You stood with us when the going was rough, and I'll never forget your encouragement here in Washington and in counties all across America. Just before I came over here, I had the chance to look at your association's statement on our budget proposal. As you know, last week we met with our nation's Governors and with State legislative leaders, and I couldn't help thinking that if the definition of a good budget proposal is to distribute dissatisfaction evenly, ours is a real winner. [Laughter]

Seriously, I know that you're facing tough problems and tough decisions in many of your counties. In fact, I'm reminded of a story about a local official -- or local officials who were planning to build a new bridge, and they discussed location and design and construction and timing and cost, and then they got around to financing. And part should be paid by the city, part by the county, they said, and part by the suburbs, and part by the State. The tough question was how much by each. And there were strong differences of opinion because no matter how it was divided up, it meant more State, county, and local taxes. And there was no solution in sight until one eager fellow at the end of the table stood up and said, ``Hold it, we're wasting our time. Let's just get the money from Washington, then nobody'll have to pay for it.'' [Laughter]

And, you know, because of wrongheaded thinking like that, when we met during your 1981 legislative conference, there wasn't much good news to report. Our national economy was near the breaking point, and so were our local communities. We'd paid a steep price for years of good intentions badly misdirected. Families were desperate in the face of double-digit inflation, 21\1/2\-percent interest rates -- the prime rate -- and high taxes, all of which sent the economic growth into a tailspin. And local governments didn't escape the punishment.

High inflation and low growth hit your counties with a double whammy, increasing your costs and squeezing your tax base. Your cost-revenue gap widened. Labor costs increased, and services had to be cut. Dramatic increases in bond rates knocked many of you out of the bond market, and there was no choice but to delay infrastructure projects.

As you know too well, Federal programs provided no magic solution. In fact, years of compulsive spending had taken a heavy toll. It was almost as if some economic medicine man had the idea that since money could buy anything, and Federal programs could provide everything, then more money and more programs were the answer to all our problems. But the dramatic increase of Federal participation in local government only complicated your problems.

To make matters worse, the shift of power toward Washington moved us away from the very principles that had kept our country on a sound footing for most of our history. Calvin Coolidge, one of our most underrated Presidents, put it well: ``Our country,'' he said, ``was conceived in the theory of local self-government. It has been dedicated by long practice to that wise and beneficient policy. It is the foundation principle of our system of liberty.''

When Cal Coolidge was President, taxes -- Federal, State, and local -- were taking a dime out of every dollar earned, and two-thirds of that dime went to State and local government. By 1980 taxes were up to 35 cents of every dollar, and three-fifths of that came to Washington.

No wonder communities had lost control of some of the most basic decisions affecting everyday life. As the Federal Government grew more intrusive, you became less able to respond to community needs. And to top it off, Federal oversight -- a fancy term that usually means burdensome regulations and unnecessary paperwork -- did little more than put you in handcuffs.

We knew that America could not move forward until local communities were back on their feet again. And that's why, back in March of 1981, we asked for your support to embark on a new course. It's been 4 years, and we've begun well, but it's only a beginning. I believe that in lifting your communities toward a new era of lasting prosperity and stability there are four keys to success.

First, we must continue working to return power to levels of government closer to the people. We believe that when it comes to running county government, county officials will always do better from the county seat than bureaucrats could ever do from Washington.

From the first days of our administration, I heard over and over from local officials that you wanted regulatory relief and reform. We agreed and have been reducing cumbersome and unnecessary Federal oversight regulations. The cut in wasteful overhead has been dramatic: 647 pages of regulations have been eliminated, and the paperwork burden at State and local levels has been cut by 90 percent. We estimate that local governments have been spared at least $2 billion in annual costs and between $4 billion and $6 billion in startup costs. And we're still looking for ways to save you more.

Now, the second key to success is a revitalized public-private partnership, pooling our resources to harness the power and creativity of the marketplace for the benefit of all Americans. No single sector of our nation -- government, business, labor, or nonprofit organizations -- can solve our problems alone. But by working together, pooling our resources, and building our strengths, we can accomplish great things.

Partnerships produce jobs. The Job Training Partnership Act gives local governments new flexibility, and by using private industry councils it matches local needs with sensible training. Now, that's a genuine partnership for real jobs with a bright future.

And there are more genuine partnerships that can be ours, if only the Congress would give our enterprise zones and our youth employment opportunity wage bill a full hearing. We want hope and opportunity to reach every nook and cranny of our great land, and these initiatives deserve your support.

The third key to our nation's prosperity is strengthening traditional values for a modern age, promoting a renewal of community life, and reviving the social fabric of our society -- safety on the streets, excellence in education, voluntarism, and a sense of responsibility.

