Reagan Devolution
In a three-way race with John Anderson and Jimmy Carter, Reagan/Bush won a landslide (winning 44 states). The 1984 election was even worse from the Democratic perspective—49 states went for Reagan/Bush. Not even Massachusetts voted for Mondale—only his home state, Minnesota. Dukakis/Bentsen did better in 1988, winning 10 states, but Bush/Quayle squeaked by with the other 40. All in all, 1981–93 was the longest period since 1920 that Privatist Presidents governed. Yet the Reagan/ Bush years were an era of divided government. They were, however, years of increasing disunity within the Democratic Party. The formerly solid Democratic South shifted Republican. Democrats retained control of the House, but the Senate went Republican for the first time since 1953. This pattern repeated itself in 1984 and 1986, but Democrats regained control of both Houses in 1988.
Reagan’s administration never devised a formal urban or sub-state ED approach. Reagan intended, and to a certain extent succeeded in, pulling the federal government from sub-state policy areas and ending Great Society direct city–federal relationships. Sub-state jurisdictions were the states’ responsibility, forcing states, willing or not, to assume a greater role. Its key concept was “devolution,” whose spirit was expressed in his inaugural address:
It is time to check and reverse the growth of government which shows signs of having grown beyond the consent of the governed. It is my intention to curb the size and influence of the Federal establishment and to demand recognition of the distinction between the powers granted to the Federal government and those reserved to the states or to the people.1
To accomplish this promise, Reagan set forth a sweeping agenda of budget reductions, tax cuts, personnel freezes, block grants and deregulation initiatives. Remarkably successful in his first two years, he found the going got tougher after:
Federal income tax rates were cut 25 percent and business taxes were reduced an additional $50 billion; federal spending for domestic programs was reduced by $35.2 billion with savings over subsequent years totaling over $130 billion; nine new block grants were established, consolidating seventy-seven programs and sixty-two additional programs were terminated. (Conlan, 1998, p. 96)
Reagan’s devolution disrupted urban ED greatly. Gone was revenue sharing ($1.8 billion); job training and public service jobs were cut by 69 percent, CDBG halved (54 percent), urban mass transit reduced by 25 percent and UDAG by 41 percent. In 1980 federal dollars constituted 22 percent of Big City budgets (over 300,000)—by 1989 it was 6 percent. State governments didn’t pick up the slack; their percentage was 16 percent in 1980 and the same in 1989 (Dreier, 2002, pp. 126–7). The residue of OEO (War on Poverty) was converted to the community services block grant and transferred to the Department of Health and Human Services (1981); by 1985 its funding had been reduced by $1 billion. Between 1981 and 1992 federal aid to cities was cut by 60 percent (Domhoff, 2013, p. 246). Public housing programs and Section 8 were cut, at one point by 80 percent. Two private sector-dominated task forces (President’s Commission on Housing and National Urban Policy Report) issued reports in 1982 clearly detailing the Reagan approach to sub-state ED/CD—wherever possible it should be left to the “free and deregulated” private sector.
EDZs
Although Robert Kennedy in 1968 initiated legislation roughly similar to the 1981 Kemp–Garcia enterprise zone, the idea originated from the United Kingdom. Ironically, this most Privatist of ED programs was initially proposed by social democrat Peter Hall in a 1977 Royal Town Planning Institute conference. Hall called for a Hong Kong-style Freeport (sort of an American FTZ) for distressed British urban areas. Picked up by Sir Geoffrey Howe, a highly placed Conservative MP, it was given the label “enterprise zone.” Howe retained tax abatements, reduced planning approvals and included wage/price exemptions. The concept was to reduce taxes and regulation in clearly defined distressed geographic areas, hopefully resulting in a private investment surge and, yes, innovation. Enterprise zones assume microeconomic cost reductions will triumph over geographic and demographic constraints.
The idea was embraced by the Heritage Foundation’s Stuart Butler,2 who reshaped the zone to address housing reform and neighborhood revitalization rather than British-style job creation through startups. This change attracted Congressman Jack Kemp and Bronx Democrat Robert Garcia. In June 1980 (Carter years) they introduced the Kemp–Garcia Urban Jobs and Enterprise Zone Act (Benjamin, 1980). The Act blended business job creation with people-based housing/neighborhood redevelopment; the federal role included significant federal tax abatement and depreciation allowances. Reagan did not back Kemp–Garcia. Instead, in 1982 Reagan supply-siders returned the concept to its original job creation economic development Privatist roots. For Reagan:
The urban enterprise zones concept was pure supply-side economics … identify and remove government barriers to entrepreneurs who can create jobs and economic growth. It will spark the latent talents and abilities already in existence in our most depressed areas. Both public subsidies and the easing of environmental and zoning restrictions were important components of the enterprise zones proposal … few zones were proposed (75). (Judd, 1984, p. 361)
The bill’s reliance on startups and hiring low-income zone residents was inspired by David Birch’s The Job Generation Process (1979). Perhaps surprisingly, the EDZ bill generated bipartisan support, particularly from the Black Caucus and a number of ED professional associations (NASDA and, to a lesser degree, CUED). Reagan’s bill, however, was regarded by Progressives as ineffective, resting as it did on tax abatements to firms (Butler, 1982). Abatements were believed unlikely to motivate a firm’s location decision and would simply reshuffle firms from one site to another. Other concerns were the EDZ’s reliance on tax credits (useful only for profitable firms). Quality of jobs was questioned, as was whether jobs would flow to zone residents or outsiders. Committee chair Dan Rostenkowski bottled up the bill; he did not uncork the legislation until 1993. EDZ was never approved in the 1980s.
