the tax revenue potential in this country, that we could turn back not only the responsibility to governments of tasks that I think they can perform better than the Federal Government can perform, but turn back tax sources so that the tax source itself goes to them. And they, therefore, then have the responsibility for collecting the money which they're going to spend for this by way of the tax.

And this isn't original with me. This was first suggested when the first proposal for Federal aid to education was made. Norris Cotton, then Senator from New Hampshire, looking at the amount of money that was suggested -- and the Federal Government was protesting that it meant no interference; just wanted to help by giving money -- and he said, ``Well, if that's really true,'' he said, ``why don't we turn the tobacco tax over to the States and the only restriction is that it be used for education?'' And you know how they defeated him? They said, ``Well, it wouldn't be right to educate our children with a sin tax.'' So the Federal Government got its foot in the door and went on from there. That's all we want to stop or change.

Q. Realistically, is it possible that there will be room in the fiscal 1983 budget for some turnback of a tax source to the States and local governments?

The President. I don't know yet. We have a task force, as I say, working on that under Ed Gray, that's to work and see how this could be done, what the mechanics of it would entail, and whether we could do this at the same time we give the responsibility that goes with it. But it just seems to me that there's an awful lot of money lost, simply in the process of bringing it to Washington and then sending it back out there minus a carrying charge that comes off the top here in Washington. It would make a lot more sense if it was there in the first place.

Q. Mr. President, the Governors have suggested a sorting-out process of what the Federal Government should have and what the States and locals should have. One of the things they suggested is, as you know, that the Federal Government pick up most of the welfare costs and that they would then pick up more schooling costs and more transportation costs. Would you go along with that? And if not, what sort of sorting out would you like to see? What functions do you think the Federal Government should have on the domestic side, and what would you pass on to them?

The President. Well, we have, again, a Presidential commission that is made up of representatives of State and local government, only their own people on this, to sort this out. But I would think that we might start with the tenth article of the Bill of Rights, the 10th amendment, which says that the Federal Government -- those powers which are granted to the Federal Government are in the Constitution, and all others shall remain with the States or with the people.

I think that over the years, probably coming out of the Great Depression and the traumatic experience of that, the Federal Government has gradually involved itself in areas that were never before thought of as the Federal Government's province.

And so, yes, there has to be some sorting out. I'm not sure that I agree with some of the suggestions they've made because -- let's take one, such as welfare, for example.

This is a very diverse country. The problems of a welfare client in New York City are far different than those from out in some small town in the rural areas in the Middle West, or something in more rural States. I believe that there's much more chance of waste and of fraud in trying to run it from the national level than there is in running it at the local level.

Now, when we reformed welfare in California -- and it was the most successful reform that's ever been attempted while I was Governor there -- we found that our biggest difficulty was getting waivers from the Federal Government in order to do some of the things that we felt had to be done.

And when we finished, we not only over a 3-year period had saved the taxpayers of California $2 billion, we were able to give the welfare recipients the first cost-of-living increase they'd had since 1958 -- and average increase of 43 percent in their grants. And it was simply just the application of common sense and the fact that these are your neighbors there that you're trying to help, and you're better able to know what to do for them than Washington is 3,000 miles away.

Q. Mr. President, in your dream of the future of American federalism, what domestic functions do you believe should be Federal, as opposed to State and local responsibilities?

The President. Well, the first one, of course, is national security. That is the prime responsibility of the National Government. You would have me doing the sorting out that we've got a commission trying to do.

But I would think that first of all, education -- we built the greatest school system the world has ever seen and built it at the local level and the local school district level. And then the Federal Government got into the school business only by having preempted so much of the tax resources, and those tax resources that grew with the economy faster than something like the property tax, which is the principal basis for educational funding. Then they got into it through that money thing, having preempted the money, created the problem, and then they said, ``Well, now we want to help you.'' But in return for the help, they wanted to also regulate, and have interfered to a large extent.

Welfare -- welfare is presently administered at the local level. It is, in most States, done at the county level. They have a county welfare department, but they do it under regulations imposed from Washington. And I can tell you, those regulations would line the walls of this room, and they're constantly changing. They have got employees at the county level that do nothing but try to keep up and inform the workers of what the new regulations are.

Incidentally, we've already been pretty successful here with something of that kind. The regulations that govern HHS grants out there used to fill 318 pages of the Federal Register; they now only fill 6.

Q. Do you continue to oppose such things as increasing the gasoline tax and perhaps then giving the States a part of that increase?

