Those Lavish Local Spenders

The Governors and mayors who have listened to President Johnson's repeated pleas for cuts in state and local spending may not have been wearing earplugs, but the effect is the same. Nowhere is the Administration's anti-inflation drive being more firmly or more brusquely rebuffed than in the nation's statehouses and city halls.

Observing the accelerating pace of state and local government spending--up 125% in the past decade and now about equal to federal spending, excluding outlays for such items as pensions and interest payments--the President's economists saw a ready target for the economy ax. They argued that many state and local expenditures were not essential and could be deferred until the economy was under less inflationary pressure. But what looks deferrable to Washington bureaucrats looks ten years too late to officials of cities and states that have felt the full force of the postwar population expansion. Though a few porky projects might be justifiably postponed, local officials make a strong case that they must meet the demands of a growing society--demands that are only partially met by federal grants-in-aid to states and municipalities (now $14.9 billion a year) and Great Society programs. "You can't stop a college building," says Ohio's finance director, Richard L. Krabach. "The kids are already here now." Adds Kansas' budget director, James W. Bibb: "I won't consider the President's request at all. We're not spending to stimulate the state's economy; we are building for today's needs. By the time an item gets in the state budget, it is already urgently needed."

School Bells' Toll. Other budget directors apparently feel the same way, for not one major spending program has been cut back, not one major bond issue has been deleted from next week's ballot in response to the Administration's efforts. Voters will be asked to approve almost $2 billion in new spending, ranging from $230 million for higher education in California to $25,000 for fire apparatus in Austinberg Township, Ohio.

What little restraint there is on spending has resulted not from Johnson's pleas, but from inflation and the tight money it has brought. High construction costs forced South Dakota to delay a $125,000 building for a school for the blind; a $70.5 million New Orleans expressway project was held up a second time when no underwriters could be found; bond issues were deferred in Cincinnati because interest rates were just too steep.

Blow to Keynes. Washington officials are increasingly worried that the spiral in state and local spending diminishes their ability to manipulate the economy with Keynesian tools, and that there is little they can do about it. When state and local spending passes federal spending for goods and services--which it will unquestionably do as soon as the Viet Nam war is over--the economic leverage of the federal budget, tax and monetary policies will be automatically reduced.

Even a cutback of federal spending to curb inflation would have little effect if 50 states and thousands of localities were increasing expenditures. On the other hand, in case of a recession, a federal tax reduction to stimulate the economy could be negated by the inexorable rise in state and local taxes--which last year amounted to an average $266 for every man, woman and child in the country. The problem will grow as state and local governments are forced to spend much more on rapidly rising populations. Despite the recently lower birth rate, Dr. Philip M. Hauser, a University of Chicago population expert, reported last week that the U.S. can count on 65 million more Americans by 1985--an increase equal to the combined present populations of England and Scandinavia.

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