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So, as State leaders concluded in the 1997 conference on federalism, in order for our country to be an innovator at home and leader abroad in the 21st Century, I believe it is imperative that our unique Federal partnership devise improved divisions of labor and achieve strategic inter-governmental restructuring best suited to the changing public policy circumstances that confront us.

The States have shown, with the limited experimentation that the Federal Government has allowed, that we can manage complex problems, we can put our ideas to work, and we can do this, reconnecting the American people with their government.

Devolution will have a profoundly positive impact on the delivery of government programs and services as the States compete with one another to devise the best system. Its impact on the political process, however, will be equally profound, nothing less than a restoration of the American people's confidence in their government. So, again, I thank you for this opportunity to speak with you today and I look forward to our ensuing conversation.

Chairman THOMPSON. Thank you very much, Governor. Governor Leavitt.

TESTIMONY OF HON. MICHAEL O. LEAVITT,1 GOVERNOR, STATE OF UTAH, AND VICE CHAIR, NATIONAL GOVERNORS' ASSOCIATION

Governor LEAVITT. Thank you, Mr. Chairman. I appreciate the opportunity to appear before you on behalf of the National Governors' Association.

Federalism and the partnership between ourselves and the National Government is obviously a top priority of ours. We have witnessed over the course of the past several years substantial progress and we want to acknowledge that. We have made major progress in moving from a micro-managed relationship, often imposing a lot of Federal bureaucratic rules, to one that moves toward performance goals and we think that is a very positive out

come.

Congress has given us the Safe Drinking Water Act. We stopped the wholesale passage of unfunded mandates, reduced Federal micromanagement. It has given us block grants in welfare and transportation and child health care, etc.

We celebrated recently in our State the success of our children's health insurance plan. With some flexibility that the Congress gave to us, we were able to develop our own plan and not use Medicaid. We are able to provide health care, as a result, to twice as many children and provide them with the same health insurance plan that my children have as the Governor of the State, twice as many as we would if we were under Medicaid simply by giving us flexibility, and I think it is a grand example of the way we can work together to provide more efficiency and innovation.

This revolution has often been referred to as the devolution revolution. Regrettably, the magnitude, I fear, of this undertaking has been exaggerated at times. A lot of the devolution initiatives have been better in theory than they have been in practice. A lot of the

initiatives have been limited in their benefit by imposing a lot of new burdens on States as conditions of funding.

There is a new problem emerging. We, for years, focused on the area of the unfunded mandates. Today, my major purpose is to point out to you that in place of the unfunded mandates, the new trend is one of preemption, where the States are having their innovation and their capacity and flexibility withdrawn in a different

way.

When we were dealing with unfunded mandates, the National Government was compelling the State to do something. With the preemption, they are preventing us from doing what we need to do. Both have the same effect. Both move us away from the basic federalist proposition that our founders developed. Much of this is being done, I might add, in the name of globalization and a movement into the knowledge age.

I would like to suggest that we, as a people, are blessed with what could be the perfect form of government for the information age. The world is beginning to work like a group of network PCs. We continue to move forward as a Nation as though we are trying to form ourselves into a giant mainframe.

I would like to suggest that that metaphor, whether it is affected by unfunded mandates or by preemption, is the same. The mantra for the 21st Century must be central coordination but local control. We need to think of ourselves as a group of networked PCs. It is the power of the network. It is the power of the innovation that is set forward, the multiple that is created by a set of central capacities with everyone having the capacity to innovate on their own that makes this a powerful system. We may have the perfect form of government for the information age.

Once State authority is taken away, it is very seldom returned. Today, I would like to suggest on behalf of the National Governors' Association a series of five principles that we believe will well suit us as we move into the next millennium.

The first one is that the principles of bipartisanship must be followed by elected officials at every level.

Second, that the partnership between the State and the National Government has to be based on early consultation on anything that would affect the States. That is an element of cooperation in the development of this system of networked PCs.

The third is that a legislative proposal's impact on federalism needs to be transparent and fully disclosed before the decisions are made. We have found over time that on many occasions, that the regulations we have to deal with are either imposed by the bureaucracy later or by intent language that was never part of the debate as we go through developing and writing legislation.

The fourth principle would be that this partnership needs to be based on an interdependent nature of our government, and that demands an attitude of the highest respect, but also a deference toward State and local laws and procedures that are closest to the people. That is the spirit of the Tenth Amendment. If it was not specifically reserved to the National Government, the power of the people would be respected and the States.

The last one would be that these elements of our partnership should have some means of enforcement.

Now, in my formal testimony, I point to a number of different examples of legislation that you are dealing with that we believe would move this forward. I will point to one today, and that is the Mandates Information Act, H.R. 350 or S. 427. The bill would clarify that the point of order provision of the Unfunded Mandates Act also applies to any cap or cut in an entitlement program. The States are deeply concerned that programs such as Medicaid, food stamps, and child nutrition will be adversely affected unless the States are given new or expanded flexibility to manage any kind of cut or cap. There are several others that I have mentioned.

I will just summarize by saying our message to you and also to the President is we need to move forward with an enforceable federalism partnership between State elected officials and elected officials at the National Government, all levels, and we invite you to join us in reviving this working partnership. Thank you, Mr. Chair

man.

Chairman THOMPSON. Governor, thank you very much.

Sitting here listening to you gentlemen, it occurred to me again that we could not have two more representative people in this country to talk about this issue. You have both been innovators in your own States and obviously not only know what you are talking about, but you have put it into effect and shown what can be done at the State level when given the opportunity.

