Balanced Budget: Hard Sell in States

THE House passed it. The Senate may follow suit. But will state legislatures opt for a balanced-budget amendment to the United States Constitution?

Three-quarters of them, or 38 states, would have to do so, which could be a tougher hurdle for the amendment than gaining approval from 67 US senators.

In statehouses around the country, lawmakers are pondering the fiscal consequences of a yes vote.

While the concept of forcing better fiscal management on Washington, D.C., appeals to many, legislators are worried the end result will be simply a shift of financial burdens to states.

``The notion that all of a sudden they can cut back drastically'' at the federal level, ``and not have some really strong repercussions, is folly,'' warns Nita Rinehart (D) of Seattle, who chairs the Ways and Means Committee of the state Senate in Olympia, Wash.

She expects the federal cuts would leave states with an even larger share of the tab for a host of items, from education to Medicaid.

State governments spent $631 billion in 1993, of which almost one-third, $170 billion, came from the federal government.

Still, the amendment has momentum, fed by voter frustration with federal red ink that was once a wartime irregularity but is now a perennial stain on the national balance sheet. Also, the idea of passing responsibility back to the state and local governments is enjoying renewed popularity after the GOP landslide in November. Recent polls show 80 percent of respondents approve of a balanced-budget amendment.

An Associated Press survey of state lawmakers last week found 32 states where passage of a balanced-budget amendment is likely, 16 states undecided, and two likely to oppose the amendment.

Washington State, with a Republican-controlled House and a narrowly Democratic Senate, is one of those in the undecided camp. Senator Rinehart says her fellow Democrats will be looking closely at the fiscal issue.

``I think the debate itself is going to be really healthy,'' says Richard Davis, president of the Washington Research Council, a nonpartisan group that analyzes Washington State affairs. He sees the amendment as a chance to consider a trade-off: States might have to raise taxes but they stand to gain flexibility. The deal might be worthwhile if it ends chronic federal deficits, which amount to ``taxing future generations to pay for past excesses.''

The changes would not happen overnight, since the amendment has a seven-year phase-in period. While Davis calls the it ``probably better than nothing,'' Rinehart is skeptical. She worries that it will burden states, and that Congress may find loopholes to avoid getting its own house in order.

GOP representatives are hoping that passage of a law banning ``unfunded mandates'' - federal laws that force the states to spend money - will sweeten the deal for state lawmakers. But this measure would not be retroactive. So existing federal mandates, from welfare programs to environmental rules, could become an even larger burden on states. Moreover, this legislation could be changed down the road.

The National Conference of State Legislatures is calling for the insertion of language in the amendment to ``protect states from unfunded mandates and other cost shifts.''

``Every dodge known to man will be employed'' at the federal level if it passes, predicts Robert Levine, a former deputy director of the Congressional Budget Office, referring to Washington's proclivity to pass on costs.

Mr. Levine, now with the RAND Corporation in Santa Monica, Calif., is concerned that if welfare and other programs get parceled increasingly to the states, competition may develop to be least generous. States will want to avoid becoming ``welfare magnets.''

In general, Republicans are much more upbeat about the amendment than Democrats. ``I've thought for a long time they needed some discipline'' in D.C., says Dan McDonald (R), Senate minority leader in Olympia.

``I'd be inclined to vote for it,'' adds George Sellar, another GOP state senator. ``It's always been a Republican idea to live within our means.''

But neither will guaranty a yes vote without seeing the fine print.

Nationwide, ``if it's going to pass, it's got to be bipartisan,'' since Democrats control many chambers, Mr. McDonald says.

Another area of debate is the appropriate balance between federal, state, and local governments. One argument says local control makes government more accountable to the people and enhances innovation. Useful ideas pioneered in one state will be copied by others. ``Politicians are great at stealing good ideas,'' says Davis. ``It's one of the things they do best.''

But he acknowledges a potential darker side. If each state developed its own health-care reforms, for example, companies that do business in many states would confront huge complexities that could constrain the nation's economy.

Still, most Americans support the concept of states taking on responsibilities from the federal government, according to a recent Business Week/Harris poll.

The federal government spends about $1.5 trillion annually, and to balance the budget by 2002, cuts totaling an estimated $1 trillion over the next seven years are needed. This is a roughly 10 percent cut in total spending, but three hard-to-touch items make up more than half the budget: Social Security, defense, and interest on debt.