The purpose of the RAND Conference on Fiscal Federalism, held in Santa Monica on May 1-2, 1996, was to consider the opportunities and risks of a proposed shift to block grants in key areas of the nation's safety net--welfare, Medicaid, and job training. The conference brought together many California state, county, and local officials, as well as officials from other states and the federal government, in order to gain a practical grasp of the objectives and issues behind the current round of devolution, and to anticipate the consequences for program implementation and the populations served. The essays in this volume were prepared for the conference and incorporate a number of observations made during the sessions.

Fiscal federalism is the central focus of the Contract with America, the legislative agenda set forth by the Republican majority in the House of Representatives of the 104th Congress. The political basis for the new thrust is a public perception that existing federal programs have gone out of fiscal control, and that welfare and allied programs have become permanent props for their recipients rather than temporary assistance on their way to self-support.

This new philosophy contrasts with an older one adapted to the 1990s by the Clinton Administration. The Administration favors continued major responsibility for the federal government, slower movement toward a balanced budget, welfare reform stressing positive incentives to work and eschewing some of the negative strictures of the Republican plans, and broad latitude for the states to experiment within these structures--but retention of at least part of the entitlement system, albeit with a lifetime eligibility cap similar to that proposed by the Republicans.

The American debate over the proper balances between government and private activities and among the various governmental entities in a federal system goes back to the Articles of Confederation. In a democracy, such choices are properly made by the political process, and that has been the rule for the United States. The public/private balance and the federal/state balance have swung back and forth throughout our history; the 1994 election has been viewed as one more swing in this continuing process, a turn away from government in general and the federal government in particular. By returning Republican majorities in both Houses of Congress, the American people apparently chose the new premises of the Contract and endorsed fiscal federalism. The original purpose of the RAND conference was thus to assist the states upon which the new fiscal federalism would place so many new responsibilities and opportunities.

By the time the conference took place in the spring of 1996, however, it had become far less clear what policy and political choices were going to be made by the legislative process that included the Democratic Administration as well as the Republican Congress. The drive toward a balanced budget continued, and it seemed probable that, one way or another, federal expenditures on these programs would be cut--18 to 20 percent was the estimate of one conference participant. Beyond that, however, it now seems unlikely that such choices will be made before the elections of November 1996; the structure of current programs will remain in place by default. Some funding levels have been reduced, but entitlements remain entitlements, with full funding available under current law.

The RAND conference thus had a more difficult but more interesting task than had originally been conceived. Rather than exploring the options available to states and localities under an already-determined set of federal programs, the task was to explore the state and local options available, given a still-wide range of federal options. In doing so, much of the conference discussion was inevitably devoted to the implications of the alternative federal options.

The papers in this volume formed the basis of the conference; they are analytical, as were the conference discussions. But it should be stated frankly that most participants were inclined to question many of the premises underlying the new federalism, although most were also critical of some older premises and programs as well.