‘Santa Claus Leaving Town,’ Specialist Says of Proposed Aid Trims : Reagan Cutbacks Worry Cities and States

Construction cranes and new high-rise buildings tower above Stephen Coyle’s ninth-floor City Hall office, which in turn overlooks the bustling shops and restaurants of the refurbished Quincy Market.

But to Coyle, director of the Boston Redevelopment Authority, these symbols of Boston’s remarkable resurgence look increasingly fragile. “The danger we are facing now,” he said, “is a rupture in the relationship between the federal and local systems.”

The Reagan Administration, as part of the spending cuts it advocates to reduce the soaring federal deficit, has proposed to eliminate or sharply reduce a wide variety of programs that local governments across the country--from the declining Rust Belt to the prospering Sun Belt--rely on to keep their own budgets in balance.

“Santa Claus is leaving town,” warned Richard P. Nathan, an urban affairs specialist at Princeton University who has tracked Reagan domestic spending cuts since 1981 and, up to now, found their effects far less drastic than most people had expected.

“I’ve been working in intergovernmental relations for more than 25 years, and right now is the most dangerous time I’ve seen for state and local governments in the field of federal support,” Nathan said. As a Nixon Administration official in the early 1970s, Nathan was one of the architects of general revenue sharing, the $4.6-billion program that Reagan wants to eliminate.

Would Slash $10 Billion

Altogether, Reagan’s proposed fiscal 1986 budget calls for slashing about $10 billion from the $100 billion in spending authority that state, county and city governments have come to expect annually from Washington. In addition to revenue sharing, the prime casualties would include grants for community services, economic development and mass transit.

To Tim Barnicle, head of Massachusetts’ Office of Federal-State Relations, the proposed cuts would amount to nothing less than “a revolutionary withdrawal of federal responsibility” for services delivered by state and local governments.

But at a time of soaring federal deficits and growing surpluses at the state and local level, the cuts have considerable appeal in Congress, where even House Speaker Thomas P. (Tip) O’Neill Jr. (D-Mass.) concedes that such programs as revenue sharing are vulnerable. Together, the 50 states had a $6.3-billion surplus in 1984, and many are considering tax cuts.

Reagan’s initial deep budget cuts, in 1981, hit harder at individuals--particularly the working poor--than at state and local governments, which took the cuts largely in stride and did little to replace lost federal aid with funds from their own sources.

Today, however, the nation’s cities find themselves in less comfortable circumstances than in the early 1980s.

$80 Million on Health Services

They have become increasingly dependent on federal aid to pay for basic government services, not just for frills that the cities are happy to have but can live easily without.

Los Angeles County, for example, spends all $80 million of its annual revenue-sharing money on health services, making it one of the major underpinnings of the public hospital system. The $55 million the city of Los Angeles receives underwrites 60% of the library budget, 43% of park expenses and 57% of the cost of water and power delivery.

And at the same time, the grass-roots tax revolt that gained national attention with California’s Proposition 13 in 1978 has cut into the ability of many states and cities to raise money of their own.

Consequently, Reagan’s latest round of spending cuts would have a serious impact on cities all across the country: whether resurgent, like Boston; declining, like St. Louis, or still in the glow of Sun Belt prosperity, like Phoenix. Because they are in states that have limited their cities’ power to raise taxes, all three are particularly vulnerable to new federal aid cutbacks.

Boston endured a financial squeeze during the 1982 recession, which dampened tax collections by cities almost everywhere. In addition, Massachusetts’ “Proposition 2 1/2,” passed in 1980, limited the amount of money that cities in that state could raise from the property tax, their sole source of revenue.

Police, Fire Protection

Now Boston uses nearly all of its $18.3 million in annual federal revenue-sharing grants to meet 25% of its cost of police and fire protection. If revenue sharing is abolished, it will face a choice of cutting police and fire or spending less for other services that the city regards as essential.

St. Louis has similarly faced hard times in recent years, largely because of a shrinking tax base in a city rapidly losing employment and population. New Mayor Vincent Schoemehl had to cut the city payroll from 10,000 to 7,000 and slash city services.

But unlike Boston, St. Louis receives little aid from its state government. It would lose between $7 million and $8 million in fiscal 1986 from revenue sharing alone, “and these cuts would have an incredible impact,” said George D. Wendel of the Center for Urban Programs at St. Louis University.

In Phoenix to date, a combination of new user fees and continuing population growth has kept revenues up even as federal funds declined.

Even in prosperous Phoenix, however, the $3 million or so that the city receives in revenue sharing “has been relied on for core services--police, fire, road maintenance, not capital spending,” said John Stuart Hall, director of the School of Public Affairs at Arizona State University. “The proposed cuts would affect all of those.”

Boston Mayor’s Plea

In all three cities, officials are alarmed. Boston Mayor Raymond L. Flynn went to Washington earlier this month to ask Congress not to cut off revenue sharing after this fiscal year ends Sept. 30.

