Small Towns Strive to Cope Without Revenue Sharing

For this community of 700 along the Potomac River, it was bad enough that a devastating flood in 1985 wiped out the apple-packing industry and left 170 people without jobs.

Then last year, while Paw Paw was still trying to recover, Congress let the federal revenue-sharing program expire, and the town lost the $11,874 a year it had been using to pay the salary of its lone police officer.

Only after a couple of homes were broken into did the town council impose enough new taxes on video game proprietors and other businesses to put a new patrolman on the beat, just in time for the Memorial Day parade. “Of course, he’ll bring in a little money with some fines,” Mayor Helena Moser said hopefully.

Paw Paw’s predicament was repeated all over the country. From 1972 until late last year, the federal government had been giving quarterly checks to 39,000 local governments--counties, cities and towns--to spend any way they pleased.

Final Checks Mailed

But the Reagan Administration, wrestling with the massive federal deficit, insisted the federal government had no revenue to share. So Congress last year killed the program, which had cost $4.6 billion a year, and the final checks were mailed last fall.

That was not a drastic blow to many wealthier communities, which had spent the money on capital improvements and fringe projects. But poorer towns such as Paw Paw had relied on revenue sharing to provide basic services, and many such places are still trying to recover from the program’s demise.

“What we said would happen is happening,” said Ann Cole, director of federal affairs for the National Assn. of Towns and Townships. “The towns are cutting services, and when they have the authority to levy more taxes they are doing it.”

Milwaukee County, Wis., for example, imposed an $8.9-million-a-year property tax hike and increased fees for its art museum and county zoo.

But in Pacific County, Wash., which lost $198,111 a year in revenue-sharing funds, voters recently turned down a one-year-only tax increase by 60 votes. So the county of 17,800, which previously had 10 sheriff’s deputies, will soon have only two.

“Facilities, roads and bridges need to be replaced or repaired,” added county auditor Bob Johnson. “The county is now going to have to go into debt in order to provide safe highways for the public.”

The revenue-sharing program was launched in 1972 as a way to give local governments more control over federal aid. Communities received funds based on their population, per capita income and local tax rates. From Los Angeles to New York, they all got something. And best of all, they got it with no strings attached.

Simplicity Its Fatal Flaw

But the program’s chief attraction--its simplicity--also proved to be its fatal flaw. Communities that didn’t need the money got it anyway. Royalton Township, Mich., built tennis courts, and St. Louis County once planned to spend $4 million on a public golf course and ice skating rink, although it abandoned the golf course after a public protest.

“It was a welfare program with an error rate of 50%,” said Mike Springer, a revenue-sharing policy adviser at the Treasury Department. “Half these jurisdictions didn’t need a cent.”

In the beginning, most communities used this new-found source of revenue for one-shot expenditures such as upgrading facilities or purchasing equipment.

But after Congress renewed revenue sharing in 1976 as the first five-year authorization was expiring, localities had fewer reservations about using the checks for continuing programs such as police, road and health services.

‘Fiscal Crunch Tightened’

And in California, the passage of property-tax-slashing Proposition 13 in 1978 added to the pressure to use revenue-sharing assistance to operate basic programs.

“We’d always told them you can’t rely on this forever,” said Larry Naake, executive director of the County Supervisors Assn. of California. “But as the fiscal crunch tightened on California counties, 80% of the revenue-sharing funds went for ongoing operations because they had no other choice. It really put them in a tough situation.”

Los Angeles County, with a budget of $7 billion, received $67 million in revenue-sharing funds. At a June 8 public hearing, it will present its plan to close ambulatory care centers, public health clinics and an alcoholism rehabilitation center and to reduce services to patients in county hospitals and clinics.

“Until we get more relief from the state, there’s not much else we can do,” said Lloyd Halstead, the county’s assistant chief financial officer.

Effect of Prop. 13

San Diego County was forced to eliminate programs for senior citizens, while Riverside County stopped funding many community organizations and cut spending for its social services and police and fire departments. And Proposition 13 prevents California localities from doing what many others around the country have done--raise property taxes to make up for the loss.

