Fiscal Federalism in 1986: The Spotlight Continues to Swing toward the States and Local Governments

Abstract

The year in Washington saw the president and the Congress at loggerheads on the budget but in agreement on important tax legislation. A prominent casualty of the battle to slash the federal deficit was Revenue Sharing. "Sequestration" and the rhetoric of austerity that doomed Revenue Sharing notwithstanding, total federal grants (adjustedfor inflation and population growth) rose in 1986for the second year in a row, continuing a recovery from the six-year decline that had begun in 1979. The net effects of the Tax Reform Act of 1986 will vary substantially among the states, but the federal legislation guarantees that tax reform will be a central issue in many state legislatures in 1987. Federal mandates continued to be promulgated in 1986 with little regard for the costs to states and localities. A notable exception was the outcome of the struggle over funding for grants for the treatment facilities needed to comply with the standards prescribed by the Clean Water Act of 1972: much more generous funding than was sought by the president.