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Originally published Saturday, November 24, 2012 at 5:00 PM

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Protect grass-roots America from the ‘fiscal cliff’

Federal budgeters and Congress regard governors and mayors seeking federal support as special-interest lobbyists, writes Neal Peirce. They aren’t. They’re us.

Syndicated columnist

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“You gotta listen to us.” That’s the message America’s state and city governments need to be delivering to Washington — regardless of how the immediate “fiscal cliff” crisis gets resolved.

And why listen? It’s because federal, state and local tax codes, plus the revenues, budgets and spending decisions made at all levels of government, don’t exist in distinct universes. In reality, they’re closely intertwined.

This means the budget decisions President Obama and Congress make to prevent sequester, with its dramatic program cuts and tax hikes, will ricochet across the 50 states — Washington’s partners in the federal system.

A top example: Under the sequester process, about 18 percent of federal grants flowing to states would be subject to immediate, across-the-board cuts, according to the Federal Funds Information for States service.

Plus, huge amounts of wealth would be sapped from state economies as the sequester process increased Americans’ taxes for 2013 by more than $500 billion, or almost $3,500 per household.

The news would be grim indeed for state governments, most of which have been riding a jarring fiscal roller coaster since the Great Recession hit. Most have already run out their string of familiar fixes — tapping into rainy-day funds, postponing construction, temporary tax boosts or issuing debt.

The recession and its aftershocks were key in forcing total state revenues to decline 12 percent, or $97.9 billion, according to a recent report from the Pew Center on the States. Some states are recovering now. But most of their unemployment rates remain well above prerecession levels. And even without further cuts in federal assistance, about 19 states project a combined $30.6 billion in shortfalls as they prepare their budgets for next year.

It is true — state tax codes so tightly emulate the federal that as Congress lowers or eliminates some allowable income-tax deductions, the taxable dollars on individuals’ home-state returns will actually rise, increasing the dollars paid into state coffers.

But overall, states stand to be losers from federal tax and spending budget deals. And the situation is just as alarming for cities and counties. A group of major city mayors, visiting Washington, D.C., this month, carried the message that they’re facing their sixth consecutive year of lower revenues. They insist they can’t absorb more without severe, negative impacts.

Proposed federal cuts in what Washington calls “discretionary spending,” the mayors argue, would seriously diminish the ability of cities to respond to crucial needs in such areas as job training and workforce investment, public transit, clean-water and wastewater infrastructure, low-income housing and more.

Denver Mayor Michael Hancock told Governing magazine that the cuts in Community Development Block Grants would create “devastating conditions.” Baltimore Mayor Stephanie Rawlings-Blake said CDBG funds are “helping us build jobs, helping us stabilize communities — all of that would be in jeopardy.”

Local governments are especially upset about possible federal action to remove the tax-exempt feature of municipal bonds — a feature that dramatically increases the borrowing costs for infrastructure.

Could all these consequences be averted in an escape from the fiscal cliff? Are more stringent measures coming, no matter what?

Perhaps. But as grave as our fiscal challenge seems, the state and local cause needs underscoring and support it sometimes fails to get in the fiscal scramble for federal funding.

Military funding, for example, is often held up as sacrosanct. And it’s a dangerous world out there. But should the United States consider sharp cutbacks in federal support for state and local government needs when its national defense budget is more than five times larger than China’s, or in fact greater in cost than the world’s next 20 largest military spenders combined?

Or take the big “entitlements” debates. Social Security and Medicare, as vital as they are, focus on senior citizens, not the youth who are, literally, our future. According to a 2009 Brookings Institution study, “the United States spends 2.4 times as much on the elderly as on children, measured on a per capita basis, with the ratio rising to 7-to-1 if looking just at the federal budget.”

Why then should Social Security and Medicare be held harmless in budget cutting, as opposed to student-loan programs and support for the state and local governments that carry the overwhelming responsibility for funding schools, community and four-year colleges?

Too easily, federal budgeters and Congress regard governors and mayors seeking federal support as special-interest lobbyists. They aren’t. They’re us.

Ideally we’d recreate some body like the late Advisory Commission on Intergovernmental Relations — a key forum that brought together federal, state and local officials to discuss key, shared issues. Sadly, the executive branch and Congress let it die back in the 1990s.

What kind of a federal system ignores its partners? We could — and need — to do a lot better.

© 2012, Washington Post Writers Group

Neal Peirce’s email address is nrp@citistates.com.

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