Lancaster, Pa., did just that to compensate for the loss of $1.2 million in yearly revenue-sharing checks. “We tightened our belts, but we did not lay off any employees or cut services,” said Bernard J. Ziegler, the city’s chief financial officer.

Rising property values have saved some communities. That is no help to oil, farming and mining areas, where land is losing value.

“Our only solution is to raise taxes, and our property tax base has been shrinking,” said Darlene Vobjeda, town clerk of Blackberry Township, Minn., population 657, an iron mining community. “Property values are going down because we’ve lost so many jobs as a result of mines’ closing. People are even walking away and leaving their homes.”

‘We’re Going to Hurt’

Many communities won’t feel the total impact of the cuts until 1988 budgets go into effect. “Next year is when we’re going to hurt the most,” said Pete Murphy, road commissioner of Farmington Township, Ill., population 3,900. “Then I don’t know what we’ll do.”

Steve Anderson, a legislative assistant for the National Assn. of Counties, said: “People from around the country call us hoping we can tell them about some miracle solutions in other counties. But there aren’t any that we can point out.”

For mid-size and larger cities, revenue sharing has joined a long list of federal programs that have been cut or killed during the Reagan Administration. After adjusting for inflation, federal aid to state and local governments has declined by 39% since 1980, according to the National Assn. of Counties.

“It appears that the federal-local partnership that evolved during the 1960s is slowly being phased down,” concluded a 1987 fiscal survey of the states by the National Governors’ Assn. “As a result, local governments will increasingly depend on state governments for funds.”

‘Poor Get Poorer’

But so far, state aid has not filled the vacuum left by the loss of revenue sharing, local government organizations say. “Rich counties prosper and poor counties get poorer,” a National Assn. of Counties study concluded.

The National Conference of State Legislatures is trying to warm states to the idea that they should do more to assist local governments.

“The time has come for states to change their attitude toward local governments--to stop considering them as just another special-interest group and to start treating them as partners in our federal system of providing services for citizens,” a recent conference task force concluded. “Likewise, local governments should resist a ‘go-it-alone’ attitude and should participate in the process as partners.”

In Congress, several bills have been introduced to resurrect revenue sharing--but only to pay for vital services for the neediest communities.

‘A Tighter Formula’

“The Administration was successful in getting rid of revenue sharing when it meant paying for swimming pools and country clubs,” said Stuart Durst, an aide to Rep. Harley O. Staggers Jr. (D-W.Va.). “Now we want to try to bring back funding under a tighter formula that covers essential services only.”

One bill, introduced by Sen. Dave Durenberger (R-Minn.) and Rep. Bob McEwen (R-Ohio), is being promoted as a “fiscal safety net for the basic public services of needy governments.” Susan Golonka, a legislative assistant to Durenberger, said: “Not all cities would get funds.”

But that would strip revenue sharing of its greatest political plus--the fact that every community in every congressman’s district got something. “Any time you talk about who’s getting what share of the pie, it gets controversial,” said Jerry Fastrup, senior economic analyst for Congress’ General Accounting Office.

Golonka admitted it would be “an uphill battle” now to move revenue sharing through Congress in any form. “A lot of people feel that they don’t want to reopen this debate again,” she said.

Under any formula for focusing revenue sharing on the neediest communities, Paw Paw Mayor Helena Moser is certain her town will again see federal money. But she said she has learned a lesson.

“I think next time we’d try to spread it around a bit more,” she said. “We wouldn’t want to get stuck like that again.”

REVENUE SHARING: WHAT LOCALITIES LOST Revenue sharing funds (excluding taxes for schools)

CITIES: Boston $15.5 mil. San Diego 9.56 mil. Los Angeles 67 mil. San Francisco 18.4 mil. New York 230.9 mil.

COUNTIES: Stephens (Okla.) 83,064 Pacific (Wash.) 198,111 Orange 9.25 mil. Marin 803,557 Los Angeles 80 mil.

TOWNS: Paw Paw, W. Va. 11,874 Long Beach, Miss. 137,567 Manor Twp., Pa. 59,000 Clinton Twp., Mich. 42,584 Beverly Hills 227,945

Source: Treasury Department.