Spending control strategy

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President Bush is in a tight budget spot. He presides over large budget deficits and faces an opposition party that wants to reverse his signature tax cut. Ronald Reagan was in a similar spot, but Mr. Reagan's solution was to go on the offensive and push for a broad range of budget cuts.

A key Reagan budget initiative was New Federalism. In his 1983 budget message, Mr. Reagan argued "what had been a classic division of functions between the federal government and the states and localities has become a confused mess." To sort out the mess, Mr. Reagan began cutting federal grants to lower levels of government. Between 1980 and 1985, Mr. Reagan cut real grant spending by 15 percent and the number of grant programs by 23 percent.

Unfortunately, grant spending soared again after Mr. Reagan left office, and the number of federal grant programs rose from 463 in 1990 to 716 by 2003. This year, grants to state governments for education, highways and other activities will cost federal taxpayers $418 billion and account for one-quarter of all federal domestic spending. Grants are thus a ripe target for budget cuts.

Grant programs range from the giant Medicaid to obscure giveaways such as a $2.4 million program that pays for local government projects to "raise awareness" about the environment. The federal grant structure is massive and complex, as detailed in the 1,800-page "Catalog of Federal Domestic Assistance" at www.cfda.gov.

The catalog lists many dubious sounding grants, such as $10 million for "Nursing Work Force Diversity," and many grants for what are properly local and private concerns, such as $59 million for "Boating Safety Financial Assistance."

Regardless of whether the aims of various grants are worthwhile, the process is intensely bureaucratic and wasteful. The $59 million "Weed and Seed" antidrug program for schools has a 74-page grant application kit, which references 1,300 pages of federal regulations that grant recipients must follow. The Bush administration is right that the federal grant process is "overwhelming," "off-putting," and "intimidating."

Many grant programs involve not two levels of bureaucracy, but three -- federal, state and local -- before funds are finally disbursed for a project. This is "trickle-down economics" at its worst. Consider the $441 million Safe and Drug Free Schools program, which the administration has concluded is a failure. It dishes out grants to state education bureaucracies, which then follow complex procedures to send funds down to local school boards. The school boards themselves need expert bureaucrats to complete lengthy application forms to get the funds. But since this is "free" money from Washington, school boards tend to spend the money wastefully.

Many policymakers support grants because they think the federal government should send aid to poor areas of the country. But the political reality is that grant programs must sprinkle funds across all congressional districts to gain support. A classic example is the $6 billion Community Development Block Grant program, which was supposed to send aid to poor urban areas for crucial services. Today, the program spreads taxpayer largess widely for such projects as installing traffic lights in wealthy Newton, Mass.

A revival of Mr. Reagan's federalism makes sense -- with a $500 billion deficit and the cost of elderly entitlements soon to explode, something needs to be cut. In the 1990s, the Republicans did follow Mr. Reagan's lead. Mr. Reagan called the Education Department "President Carter's new bureaucratic boondoggle" and the 1996 House budget proposed abolishing it. That budget also proposed cutting Medicaid grants to the states by $187 billion over 10 years.

Of course, cutting spending to the states will face stiff opposition. But consider this 1982 assessment of Mr. Reagan's federalism by the centrist Urban Institute: "His proposal to turn back $90 billion of domestic programs to the states was [originally] treated as an extremist gaffe. It is a tribute to the president's ability to frame national policy debate that ... his prescription for the future of federalism now commands authority, if not general assent."

Republicans can make progress against out-of-control spending, but they need to articulate a clear and consistent vision -- they need both Reagan-style solutions and Reagan-style leadership.

Chris Edwards is director of fiscal policy at the Cato Institute.