The President. Again, you're getting to the area that we haven't thought of -- nothing should be ruled out until you see if it'll work. I have spoken of such things as, ``What if the Federal income tax had a provision that x T1percent of that tax would not even come to Washington, would be retained in the States where it is collected for the States to use as they see fit?''

Excise taxes of the kind you've mentioned might be a way, as the example I gave of Norris Cotton when he suggested one. I think it would depend a lot on what is the revenue that's going to be gained, compared to the responsibility that you want it to cover. Is it one that is going to grow as the economy grows? Or is it going to be a static kind of tax that might meet the situation now, but won't meet it down the road a ways?

Q. So, as of now, you wouldn't rule out possibly increasing the Federal gas tax and giving some of that increase to the States?

The President. Oh, I won't rule anything out. Right now there is a sizable Federal gas tax, and most States -- like our own has a gas tax also. The Federal gas tax came into being for the Federal interstate highway system -- and I'm wondering if that's ever going to be completed -- and it was supposed to be a temporary thing.

Q. Mr. President, towards the sorting out, there seems to be a new mood of great impatience among the Governors, combined with this year's budget situation, the growth of the entitlements, the defense budget, the tax cut, which the Governors perceive as being negative to the interest of the State and local government, which took a large portion of the cuts in the first round and then will be hit again by the 12 percent that you proposed in September. And as a matter of fact, they're so angry, the Western Governors' meeting in Scottsdale 12 days ago passed a resolution saying they would flatly oppose further cuts in the domestic discretionary budget proposed by your administration unless negotiation begins for a significant sorting out of functions between the Federal Government and the States.

Could you give us your reaction to their position?

The President. Yes. I think most of those Western Governors are Democrats now -- [laughter] -- it might have had something to do with it. No, we recognize that we have to straighten out this financial situation on the Federal level. They will benefit, also, to a great extent by the fact that inflation will come down. And indeed, it has come down faster than we had anticipated right now. Now that's got to be reflected somewhat in their costs. And as I say, we didn't get all that we wanted with regard to the switch to block grants, and I'm still going to continue striving for that because, again, the savings to them -- we can reduce the amount of money in a block grant to less than a categorical grant because of the savings in administrative overhead.

Q. Along the same line of sorting out, would you like to see a continuing role or a continuing relationship between the cities and counties and the Federal Government?

The President. Oh, yes. I think it's vital. You know, if we remember back some years to -- I think it was around 1914 or something, that was recognized in the fact that Senators were not popularly elected. They were chosen by State legislatures to represent the State. The House of Representatives represented the people. And then they made the change in the Constitution and changed it to make them all popularly elected. That was why in the whole bill of impeachment, the Senate had been picked to be the trial court and the judge, because they would not be bound by political considerations. Now that they're elected, they're just as bound as the other House would be.

But yes, that relationship has to exist. And I hope that not just on these things of budget and so forth, that bring in the people that we've met with -- the 1,200 or so -- that we would have ongoing meetings. And I should, while I'm here, have a department for that purpose.

Q. Do you think it's at all the responsibility of the National Government to redistribute resources between the States that are relatively well off and the States that are not?

The President. No, I think that is up to the States. My first reaction to that is that this is one of the -- the built-in guarantee of freedom is our federalism that makes us so unique, and that is the right of the citizen to vote with his feet. If a State is badly managed, the people will either do one of two things: They will either use their power at the polls to redress that, or they'll go someplace else. And we've seen industries driven out of some States by adverse tax policies and so forth.

Q. But Mr. President, on that very point, Senator Durenberger has made quite an issue in the last few months that some States are energy rich and some energy poor; that there's a transfer of hundreds of billions of dollars within this decade going from the energy poor to the energy rich States. So he asks whether it's in any way fair to expect the States and localities that suffer from a declining economy to provide the same level of public services, including new services devolved from the Federal Government, as to expect from those States that are flush with energy generated revenues.

The President. Well now, if you take it that way, just in energy, then couldn't you make the same argument with regard to the great agricultural States that provide the food for the people of this country? California, for example -- I hope it still prevails in spite of the fruit fly -- but California, over the years, puts about 40 percent of all the fruits and nuts and vegetables that are on the tables of America, puts them on those tables. And the same thing might be said. There is a great natural and rich resource and a production. I just think the marketplace regulates that.

Q. How do you feel about States putting fairly steep taxes on the resources that they extract from the ground -- whether it's food or minerals or oil -- and ship to other States and thereby in effect pass on that additional tax burden to the consumers in those other States.

