Frost belt sees its federal funds sink slowly in West; Northern states say Sunbelt corralling benefits from their taxes

Many Northern and Midwestern government and business leaders are convinced that their region is subsidizing the Sunbelt. They say the frost belt is getting the cold shoulder from Washington -- in the form of less money from the federal till. They argue they should be getting a larger return of federal tax dollars in view of the region's current economic needs.

Returns to the economically distressed Northern states and cities are pitifully slim, they claim. Regionally, the Midwestern states have been hit hardest. Together, Iowa, Minnesota, Illinois, Wisconsin, Indiana, Ohio, and Michigan sent $30.2 billion more to Washington in taxes in fiscal 1979 than they got back. The Mid-Atlantic states of Delaware, Maryland, Pennsylvania, New York , and New Jersey also had a negative balance of $7.8 billion.

In contrast, the 14 Southern states received $14.4 billion more than they paid out. And the Western states, (excluding California which had a deficit), had an overall surplus of $7.6 billion.

Most of the frost-belt leaders agree that this favoritism was justified when the South was poor and the West undeveloped. But they argue that those days are past and now the older cities of the North -- beset by high unemployment and loss of manufacturing -- are in greater need. They argue that the Reagan administration's budget cuts only accentuate the existing regional gap. And they see few signs of a more equitable spending arrangement for the scheduled increases in defense.Most of the prime contractors and bases are in the South and West.

"The policy made sense when the South didn't have a tax base and the West was undeveloped, but the North can't afford to give that kind of subsidy anymore," says Northeast-Midwest Congressional Coalition spokesman Andrew Lang.

To underscore what they see as a pressing need for an equitable treatment in tax dollars, frost-belt leaders have been banding together in an effort to call attention to the problem whenever they can.

On Capitol Hill, for instance, Rep. Carl D. Pursell (R) of Michigan, a leader of the five-year-old bipartisan Northeast-Midwest Congressional Coalition, says he and his colleagues from the North raise the issue of regional contrasts "constantly."

"We identify it every day in every battle," he insists.

Midwest government and business leaders stress they are only asking for a larger share of federal dollars because of need.

"I don't think any state deserves to get back every dollar it sends to Washington," insists Dr. Douglas Roberts of the Michigan department of management and budget. "The issue is: Should redistribution take place because of a change in need? We do have a need. Our unemployment is high and many more here need welfare and assistance than they did a few years ago."

"We're only asking the federal government not to be punitive," says William H. Bryant, president of the Greater Cleveland Growth Association. "An appallingly large amount of money has been used in the Sunbelt to build water facilities and highways which allow that region to compete more successfully in attracting new business. . . . Just let us keep that money to begin with, with no strings."

Although frost-belt lobbyists and legislators often complain there is little they can do to change Washington's dollar tilt, they have chalked up a few victories.

The most significant breakthrough is an experiment begun in February aimed at helping small- and medium-sized businesses in economically distressed areas win Pentagon supplies contracts. Bids from areas where unemployment is at least 20 percent higher than the national average are given preferential consideration: 5 percent is added to the bids of competitors not from distressed areas.

The experiment, which focuses on nonstrategic supplies ranging from clothing to machinery, involves only $3.4 billion of the $15 Pentagon supply bill. It could be expanded if judged successful. So far the cost to the government is less than expected -- only a fraction of 1 percent. In the view of the frost-belt leaders, the results look good. But a Defense Logistics Agency spokesman insists it is still "too early to tell." One hopeful sign: The Reagan administration has endorsed a one-year extension of the experiment.

A similar targeting arrangement for providing supplies to federal civilian agencies has been possible for some years. Its success, to a large degree, depends on getting the word out.

Many frost-belt leaders feel that federal tax policy governing business has been tilted unnecessarily in the Sunbelt's favor by encouraging development of new buildings on unoccupied land. coalition legislators have accordingly been pushing hard on Capitol Hill for credits for either the rehabilitation or demolition of old buildings, more commonly found in the older Northern cities.

The advantage of all these measures, says Congressman Pursell, is that no new money or bureaucracy is required. He calls the concept, "tailor made for an era of fiscal restraint."

One worry is that the heavy focus on regionalism could trigger even stronger -- and mroe detrimental -- geographic rivalry in the long run. The newly formed Sunbelt Council, which sprang up in response to the Northeast-Midwest Coalition, is already challenging frost-belt satistics. The new council contends that per capita income is still higher in the north than in the Sunbelt. It is also pushing for an end to the Defense Department experiment, claiming it puts them at a competitive disadvantage.

But the coalition spokesmen frequently try to patch up such partisan cracks by stressing that all regions have a stake in each other's successful growth.

Some even argue that being the "low man on the totem pole" may not be all bad. The Chicago Tribune has argued that Illinois's position -- getting the lowest return on the dollar at 70 cents -- is actually a sign of a healthy economy. Low returns, it has been argued, mean less reliance on federal money for retirement, welfare, and defense contracts.