Devolution chic: why sending power to the states could make a monkey out of Uncle Sam - Cover Story

Washington Monthly, April, 1995 by Gareth G. Cook

In monetary terms, the most expensive state failure in recent years was, of course, the multibillion dollar S&L crisis, sparked when the Reagan administration allowed states to deregulate while making the federal government financially responsible for any mishaps - an invitation to freeloading. When federal regulators finally stepped in to stop the disaster, two-thirds of the lost funds could be traced to state-chartered S&Ls.

The national insurance industry, however, continues to be regulated by a patchwork of state regulations, despite a string of scandals According to Newsweek, the latest series of problems involve "churning." Agents sell new policies, earning commissions, without explaining that (despite what seems a better deal) the new policies are set to expire sooner, leaving the holder without protection. Said an insurance executive to a federal investigator in 1979, "Would you rather be regulated by 50 monkeys or King Kong?" The insurance companies prefer the 50 monkeys for a reason, and it's not the public interest.

In fact, if the devolutionists get their way, there will be many, many more than 50 monkeys. Already government is "fragmenting," says local government expert Dennis Judd of the University of Missouri, "and often there is nobody minding the store." Police departments have overlapping jurisdictions, and communication between them often fails. Local fire districts don't always cover everyone. "The county fire department might be responsible for you home," says Judd, "but do they know?" "Look at your property tax bill"' he continues. "There will be a long list of charges from all kinds of special districts - water, sewer, fire, etc. - and you have no idea who these guys are."

For some of devolution's most ardent supporters, though, chaos is kind of the idea: Their enemy is not inefficiency, but the government itself. The last time devolution was in vogue, Ronald Reagan was president, promising "a new federalism." This precedent is telling.

Reagan said the states should have more control, but that was just an excuse to blindly eliminate health and safety regulations; the states could not possibly fill the vacuum. Reagan did not so much devolve authority as eliminate it.

Reagan also argued for turning social programs into block grants, much as the Republicans are doing now, saying it would allow the states to be more creative. Reagan created nine block grants in his first year. But five of them - including those for low-income heating assistance, job training, and other social services - were hardly funded at all. The states have to be especially creative when they are assigned a program without any money.

And the more power is devolved, it turned out, the more wealthy suburbanites can freeload off the cities. There are many residents of Connecticut's tony suburbs, for example, who make their livings off New York City while escaping its taxes. "It amounts to a transfer of money to wealthier taxpayers," says the University of Missouri's Judd. In the District of Columbia, where legions of well-paid workers drive in and out every day, city officials have occasionally threatened to install tollbooths on all the access roads.