The President. Well, you're speaking of severance taxes that come on. Well again, doesn't that balance out with everything else? I once asked an automobile manufacturer several years ago that what if they put out a price tag that incorporated all the taxes that were paid in the manufacture of an automobile, and put the price tag out there like the gasoline pump does -- x amount for tax, price of the automobile here -- and I said, ``Have you ever figured out what would it look like?'' And he said, ``Yes, we could tell you what it would look like.'' And he told me then of some model of car that they had that was about $3,800. And he said it would be $800 for the automobile and $3,000 tax. Because if you stop to think of the social security taxes and -- all the way, the taxes that are in the steel that they buy by the time it gets there, and the glass and the rubber and all of this -- well, as I've used the example many times in speeches and it's absolutely true: By the time you go to the market and buy an egg, there's 100 taxes in that egg; none of them put there by the chicken.

Q. In the Senate hearings that were held on the 5th of November, Governors Snelling and Busbee and Matheson made a point that the State budgets were in a condition of disarray and chaos because of the deep and the continuing Federal budget cuts. They pointed again to the inflation-driven entitlements, defense spending, the extent of the tax cut, feeling that more should be seen in that area in terms of the next economies. And Governor Snelling, for the Governors, proposed a 2-year moratorium on further cuts and discretionary grants to the States and localities so they would have a chance to catch their breath, institute some rational budgeting and planning, perhaps start some discussions with you about more block grants and a sorting out of responsibilities.

Could you give your reaction to the proposal of the moratorium for 2 years?

The President. I think it would be great if we could afford it. And I know that part of their problem -- which you didn't mention there -- it was not just the change, it's the fact that the States all have varying budget or fiscal years and in many States were caught with their budget already determined. And then we, by doing something at the Federal level, changed their -- or ordered their estimates of revenues and so forth. And I just think our emergency is so great, I don't know how we could hold back and wait for all of this.

What we've tried to do and now with these meetings, and with Rich [Richard S. Williamson, Assistant to the President for Intergovernmental Affairs] in continued contact with them, is try to not throw any surprises at them, but to keep them informed so that, for example, in planning the next budget, they will know what we are considering and they can make allowance that in case we get what we ask for, why, they'll know what it's going to be like.

Q. Mr. President, the idea that Americans can, as you say, vote with their feet, if necessary, we've heard this from some of your other spokesmen in the government. If someone, say, in New York City were caught -- I'm talking about in a pocket of poverty -- [inaudible]. I mean, what can you say to them? They have no money to move, really. They are now trapped. I mean, in the best of all possible worlds, perhaps they could move -- [inaudible]. But now they're trapped. What do you say to them? How do they get out of this -- [inaudible]?

The President. Well, I never said that anyone tells them to move out.

Q. No, I know that.

The President. I think that as the people -- we've been and still are a very migrant people. I think Americans move more than anyone else. And in many instances, it's the job holder; something happens and he starts exploring for work some place else and maybe goes and then sends for the family. But whatever means they have to use they do it. I can't see any way that the Federal Government could set up a program for moving people, because then you get into the element of would there be something compulsory about it, would the government decide that somebody had to move. And many people -- during the campaign I talked to people out in Ohio and Michigan there, and the great unemployment in the automobile industry, and you talk to someone who'd say, ``I'm third generation in my family living here. I don't want to live anywhere else.'' So he's going to sweat it out until jobs open up and he can get a job there.

And then on the other hand, you find particularly younger people here that -- in the Sunbelt right now, for example, they're not having some of the same problems, and how Houston is a kind of a boom city because of the people that have gone there because it didn't have unemployment -- --

Q. Mr. President, I know that there are not many final decisions on the budget, but I assume that you're probably far enough into that process that you have some general idea where you stand.

Is it going to be possible, for example, to hold general revenue sharing at its present level? Is it going to be possible to hold the new block grants at their present funding level, or are all of those programs at this point still subject to further reductions in fiscal 1983?

The President. The suggested 12-percent cut -- we didn't see how -- and I think all of us recognize that this was going to be a blow to many communities, particularly the local level, not the State level, and again I'd seen it in our own State work. But we felt we had to go across the board, and we were asking other equally important programs to take that cut. There were only a few exceptions, such as hospital medical care for veterans. You couldn't cut that. But it extended to every place, including the White House, and so we felt that we had to do it.

Now realistically, the question is are you doing to get 12 percent -- and I doubt it -- from the Congress? But again, as I say, we had to hope that if we get control of this economy at this end, that this might be a temporary setback to some communities -- a painful one, but the off-setting thing of reducing inflation and interest rates and, hopefully, having a surge in the economy would also begin to offset that.