IDBs
Industrial development bonds were easy targets for Reagan reform legislation. The 1968 Revenue and Expenditure Control Act had sharply limited IDB issuances and eligibility by establishing two “types”: exempt and small issues. Small issue IDBs declined dramatically during the seventies. “Reforms” were approved in 1982 (TEFRA) and the 1984 Deficit Reduction Act (DEFRA), climaxing with the 1986 Tax Reform Act. Each Act regulated (and limited) IDB issuance—and restricted eligibility to small manufacturers and nonprofits. IDB restrictions were primarily intended to enhance revenues: “Tax exempt bonds were under constant attack throughout the 1980’s as an inefficient subsidy and unacceptably large drain on federal revenues. The revenue loss totaled $20.4 billion in 1983” (Conlan, 1998, pp. 137–8).
JTPA
The 1982 Job Training Partnership Act (JTPA) replaced the Nixonian CETA block grant. The JTPA was a bipartisan effort reform intended to fix an unloved CETA:
Although CETA provided jobs for more than a million unemployed persons and work experience for thousands more, by 1978 the program had become for many a “dirty four letter word.” Stories of corruption and mismanagement—directed mainly at CETA’s public employee titles—undermined support for the entire legislation. Moreover careful evaluations of CETA training programs often failed to detect substantial improvements in the future earnings of trainees. (Conlan, 1998, p. 166)
Congress had attempted reform since 1978; several Democratic/Republican reform bills were under review in 1981–82. A 1982 compromise bill, sponsored by Senators Quayle and Kennedy, formed the nucleus for JTPA.
The bill reduced trainee benefits and subsidies, expanded state/local roles, intensified participation of business and capped state administrative/support expenses by requiring 78 percent of the state appropriation be transferred to the locals. The CETA system of local “prime sponsors” was terminated, and units of local government with populations greater than 200,000 were designated as “service delivery areas” (SDAs), each administered by a “private industry council” (PIC) responsible for a locally approved plan and fund allocation—subject to approval by its chief local elected official (CLEO). JTPA decentralization and augmented private sector input did change the process. The role of the states remained meaningful. The delivery system, while different from CETA, was not a radical departure, and the inclusion of the CLEO augmented political and partisan dynamics into local administration of the federal workforce program.3 Cynically, JTPA was a work in progress in many respects, but remained the cornerstone of the nation’s job training and youth employment approach.
SBA
In 1981, the Small Business Administration launched its now well-respected “504 Certified Development Program.” The 504 Program, closely mirroring the earlier SBIC organizational structure, was “fixed-asset” financing (real estate, machinery, inventories). Like SBIC, the 504 Program was administered through a SBA licensed, nationwide network of private, usually nonprofit entities that packaged, issued and serviced the SBA loan/lien. The loan structure, similar to SBIC, involved multiple participants (owner 10 percent, bank lender at least 50 percent) and proceeds from the SBA-issued debenture (up to 40 percent). Thus the 504 Program was designed to partner with banking institutions to offer conventional-like financing to businesses unable to meet bank standards. Retail companies experiencing recent growth or counter-business cycle pressures found the 504 to be especially useful. Rural areas also benefited from financing made available by regional, multi-county certified development corporations. By the first decade of the twenty-first century, the 504 Program had licensed nearly 300 Certified Development Companies; 70,000+ loans, totaling more than $28 billion had been closed; and a small but vibrant secondary market had evolved. A professional association, NADCO, founded in 1981, represents nearly all the licensed CDCs and provides lobby support for the program and technical expertise.
SBIR
Ignoring conservative screams, Reagan in 1982 signed the Small Business Innovation Research Act (SBIR), which facilitates small business startups and commercialization of new technologies, processes and innovation.4 SBA serves as the coordinator, overseer, reporting agency and contract point for several federal agencies.5 Annually a (presently) 2.5 percent set aside from federal R&D appropriations funds SBIR grants to eligible firms that compete in annual application cycles. Each department technically oversees approved grants/projects. SBIR is a three-phase program:
- Phase I is based on technical merit, feasibility and commercial potential.
- Phase II involves up to two-year development of Phase I projects.