“If I go back to Boston without the $18.3 million,” he said, “what am I supposed to do? Go down to Fenway Park and pass the hat? We’re between a rock and a hard place here. We don’t use this money on luxuries, like roses on Mother’s Day. We have serious problems--poverty, drugs, crime.”

The federal government also has a serious problem: today’s record deficits. “How can we afford revenue sharing when we have no revenues to share?” Reagan demanded of the nation’s county executives at a meeting in Washington a few weeks ago. “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?”

The Treasury Department is projecting that, under today’s tax and spending policies, the states would run an aggregate surplus of $86.5 billion by 1989. Although that is a political impossibility--surpluses of that magnitude would be returned to the people in the form of more services or tax cuts--the clear implication of the Treasury report is that the states should step in where Washington can not.

State Surpluses Fragile

But many of the state surpluses are fragile. Most of the $6.3-billion surplus tabulated by the Treasury Department for 1984 was compiled in five large states. For example, California has a $1-billion reserve for economic emergencies, although it would be wiped out in one year if it were used to supplant federal cutbacks.

Other states are running much more marginally in the black.

Even Massachusetts, which has an expected surplus of $137 million and plans to turn much of that back to the taxpayers in a one-time rebate, is ill-equipped to deal with a major reduction in the federal aid on which the state’s cities and towns have become dependent. A state tax increase is out of the question; even Democratic-dominated Massachusetts now regards high taxes as anathema to the strong economic growth that the state is enjoying.

Massachusetts Administration and Finance Director Frank T. Keefe observed that the state’s cities face a loss of $126 million in revenue sharing alone.

“But what could we do?” he asked. “We can’t assume the cities and towns can raise taxes. Because of Proposition 2 1/2, all of them can only raise an additional $75 million

-------------------------------------------------------------------------- Like other older cities in the Northeast, Boston is dominated by extremes of wealth and poverty.

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a year from their existing base. That leaves a $51-million shortfall next year--but the $75 million will mostly go to make up increased costs from inflation.”

More than that, Keefe says, if all the federal programs facing deep cuts or elimination are added--community services and community development block grants, urban development block grants, Job Corps and other employment training programs, student loans--the state stands to lose a total of $436 million, far more than the state treasury can afford to replace.

‘Barely Getting By Now’

Gov. Michael S. Dukakis has already pledged that 40% of all new tax revenue generated by Massachusetts’ booming economy will be turned over to the cities and towns. It is a generous policy, Keefe said, but “it only meets fixed cost increases. The cities and towns are barely getting by now.”

Barnicle, the Dukakis Administration’s specialist on federal-state relations, added: “I think Reagan, in making these proposals, is flying in the face of an obvious local inability to make up those cuts. I don’t for a minute think he’s really looking for the locals to pick it up, but rather his assumption is that they won’t--or can’t--be picked up.

“This may be Reagan’s genius: realizing that the budget deficit is a great ally in his cause of accomplishing a revolutionary withdrawal of federal responsibility.”

Despite its resurgent economy, Boston is particularly vulnerable. In common with other older cities of the Northeast, it is a city dominated by extremes of wealth and poverty. Long before Proposition 2 1/2 crippled the city’s ability to raise enough money to pay its way, the middle class had mostly moved to the suburbs, and the rapid development in recent years of a post-industrial economy in southern New England has made Boston both a haven for unmarried professionals and a repository for the poor.

Between 60% and 64% of the city’s population consists of unmarried people or childless couples, noted Coyle, the director of the Redevelopment Authority. At the same time, 42% of all families in the city are below the poverty line, now $10,178 a year for a family of four. Unemployment in the Boston metropolitan area is slightly less than 5%, but in such blighted areas as Roxbury it is well over twice that.

‘The Bills Stay Here’

Boston’s population almost doubles to 1.2 million during the working day as suburbanites pour into their downtown offices. “The city has to provide services for them,” Coyle said. “Then they ride home to the suburbs, and the bills stay here.”

Boston’s development agencies, using federal urban and community development grants as seed money, have been able to attract tens of millions of dollars of private funds for investment not only in the prospering downtown district but also in some of the most blighted sections of the city.

“In Boston we run between a 3-1 to a 6-1 ratio of private to public investment,” said Paul S. Grogan, director of the city’s Neighborhood Redevelopment and Employment Agency. “If that disappears, it will have an effect way beyond losing that money.”

Grogan claims that his agency has parlayed $3.9 million in federal grant money into 51 projects in recent years, amounting to $24 million in total investment.

One project, for example, would combine $4 million in community development block grant money with a $33.5-million package of private investment, private grants, bank financing and state mortgage money to rehabilitate 700 apartment units in 30 abandoned or run-down buildings in some of the city’s most blighted neighborhoods: Roxbury, Dorchester, Jamaica Plain and Mattapan.

“These are Republican-type programs, generating investment from the private sector,” Grogan said. “The block grant money was the glue that made it possible. All the privatization that’s going on, which Reagan approves of, won’t happen without public-sector glue to hold it together.”