People coming together in a spirit of community and neighborhood is what makes the smallest rural hamlet or the largest urban center worth living in. It's what keeps businesses in your counties and attracts new ones, and it's what keeps faith with the fine traditions of the past, as we turn to build the future.

For too many years, crime and the fear of crime robbed our communities of their vitality, threatened our sense of well-being, and frightened away new investment.

Well, common sense is beginning to pay off. For the first time in 20 years, the crime index has fallen for 2 years in a row. We've convicted 7,400 drug offenders and put them, as well as leaders of organized crime, behind bars in record numbers. And as you've read and seen recently, we are stepping up the pressure, and we're not going to stop until we wipe out organized crime in America.

In the area of education, we're seeing a strong, new commitment to excellence, stressing the basics of discipline, learning, rigorous testing, and homework. And that commitment, too, is also paying off. For 20 years scholastic aptitude test scores of our high school students went down. But now they've gone up 2 of the last 3 years.

And this spirit of renewal, from Lincoln County, Maine, to Oakland County, Michigan, on out to Orange County, California, is the American spirit at its best. And we see it everywhere we look, from the record rise in corporate and private giving to thousands of exciting and important private sector initiatives, from neighborhood watch programs to increased attendance in places of worship, and from love of country rediscovered by our young people who've led the way to the millions of Americans who, in their quiet, caring way, are pulling together to move us forward and upward.

The fourth and most important key to success is strong and steady economic growth. A vibrant economy is our single most powerful tool for revitalizing every county in America. In fact, I believe that our economic expansion is the most important county improvement program, urban renewal program, and rural recovery program in America today.

The final economic figures for 1984 are in, and they're even better than anticipated. The U.S. economy grew at a rate of almost 5 percent in the fourth quarter, and final sales increased at a rate of 8\1/2\ percent. Overall economic growth for the calendar year measured just a shade under 7 percent. Inflation was under 4 percent for the second year in a row, and that's the lowest in 17 years. And when you add it up, 1984 gave America its strongest economic performance since 1951.

As our recovery enters its 28th month, with more than 7 million new jobs created during the past 2 years, Americans have good reason to look to the future with pride and confidence.

We intend to prolong and protect this wonderful expansion with a sweeping program of tax reform and with a Federal budget that reflects the reality that our economic recovery is a triumph of free people and their institutions, not government.

Tax reform and simplification will be a giant step toward lasting prosperity. I believe our tax system currently acts as the single, biggest threat to stronger enterprise and lasting economic expansion. Many of our citizens are required to pay more than their fair share of the tax bill, while others are permitted to pay far less. Today's tax code drives money needed for investment and future growth and unproductive tax shelters -- or into unproductive tax shelters. And hundreds of millions of dollars are wasted in needless paperwork. Plain and simple, the tax code is unfair, inequitable, counterproductive, and all but incomprehensible.

And there's something else to keep in mind, something I told our nation's Governors just last week. During the debate of our 1981 tax bill, we pointed out that the most important effects of substantially reducing tax rates just might be the intangibles: the feeling of a positive political and economic climate for enterprise and growth and the message that government wants the people and business to succeed.

Well, it's time to send out another message -- one of determined commitment to lasting growth and a secure future -- by making the system more fair and easier to understand, so we can bring personal and corporate income tax rates further down.

Now, in speaking of our fiscal 1986 Federal budget, let me remind you of an observation by Thomas Jefferson: The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.

Ray Larson, chairman of the Cass County Board of Commissioners in North Dakota, and one of your contemporaries, said to us: ``We know that many political subdivisions will have to scramble to meet current program expenses if federal monies are lost; however, if these programs are important on a local level, they should be subject to the scrutiny of a local electorate . . . No federal program is more important than the economic security of the country.''

There's great wisdom in those words. Over the past 10 years, while Federal tax revenues grew by $400 billion, Federal spending grew by $600 billion -- 50 percent faster. And during that same decade, government spending grew one-third faster than the growth of our economy.

If there's to be a secure economic future for our children, we must make sure that those days never return. The public treasury is a trust, not a gift shop. And we must move toward a budget that spends no more than government takes in. Either we move in that direction or we will never be able to pass on a legacy of economic security.

We cannot and will not do this by raising taxes -- period! We must ensure that the economy grows faster than the growth in Federal spending.

The fiscal 1986 budget stops the built-in momentum of spending increases dead in its tracks. Our proposal will freeze overall Federal program spending at the fiscal 1985 level, cut $51 billion out of programs in need of restraint, and reduce spending growth by half a trillion dollars over the next 5 years.

Now, these tough but essential measures are driven by economic necessity and plain old common sense. Now, I understand that every budget dollar saved is a dollar someone expected to receive. And I know that your counties face difficult problems.