- Phase III leads to commercialization and is funded by individual departments.
Through FY 2009, SBIR funded 112,500 awards dispersing nearly $27 billion, assisting 15,000 companies, 50,000 patents, and involved approximately 400,000 scientists and engineers (Rosenbloom, 2007).
CDBG small cities
Reagan consolidated 54 categorical grants modifying or creating nine block grants including CDBG and the Community Services Block Grant. CDBG was modified to create a “small cities” (under 50,000) program to third/fourth-tier cities. The program was decentralized to states that set priorities, application process and approved allocation. Small cities probably fared well, better than larger “entitlement cities’ whose share declined by about 5 percent.
PTAP
The1985 Procurement Technical Assistance Program administered by the Defense Logistics Agency assists companies to obtain contracts with federal, state and even local governments. Funded in a cooperative agreement with the Department of Defense, a nationwide, state-based network of centers for free or low cost provides information, support and training to companies desiring to bid, register and secure governmental contracts. The centers are usually nonprofit, EDOs, tribal, university-based or governmental—depending on the state.
UDAG
Reagan had consistently opposed or defunded the Urban Development Action Grant; he also annually defunded EDA—-but Congress put it back in, at lesser amounts. To attract more support for UDAG, Congress prodded HUD to broaden eligibility to include more localities. Some states (New York and its UDC subsidiary for example) copied the UDAG program. Congress did not fund UDAG in 1988 (Reed, 1993), and it went gentle into the cold, dark night. Direct federal financial involvement in urban renewal ended.
Manufacturing Extension Partnership
Throughout the 1980s it seemed American manufacturing was having its lunch eaten by the Japanese and Europeans. American industry was losing its competitiveness—even in its gazelle-like technology (electronic) sectors. American goods were perceived as inferior in quality, and management closed and stagnant, resistant to new processes and innovations. How we made goods, “managed workers” and innovation seemed in need of rethinking. In this atmosphere, the Hollings Manufacturing Extension Partnership (MEP) program—from its sponsor, Senator Hollings, South Carolina)—committed to providing customized, shared-cost services in partnership with small/medium-sized manufacturing firms, and enhancing technological competitiveness was launched. An obscure section of the 1988 Omnibus Trade and Competitiveness Act authorized the founding of manufacturing extension centers and services (eventually in 1994) run out of the National Institute of Standards and Technology (NIST).
Initially, MEP focused on technology–transfer of technologies developed in federal laboratories. A substantial refocus of services to meet client needs and demands over its first decade followed (Sargent Jr., 1915). Its chief foci were quality control, productivity innovations, integrating Japanese-proven techniques (Sigma 6, lean manufacturing) and process innovations (ISO 9000 started in 1987). In later years it expanded into technology and startup initiatives (Masterman, 2009). In these first years, centers were initially set up in South Carolina, Ohio and New York; by 1994, 44 centers existed, and today MEP is found in all 50 states.
Impact of Reagan/Federal Government on Sub-State ED/CD
Two sets of comments need to be made: those concerning the Reagan Years and those concerning the role of the federal government in state/sub-state ED/CD. Said and done, Reaganism pulled the federal government back from, not out of, sub-state economic development. Ideology and philosophy aside, the impact was primarily fiscal. Federal cash flow to cities/ED/CD was severely cut. Cutbacks stressed economic development to help “pay the bills” and intensified ED politicization. CD had a bit of the rug pulled away—the price of dependency on the feds. Mostly, states and cities did not replace federal funding with own-source revenues. That is particularly true of CETA public service employment programs—which were zeroed out. Some commentators (Kleinberg, 1995) asserted that the more hidden impact was to preference Sunbelt growth cities. Perhaps, but it is not at all evident what the proper role of the federal government should be regarding regions and regional change. If national ED/CD preferences are also a public policy, then elections and policy-making determine who gets what.
The more interesting observation is how much was left intact of federal involvement in state/sub-state economic development. Certainly, the vehicle (block grants) differed from the Great Society’s categorical direct federal to city, but federal involvement in the strategy/program persisted. Categorical grants continued in surprisingly high numbers—mostly due to a Democrat Congress expressing itself programmatically. A variety of new ED-related initiatives started during these years (CERCLA, MEP, Bayh–Dole legislation, FTZ, block grant formula changes and more). A little-noticed example of a Public Works bill—passed by Congress in 1987, subsequently vetoed by Reagan and overturned by Congress—provided federal support for likely the largest local infrastructure/highway project in the nation’s history: Boston’s Big Dig. This seriously challenges the prevailing wisdom that the Reagan Years were years of an unremitting “No.” Whatever Reagan intended, the federal government emerged from these years as an active player in state and local ED/CD—maintaining a strong and durable presence in key strategies such as workforce, employment assistance, export, small business and CD. Yet, an aggressive federal government deeply involved in sub-sate ED/CD continues to be a fault line between our two ships.
Ron W. Coan 