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Sunday, December 9, 2012 - Page updated at 04:30 p.m.

Beyond the fiscal cliff: remaking federalism for better results

By Neal Peirce
Syndicated columnist

“Just dealing with the fiscal cliff isn’t enough,” asserts Mark Muro of the Brookings Institution. “That just looks inward at existing programs, maybe cutting some inefficient or wasteful ones.” But to re-stoke the national economy, Muro contends, today’s smart new opportunity is to look outward, to “encourage and stimulate the best economic initiatives that metro areas and states are trying across the country.”

This demands a radical but possible switch, Muro and his colleague Bruce Katz of Brookings’ Metropolitan Policy Program insist. It means a federal government that moves quickly past the “mindless mathematical exercise” of “deficit targets, budget tricks and across-the-board cuts.”

And the bigger goal? It’s described as a smarter approach that trims today’s billions of federal grant outlays and tax subsidies for consumption-oriented activities — the home mortgage deduction is a prime example. And then uses a portion of the revenue saved for a range of targeted investments to build an America that’s export-oriented and truly competitive in the new global economy.

But those investments, the Brookings crew insists, shouldn’t be dreamed up by Congress or cumbersome federal bureaucracies. They note that in America (and around the world), “sub-national actors” — cities, regions and states — are becoming the key innovators of this century.

Leading U.S. examples are moves to open an advanced applied-sciences center in downtown Brooklyn; advanced manufacturing alliances in Northeast Ohio; bold transit extensions in Los Angeles and Denver; the Seattle and Philadelphia metro areas cementing their niches in energy-efficient technologies; and Connecticut and other states starting “green” banks to help deploy clean technologies at scale.

For decades, states and cities have fished for (and too often subsidized) footloose industries with cash awards, free land, low taxes, worker training — a practice that now costs taxpayers a stunning $80 million yearly, The New York Times reports. But now there are signs of a new era dawning as selected states and metros move to a 21st-century focus on export promotion, foreign direct investment and skilled immigration.

And there is plenty of room for Washington to provide incentives for the shift. The Government Accountability Office identifies about $400 billion in annual federal spending on wasteful, inefficient of duplicative programs. So the Brookings scholars advise “cut to invest” — first trim existing spending and tax subsidies, then use the savings for deficit reduction and to fund high-priority investments for the country’s economic future.

Could this be a new model of catalytic government, working by incentives, then partnerships, with less intrusive rules and regulations? Maybe federal support for a network of perhaps 25 regional advanced manufacturing innovation hubs? Or support the designation of 20 or more manufacturing universities?

Those are ideas Muro and Katz pose for debate. The achievable goal, they claim: to “empower metropolitan-area partners, their states, and the private sector, and so unleash new creativity and problem-solving.”

This does raise a question: Who chooses the beneficiary regions and recipients?

The good news here is that the Obama administration, in its first term, began invention of a new federal model: response to local initiatives. The White House’s highly competitive Sustainable Communities and “TIGER” transportation grants broke the mold of Washington-decreed, heavily regulated programs. Cities and metro areas were invited to put together their own partnerships and projects for interconnected housing, transportation and environmental initiatives. Officials from the federal departments met to pick the most promising proposals for assistance.

The same model could clearly work for an ambitious round of economy-stimulating models conceived by communities working on a metro basis, or perhaps entire states.

The idea, say Katz and Muro, is “catalytic government: government by incentive, government through partnership, ... doing less by reducing intrusive rules.” Their proposal is to create a system in which economic initiatives are “increasingly ‘codeveloped’ with cities, counties, metropolitan economic organizations, state governments and the private sector.”

But how to get Washington to break with its old ways and consider such a radical model as a central focus for economic revitalization?

A promising approach was raised at a Brookings conference in late November: Ask a group of governors — perhaps as early as this winter — to take up the cause and press it with the Obama administration and congressional delegations. The governors are logical proponents, because most of them tend to be pragmatists, almost all focus on economic development, and they aren’t (like Congress) tied to existing federal grant programs. And right now they’re mostly Republicans (30 of the 50) — possibly a good match to work with a Democratic president and a Congress with split party control.

Is there a chance for some really creative bipartisanship here? A welcome relief from cliff-hanging? Let’s hope so!

© 2012, Washington Post Writers Group

Neal Peirce’s column appears regularly on editorial pages of The Times. Email: nrp@citistates.com