First of all, Governor Leavitt, I appreciate your pointing out something that I think is hitting home to so many of us here and that is that we are going from having made some progress in the devolution stage of things to running into additional problems with regard to the preemption stage of things. Of course, we have legislation that we are discussing right now, as Governor Thompson indicated, that hopefully will address that, so that at least we take the time to consider the ramifications of what we are doing and face up to it, and second, make sure that if we are preempting the States, that we acknowledge that and give the courts some guidance as to what we are doing.

Staying on the devolution part for a minute that we are all proud of, the many things that have happened there, Governor Thompson, of course, is known far and wide for his innovation with regard to welfare reform in his State. You mentioned the Safe Drinking Water Act, health care, the Unfunded Mandates Act, all of those things. I am wondering what your assessment is as to how we are doing on the devolution side of things.

We know we have some problems. You mentioned, Governor Thompson, the issue you have with regard to welfare. I would like to know a little bit more about that in your State, the Federal interpretations there. The Unfunded Mandates Act, you mentioned, Governor Leavitt, still has interpretations with regard to how the Medicaid situation will operate in your State.

We have also seen that we give lip service to things-the President's Executive Order on federalism. The GAO found that for over 11,000 rules issued between April 1996 and December 1998, the agencies that are conducting federalism assessments for only 5 rules, 5 out of 11,000. Of course, it calls for federalism assessments

So we have a lot of press conferences and give a lot of lip service, but the real question is, how are we really doing? Obviously, we have made some progress we are proud of, but how is it working? What are your accomplishments? What have been your accomplishments? What are your concerns? Where do we go from here, with the block grant situation, moving more and more to that. How is that working? Give us your assessment on how devolution is working so far, an overview, obviously, in your State. Governor Thomp

son.

Governor THOMPSON. Thank you very much, Mr. Chairman. Devolution in regards to the TANF Act is working, evidenced by the number of people that have been moved off welfare in States all across America, from Maine to California to Florida to Washington.

The problem that we are running into right now is that the Department has issued some rules, and when you have a complete reduction in the cases like we have in Wisconsin-we are now down from 100,000 families down to 8,500 families, and those families, 80 percent are in one county, 70 percent are minorities, two-thirds of those individuals have some kind of drug or alcohol problem or a combination of both, 50 percent do not have a high school education, and 40 percent have never worked. So they are really the hardest to place.

We are spending a lot more money on individual cases, but the reduction, the total reduction, in order to maintain our effort, because we have reduced it by so much, we have to waste a lot of money just on those individual cases to satisfy the requirements, whereas I would like to be able to take some of that TANF money and use that money to help some people that are just off of welfare, to be able to continue to monitor them, continue to encourage them to work, continue to improve their education so that they can get better jobs and so on.

But because the maintenance efforts are so restricted under the rules, we cannot have that. Some things that we put out there that we used to get maintenance effort credit for, the rules that have come down now, 3 years after the act was passed, do not allow us to have that maintenance of effort. So we are getting penalized because we were innovators and doing the right thing, we thought, but now the Federal Government comes in and takes it away. They gave it to us on one hand, take it away from us with the second hand.

So devolution is working in welfare reform completely, but now the rules, or the preemption that you and Governor Leavitt have talked about, has taken back some of that flexibility and that is what concerns me a great deal.

Chairman THOMPSON. And it really seems like it happens under the radar screen. We have the big announcements, about welfare reform, but then you say 3 years later, the rules are still coming that dictate

Governor THOMPSON. The first time the rules came out, the rules were not out for 3 years.

Chairman THOMPSON. Three years?

Governor THOMPSON. Three years. It is after the fact. We have gone so far down the road, and we have been encouraged to do that by indications from the department.

Chairman THOMPSON. Sometimes, do you find the rules are inconsistent with what you believe to be the intent of the legislation? Governor THOMPSON. Absolutely, and inconsistent from what we have been led to believe is the position of the Department. But once the rules are finalized, they have taken away the flexibility and have taken away the opportunity for us to continue a program that we had been given the green light, a tacit green light, by the Department, and that to me flies in the face of what you wanted as the Chairman of this Committee and as a member of the Senate when you passed the TANF Act.

Chairman THOMPSON. Governor Leavitt.

Governor LEAVITT. Governor Thompson has responded, I think, with some wonderful specifics. If I could address your question in a more historic way, more dealing with the history of this issue, obviously, federalism is based on the idea that there would be healthy tensions between the States and the National Government, that both would have tools that would enable us to represent our interests.

I would like to suggest to you that a major part of this problem is the States have been really rendered anemic in our capacity to do our constitutional duty. We were historically given four tools to represent the interests of the States and the people against the power of the National Government, as a protection.

The first was the Tenth Amendment. No one would dispute, I believe, the fact that over the course of the last 50 or 60 years, the Tenth Amendment has been emaciated by the Federal courts and that our capacity to use the Tenth Amendment, until recently, has simply gone unnoticed by the Federal courts.

The second was the direct election of the U.S. Senate. Now, I would not advocate that we go back to the legislatures appointing them, but I think we would all agree that the day that the States gave that up, we gave up a powerful tool to be able to call our representatives back to say to them, we do not like what is going on. You are not representing our interests directly. Therefore, a lot has changed. We have lost that tool.

The third was the amendment process. The amendment process looked good on paper, but the reality is, the capacity to amend the Constitution of the United States to rebalance this national power simply is very lopsided because all the power to do that resides with the National Government.

The fourth one was the will of the people. The founders, I believe, knew that there was a need on the part of people to be governed closest to them. The devolution, if you will, revolution was about people saying, we desire to have more power at the local government level. You do not hear it spoken of very much and there is a natural creep that will occur by the Federal Government and the States literally being rendered anemic. Because of our tools now being gone, we will inevitably be overrun by the National Government and the kind of bureaucracy that Governor Thompson

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