Step 6: --Empower State and Local Governments

What we usually call "government" is, in fact, a tangle of different levels of government agencies--some run from Washington, some in state capitals, and some by cities and towns. In the United States, in fact, some 80,000 "governments" run everything from local schools and water supply systems to the Defense Department and overseas embassies. Few taxpayers differentiate among levels of government, however to the average citizen, a tax is a tax--and a service a service--regardless of which level of government is responsible. To reinvent government in the public's eyes, we must address the web of federal-state-local relations.

Washington provides about 16 percent of the money that states and localities spend and shapes a much larger share of such spending through mandates. Much of Washington's domestic agenda, $226 billion to be precise, consists of programs actually run by states, cities, and counties. But the federal government doesn't always distribute its money--or its mandates--wisely. For starters, Washington allocates federal money through an array of more than 600 different grant programs. Many are small: 445 of them distribute less than $50 million a year nationwide; some 275 distribute less than $10 million. Through grants, Congress funds some 150 education and training programs, 100 social service programs, and more than 80 health care programs. Considered individually, many categorical grant programs make sense. But together, they often work against the very purposes for which they were established. When a department operates small grant programs, it produces more bureaucracy, not more services. Thousands of public employees--at all levels of government--spend millions of hours writing regulations, writing and reviewing grant applications, filling out forms, checking on each other, and avoiding oversight. In this way, professionals and bureaucrats siphon money from the programs' intended customers: students, the poor urban residents and others. And states, and local governments find their money fragmented into hundreds of tiny pots, each with different, often contradictory rules, procedures, and program requirements.

Were we directed from Washington when to sow and when to reap, we should soon want for bread.

Thomas Jefferson 1826

Henry Cisneros, Secretary of Housing and Urban Development, likens federal grants to a system of pipelines spreading out across the country. The "water," says Cisneros, reaches states and localities through hundreds of individual pipelines. This means there is little chance for the water to be mixed, properly calibrated to local needs, or concentrated to address a specific problem, geographic area, or population.

In employment and training, for example, Washington funds training programs, literacy programs, adult education programs, tuition grant programs, and vocational education programs. Different programs are designed for different groups--welfare recipients, food stamp recipients, displaced homemakers, youth in school, drop-outs, "dislocated workers," workers displaced by foreign trade, and on and on.

At a plant in Pittsfield, Massachusetts, General Electric recently laid off a large group of workers. Some workers could get Trade Adjustment Assistance benefits, because their jobs were lost to foreign competition. Others could not; their jobs fell to defense cutbacks. Because they have a union, people working in one area began exercising their seniority rights and bumping people in other areas. Some workers bumped from trade-affected jobs to defense contracting jobs, then lost those a few weeks later. Under federal regulations, they could no longer get Trade Adjustment Assistance. Thus, friends who had spent years working side by side found themselves with very different benefits. Some got the standard 6 months of unemployment checks. Others got 2 years of unemployment checks and extensive retraining support. Try explaining that to people who have lost the only jobs they've ever held!

People who run such programs struggle to knit together funds from three, four, or five programs, hoping against hope that workers get enough retraining to land decent new jobs. But the task is difficult; each program has its own requirements, funding cycles, eligibility criteria, and the like. One employment center in Allegheny County, New York, has tried hard to bring several programs together and make them appear as seamless as possible to the customers. At the end of the day, to accommodate reporting requirements, the staff enters information on each customer at four different computer terminals: one for Job Training Partnership Act (JTPA) programs, one for the JOBS program, one for the Employment Service, and one for tracking purposes.

When Congress enacted JTPA, it sought to avoid such problems. It let local areas tailor their training programs to local needs. But federal rules and regulations have gradually undermined the good intentions. Title III, known as the Economic Dislocation and Worker Adjustment Assistance Act (EDWAA), helps states respond immediately to plant closings and large layoffs. Yet even EDWAA's most flexible money, the "national reserve fund," has become so tangled in red tape that many states won't use it. As Congress's Office of Technology Assessment put it, "the process is simply too obstacle ridden. ... many state EDWAA managers cannot handle the complexities of the grant application, and those that do know how are too busy responding to clients' urgent needs to write demanding, detailed grant proposals."

When Congress amended JTPA in 1993, targeting more funds to those with "multiple barriers" to employment, homeless advocates thought the change would help their clients. After all, who has more barriers to employment than someone without an address or phone number? But the new JTPA formula also emphasized training over job search assistance. So a local program in Washington, D.C. that had won a Labor Department award for placing 70 percent of its clients in jobs--many of them service sector jobs paying more than the minimum wage--lost its JTPA funding. Why? It didn't offer training. It just helped the homeless find jobs. See Note 47

But federal programs rarely focus on results. As structured by Congress, they pay more attention to process than outcomes--in this case, more to training than to jobs. Even in auditing state and local programs, federal overseers often do little more than check to see whether proper forms are filed in proper folders.

