At Last,a Little Surplus

LKE Sisyphus condemned forever to roll a heavy stone up a steep mountain, the American taxpayer has long seemed fated to support indefinitely the ever-costlier needs of government. Now, surprisingly, the burden may be getting a little lighter--at least on the state and local level. For the first time since the late 1940s, state and local governments are beginning to show a collective surplus. Altogether, in this fiscal year, these government units are expected to take in about $ 138 billion--$7 billion to $ 12 billion more than they spend.

California will post a $700 million budget surplus in fiscal 1973, and officials are pondering whether to use it to reduce taxes or improve schools. In New York, the Assembly's Democratic minority leader, Stanley Steingut, predicts that the state will have a surplus of at least $400 million. Cities as disparate as Schenectady, N.Y.; Jackson, Miss.; Burbank, Calif., will report handsome surpluses.

The Tax Foundation, a nonpartisan study group supported mainly by corporations, reports that taxes so far this year have been boosted by only 14 states, and the total increase is only $875 million. Last year almost all of the 50 states had to increase taxes, and the total advance was $5 billion.

A major cause of the improvement is the surge in the nation's economy. In the twelve-month period ending last March, state tax collections rose 14%. Local government revenues are being boosted by federal grants-in-aid for urban renewal, housing, law enforcement, waste-treatment plants, food stamps and a host of other services. These grants have jumped from $20 billion in fiscal 1969 to an expected $46 billion in this fiscal year.

Some governments have exploited federal grants for social services. These services, which include vocational rehabilitation and child care, are critically needed in big cities. Yet smaller states and municipalities have found that the loosely supervised grants are a rich source of cash. In Mississippi, to take an egregious case, the state budget for social services was inflated from less than $2 million last year to a planned $460 million for the current fiscal year. Three-quarters of this would have come from Washington--except that Congress is now moving to curtail abuses by limiting such grants to the amount a state or community spent in the last fiscal year.

Big-City Blues. In some states and localities, the surplus is not quite as reassuring as it might seem. Here and there, local finance officials have boosted their reported revenues by counting in advance their portions of the $5.3 billion in 1972 revenue sharing that Washington will soon give out in addition to grants. To help out their balance sheets still more, other government units have cut back or refused to increase spending on education, police and health care. In addition, few mayors or Governors have spent enough to head off imminent problems posed by outmoded mass transit and increasing pollution. Says Walter Heller, a member of TIME'S Board of Economists: "I have yet to see a long-range state-local expenditure projection that did not underestimate spending requirements. Knock on any door marked MAYOR or GOVERNOR and you'll find a long line of pressing needs waiting to be dealt with."

Troubled cities like Cleveland, Newark and Detroit have benefited little from the economy. Their tax base has been reduced by a middle-income exodus, while rampant crime and poverty have increased the need for police, education and other services. In New York City, despite oppressive sales, income and property taxes and cutbacks in all manner of services, government expenses continue to run about 5% to 10% ahead of revenues. Like other large cities, New York would founder without federal aid.

Even so, President Nixon says that he is determined to hold down federal spending if reelected. His Administration would be likely to favor cutting Government grants. The case for such action is buttressed by a study by Clark University Professor David J. Ott for the American Enterprise Institute, a research group that draws largely on Republican academics. Ott concludes that at the present rate, federal financial aid will help state and local governments show a surplus of $23 billion a year in 1976. His calculations are based on the questionable assumption that mass transit and pollution control expenditures will not have to rise and that educational costs will drop sharply.

The real danger is that a re-elected Nixon Administration could use the immediate state and local surpluses as a reason to chop federal grants, without making special provision for impoverished big cities. Such a move would more than wipe out any gain that large urban areas would get from revenue sharing and leave them even worse off than they are now.

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