I think one of their concerns when they came here -- I've just met with a large group of both city and county and State officials, Governors, on this. And a lot of them, it was a fear -- they'd been led to believe that maybe we were phasing it out entirely. And I could assure them that there was no such thing in our minds, that the only way it would ever be phased out is if we had an alternate source, a tax that we were going to give to them for their own use.

Q. Referring specifically to general revenue sharing.

The President. Yes.

Q. Mr. President, could the economic recession delay your plans for implementing some of the -- [inaudible].

The President. I'm not sure that it could, because I believe that in the federalism thing that we're approaching or approving, I believe that there is, in the long run, the reduction of government cost, as I say, the administrative overhead that is involved in the Federal Government doing so many of these things.

This little case -- you know an example of what we're trying to cure is this one that, God bless him, Dick Schweiker grabbed a hold of after I made it public the other day of the little girl out in Iowa, and how quickly we made this change. To think that our government -- and I was wrong; I had old-fashioned figures when I said $6,000. It was costing between $10,000 and $12,000 a month for Medicaid, and even the doctors said she should be home, that she'd be better off at home, and it would only cost $1,000 a month at home. But that was more than her family could afford, so they couldn't take her home because they couldn't take over the cost. But here was the government shelling out $10,000 or $12,000 every month, when a silly regulation stood in the way of them getting it for $1,000 a month. Dick found a way to ignore that, make an exception to that regulation, but you wonder how many more cases are out there in the country like that. It's another example.

If the people in that community had been in charge of that program, you know darn well they wouldn't have stood still for a moment for that cost differential.

Q. The opinion of the Governors and the local officials seems to be that deregulation isn't going to get them where they need to be quickly enough to run their own operations properly. In the same Senate hearings I was referring to on November 5th, Governor Busbee, for example, expressed such distress about the current national and State and local fiscal dilemma and the lack of legitimate Federal reform, as the Governors see it, that he said it is time that we had a domestic economic summit involving the President, the bipartisan leadership of the Congress, and our, that is the Governor's leadership, so that we might gain general agreement on ultimate prime responsibilities for government programs, the budget targets we should all plan for, and the timeframe in which we are going to reach these goals.

It seems to be the Governors would like a much larger role -- not to be informed, but to be in at an early point of taking part in the decisions.

The President. Listen, I will buy that, because those Governors, and led by Busbee, were the greatest help in the world in our getting the economic package that was passed. But where we all were helpless was, we could not convince the majority leadership in the House, particularly, to give up Federal strings on so many -- particularly the block grants.

So here was Busbee and the Governors who had helped us get this, and they were helping because they want the block grants. They know how it would benefit them. And we just had to stand here, and we were helpless to get them. Washington doesn't give up authority very easily. All I could say to them is, ``Look, I'm going to continue to fight for them and please help.''

In a thing of this kind, maybe they could, because there is a feeling among a great many people in the Congress -- well, let's say less a feeling than a lack of understanding -- of the State problem. In fact, some of the Governors told me that at the Inaugural, when I made a statement to this effect, and they were -- the Governors were seated right behind many of the House of Representatives -- they said that many of them, when I made that statement about the States' powers and so forth, turned around to them and mouthed, ``Over our dead bodies.'' [Laughter]

Q. Mr. President, without being too general, I wonder if you could sum up for us some sort of philosophical thing, just what you see as the new federalism? Just a brief -- [inaudible].

The President. Again, as I say, start with the Constitution and eliminate first of all those functions that properly belong at the Federal Government -- interstate commerce and the national defense and things of this kind. Then find those functions -- maybe we'd do well if we looked at the past. I know that everyone used to say I'm trying to take the country back -- no, only as far as the Constitution. Find out those things that are, today, more or less administered in partnership at the local level and yet under Federal control, and see if you need that extra layer of bureaucracy on top.

I would think that this would include such things as welfare; certainly, it would include education. And then with this, under this federalism, review again what legitimately and honestly belongs at the Federal level and at the local level in the system of taxes.

Back when I was growing up, the governments of the United States, between them, only took a dime out of every dollar earned. Only a third of that or less went to the Federal Government; two-thirds to local and State government. Today, they are taking more than 40 cents out of every dollar, and two-thirds of that goes to the Federal Government. It's just reversed; the other way around.

And have this fairness in revenues so that wherever possible, you can have the responsibility for raising the money and the responsibility for performing the function in the hands of the same government.

Q. Thank you, Mr. President.

Note: The interview began at 5 p.m. in the Oval Office at the White House. The transcript of the interview was released by the Office of the Press Secretary on November 22.

The President was interviewed by five reporters from the Garnett News Service, the National Journal, the New York Times, the Wall Street Journal, and the Washington Post.