The rules and regulations behind federal grant programs were designed with the best of intentions--to ensure that funds flow for the purposes Congress intended. Instead, they often ensure that programs don't work as well as they could--or don't work at all.

Virtually every expert with whom we spoke agreed that this system is fundamentally broken. No one argued for marginal or incremental change. Everyone wants dramatic change--state and local officials, federal managers, congressional staff. As in managing its own affairs, the federal government must shift the basic paradigm it uses in managing state and local affairs. It must stop holding programs accountable for process and begin holding them accountable for results.

The task is daunting; it will take years to accomplish. We propose several significant steps on the journey:

Establish a Cabinet-level Enterprise Board to oversee new initiatives in community empowerment;

Cut the number of unfunded mandates that Washington imposes;

Consolidate 55 categorical grants into broader "flexible grants;"

Increase state and local flexibility in using the remaining categorical grants;

Let all agencies waive rules and regulations when they conflict with results; and

Deregulate the public housing program.

The likely benefits are clear: administrative savings at all levels; greater flexibility to design solutions; more effective concentration of limited resources; and programs that work for their customers.

Action: The President should establish a Cabinet-level Enterprise Board to oversee new initiatives in community empowerment.

See Note 48

The federal government needs to better organize itself to improve the way it works with states and localities. The President should immediately establish a working group of cabinet-level officials, with leadership from the Vice President, the Domestic Policy Council, and the National Economic Council. The Board will look for ways to empower innovative communities by reducing red tape and regulation on federal programs. This group will be committed to solutions that respect "bottom-up" initiatives rather than "top-down" requirements. It will focus on the administration's community empowerment agenda, beginning with the 9 Empowerment Zones and 95 Enterprise Communities that passed Congress as part of the President's economic plan.

Sometimes we need to start out with a blank slate and say, "hey, we've been doing this for the last 40, 50 years. It doesn't work." Let's throw out everything, clear out minds...Let's have as a goal doing the right thing for the right reasons, even if it entails taking risks.

Vincent Lane, Chairman, Chicago Housing Authority, Reinventing Government Summit Philadelphia, June 25, 1993

In participating communities, for example, federal programs could be consolidated and planning requirements could be simplified; waivers would be granted to assure maximum flexibility; federal funding cycles would be synchronized; and surplus federal properties could be designated for community use.

Action: The President should issue a directive limiting the use of unfunded mandates by the administration.

See Note 49

As the federal deficit mounted in the 1980s, Congress found it more and more difficult to spend new money. Instead, it often turned to "unfunded mandates"-- passing laws for the states and localities to follow, but giving them little or no money to implement those policies. As of December 1992, there were at least 172 separate pieces of federal legislation in force that imposed requirements on state and local governments. Many of these, such as clean water standards and increased public access for disabled citizens, are unquestionably noble goals.

But the question remains: How will state and local governments pay to meet those goals? We recommend that Congress refrain from this practice and that the President's directive establish that the executive branch will similarly limit its use of unfunded mandates in policies, legislative proposals and regulations.

The directive would narrow the circumstances under which departments and agencies could impose new unfunded burdens on other governments. It also would direct federal agencies to review their existing regulations and reduce the number of mandates that interfere with effective service delivery. OMB's Office of Information and Regulatory Affairs (OIRA) should review all major regulations or legislation proposed by the executive branch for possible adverse impacts on states and localities. Finally, OIRA's director should create a forum in which federal, state, and local officials could develop solutions to problems involving unfunded mandates.

Action: Consolidate 55 categorical grant programs with funding of $12.9 billion into six broad

See Note 50

This proposal came from the National Governors Association (NGA) and National Conference of State Legislatures (NCSL), which describe it as "a first step toward broader, more ambitious reforms." It would consolidate some 20 education, employment and training programs, with a combined $5.5 billion in fiscal year 1993 spending; roughly 10 other education programs ($1.6 billion); 10 small environmental programs ($392 million); six water quality programs ($2.66 billion); and six defense conversion programs ($460 million).

How Much Do You Get for a 1983 Toyota?

What does the price of a used car have to do with the federal government's family policies?

More than it should. Caseworkers employed by state and local government to work with poor families are supposed to help those families become self-sufficient. Their job is to understand how federal programs work. But as it turns out, those caseworkers also have to know something about used cars. Used cars? That's right. Consider this example, recounted to Vice President Gore at a July 1993 Progressive Foundation conference on family policy in Nashville, Tennessee:

Agencies administering any of the federal government's programs for the poor must verify many details about people's lives. For instance, they must verify that a family receiving funds under Aid to Families with Dependent Children (AFDC) does not own a car worth more than $1,500 in equity value. To give a poor family food stamps, it must verify that the family doesn't own a car worth more than $4,500 in market value. Medicaid specifies a range that it allows for the value of a recipient's car, depending on the recipient's Medicaid category. But under food stamp rules, the car is exempt if it is used for work or training or transporting a disabled person. And under AFDC, there is no exemption for the car under any circumstances. Recounting that story to a meeting of the nation's governors, the vice president asked this simple question: "Why can't we talk about the same car in all three programs?"