Less than 3 months ago I met with Earl Baker, the chairman of your tax and finance committee, to discuss the unique problems facing local government. And over the past few weeks, many of you've taken the time to write to me about our plans for general revenue sharing. I appreciate your comments, and I was aware that nearly $2 billion of the $4.6 billion in annual funds went directly to your counties. Indeed, I've been one of the strongest boosters for general revenue sharing, as you've been quick to point out. General revenue sharing has served us well.

But the fundamental question remains: How can we afford revenue sharing when we have no revenues to share? How can the Federal Government justify, strapped as it is with a deficit, borrowing money to be spent by State, county, and local governments, some of which are running surpluses?

I sympathize with your position on this issue, but the Federal spending dollar is not magic, and it certainly isn't free. It comes straight out of your pockets, and I just have to believe that over the long haul you'll be a lot better off with the Federal Government's hands out of your pockets.

On another front, the time is long overdue to end what have become indefensible subsidies. Because when you look at some of them, you just shake your head.

Every time a passenger boards an Amtrak train, the American taxpayer pays about $35. But on the New York to Chicago train, it's much higher. In fact, on that run it would cost the taxpayer less for the Government to pass out free plane tickets.

The mass transit Federal subsidy is another headshaker. In Miami the $1 billion subsidy helped build a system that serves less than 10,000 daily riders. That comes to $100,000 a passenger. It would have been a lot cheaper to buy everyone a limousine.

And then there's the air carrier subsidy, started in 1978 for communities thought to be hurt by airline deregulation. At one time the General Accounting Office found that the subsidy for one round trip airline ticket from Blythe, California, to Los Angeles cost $1,096. For that money the air traveler could have flown to Hawaii, stayed a week on the beach, and returned with money left over. And with due apologies to Los Angeles, I'll bet he or she would have had a better time. [Laughter]

Nearly 50 years of government living beyond its means has brought us to this time, to this budget, to this day of reckoning. It's up to us to have the courage to make sure that the American taxpayer is protected from the Government.

And, as usual, it's the people outside of Washington who are providing leadership. 32 States and, as of last week, the National Governors' Association as well, have called for an amendment long overdue, an amendment mandating the Federal Government spend no more than it takes in.

It seems incredible that the chief executives of 43 States and many of your own county executives have line-item veto authority, but the President of the United States does not. I've told the Congress that this is a time for political courage. We're asking for $50 billion in spending cuts by Easter. If that courage is lacking, then let them at least give me the line-item veto. I'll take the responsibility, I'll make the cuts, and I'll take the heat.

While you're here in town and up on Capitol Hill, I'd appreciate your reinforcing that message for me. Tell them it serves me right. [Laughter]

But let me turn briefly to another matter, a matter of overriding importance. In a few days American negotiators will leave for Geneva for the most important set of arms discussions this nation will likely conduct in this decade. As talks begin, each House of Congress will cast a vote that will directly, perhaps dramatically, affect the outcome at Geneva. Now, that vote is on release of the funds for the Peacekeeper missile, or MX -- a vital component of a long-overdue modernization of America's deterrent, the deterrent that has kept the West free, independent, and secure for nearly 40 years.

Just as a strong bipartisan congressional vote to move ahead with Peacekeeper would send a signal that America comes to Geneva united and resolute, so a negative vote in either House would undercut our negotiators and send a message to Moscow that America is an irresolute and divided nation, whose divisions can be exploited at Geneva. That must not happen. When it comes to standing up for a national defense that is second to none, there should be no Democrats, no Republicans, only Americans.

You and I know that reaching a new era of lasting prosperity and stability will take much effort and patience and great cooperation between us. I just hope that I can count on NACo to continue to work with us in a spirit of good will in the months ahead. I've sought and appreciated your advice and will continue to do so.

We all want what is best for the American people. We can make it happen. And with your leadership and our partnership, it will happen.

And let me just say one more thing. I have felt for a long time, and felt especially as a Governor in one of our States, that many of the problems that had come to local government had to do with that shift from two-thirds of the tax dollar going to local and State government, instead of almost two-thirds going to the Federal Government. And I believe that one of the things in this partnership I've mentioned that I can do -- or we can do for you is continue to bring down the Federal Government's share of the tax burden, instead of preempting and confiscating so much of the tax source that when you're faced with a problem, there's no place left for you to turn, except to ask for money from the Federal Government. I think it would be a lot better if we get back to only taxing what should be our fair share and leaving you tax sources out there that you can use for problems which you see at your own level and have decided to do something about.

Thank you, and best wishes for a most successful conference, and God bless you all.

Note: The President spoke at 1:29 p.m. in the International Ballroom at the Washington Hilton Hotel. In his opening remarks, the President referred to Philip B. Elfstrom, president of the association.