Action: Congress should allow states and localities to consolidate separate grant programs from the bottom up.

See Note 51

Recognizing the political and administrative obstacles to wholesale reform of more than 600 existing categorical grants in the short term, the National Performance Review focused on an innovative solution to provide flexibility and to encourage result-oriented performance at the state and local levels.

Our proposal calls for Congress to authorize "bottom-up" grant consolidation initiatives. Localities would have authority to mix funding from different programs, with simple notification to Washington, when combining grants smaller than $10 million each. For a consolidation involving any program funded at more than $10 million, the federal awarding office (and state, if applicable), would have to approve it before implementation. In return for such consolidation, the state and local governments will waive all but one of the programs' administrative payments from the federal government.

When different grants' regulations conflict, the consolidating agency would select which to follow. States and localities that demonstrated effective service integration through consolidation would receive preference in future grant awards. Each of the partners in the intergovernmental system must work collaboratively with others--federal, state, and local--to refine this recommendation.

The details of this proposal will be negotiated with important state and local organizations, such as the NGA, the NCSL, U.S. Conference of Mayors, and the National League of Cities, before legislation is drafted. Bottom-up consolidation will be given a high priority by the administration. It represents a way to improve state and local performance without tackling the thorny political problem involved in consolidating 600 grant programs, reconciling thousands of rules and regulations, and anticipating every possible instance when flexibility might be necessary. It puts the burden of identifying obstacles and designing the best solution where it belongs--on those who must make the programs work.

Action: Give all cabinet secretaries and agency heads authority to grant states and localities selective waivers from federal regulations or mandates.

See Note 52

The National Performance Review is not intended to be the final word on reinventing government but rather a first step. This long overdue effort will require continuing commitment from the very top to truly change the way government does business. U.S. Rep. John Conyers (D. Mich.) August 28, 1993

For federal grant programs to work, managers must have flexibility to waive rules that get in the way. Some departments have this authority; others don't. Federal decisions on most waivers come very slowly, and states often must apply to a half-dozen agencies to get the waivers they need. Florida, for example, has a two-year waiver allowing it to provide hospice care to AIDS patients under Medicaid. Its renewal takes 18 months. So state officials have to reapply after only six months. Waiver legislation should grant broad waiver authority, with the exception of fair housing, non-discrimination, environmental, and labor standards. We will ask Congress to grant such authority to Cabinet officers. These waivers, should be granted under limited circumstances, however. They must be time-limited and designed to include performance measures. When each experiment is concluded, the granting agency should decide whether the new way of doing things should be included in standard practice.

Action: Give control of public housing to local public housing authorities with histories of excellent management and substantially deregulate the rest.

See Note 53

Public housing is a classic story of good intentions gone awry. When the program began in the 1930s, it was hailed as an enlightened response to European immigrants' squalid living conditions in cities across the country. Through an enormous bureaucracy stretching from Washington into virtually every city in America, the public housing program brought clean, safe, inexpensive living quarters to people who could not afford them otherwise.

Now, however, public housing is even more troubled than our categorical grant programs. With its tight, centralized control, it epitomizes the industrial-era program: hierarchical, rule-bound, and bureaucratic. HUD's Washington, regional, and local offices rigidly control local public housing authorities, who struggle to help the very poor. Frustrated by the failure of public housing, innovative state and local governments began to experiment with new models of developing, designing, financing, managing, and owning low-income housing. Successful efforts tailored the housing to the characteristics of the surrounding community. Local public housing authorities began to work with local governments and non-profit organizations to create innovative new models to serve low-income people.

HUD recognizes that local authorities with proven records of excellence can serve their customers far better if allowed to make their own decisions. We and the secretary recommend that Congress give HUD authority to create demonstration projects in which local housing authorities would continue to receive operating subsidies as long as they met a series of performance targets, but would be free from other HUD control. Individual demonstrations could vary, but all federal rules would be open for waivers as long as HUD could measure performance in providing long-term, affordable housing to those poor enough to be eligible for public housing.

In addition, HUD should work closely with local housing authorities, their national organizations, public housing tenant organizations, and state and local officials to eliminate unnecessary rules, requirements, procedures, and regulations. In particular, HUD should replace its detailed procurement and operating manuals and design and site selection requirements with performance measures, using annual ranking of local housing authorities to encourage better service and greater accountability. It should eliminate the annual budget review, an exercise in which HUD field staff spend thousands of hours reviewing and approving detailed budgets from local housing authorities --even though the reviews do not influence federal funding decisions. And it should work with Congress to change current rent rules, which create strong incentives for people to move from public housing as soon as they find jobs. Conclusion