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Dan Piicher <br /> <br />The states have built a record of <br />progress and innovation in assisting <br />their local governments. Now tight <br />spending limits and a troubled <br />economy herald a new, leaner <br />era--with troublesome consequences <br />for many cities. <br /> <br />Hard Times Ahead <br /> <br />Wh little fanfare at the national level, the states have <br />ade major strides in recent years in assisting cities <br />and other local governments. <br /> This advance, however, is being threatened now by the <br /> combination of recession with high inflation, cuts in <br /> federal aid to state and local governments, tax and <br /> spending limit pressures at all government levels, scarce <br /> financial resources and a public skeptical of government. <br /> The view that emerges from recent interviews with <br /> specialisu in intergovernmental finance and urban affairs <br /> is that a plateau may have arrived for state aid to localities <br /> after several years of progress. Unlike earlier recessions, <br /> however, the present one will be accompanied by political <br /> and other restraints on federal and state governments' <br /> ability to respond to the problems of localities. <br /> "I would expect that we're in for a prolonged period of <br /> no growth, and real decline, in state aid to localities," says <br /> <br />George E..Peterson, director of public finance at The Ur- <br />ban Institute in Washington, D.C., "and that will <br />necessitate local governments shedding some of their func- <br />tions.'' The exceptions, he adds, may be states with "the <br />good fortune to have severance taxes or some other boom- <br />ing economy." <br /> Slightly more optimistic is Richard P. Nathan, a pro- <br />lessor at the Woodrow Wilson School of Public and Inter- <br />national Affairs at Princeton University. "States are im- <br />portant, and the early signs are (that they are) a promising <br />way for cities to get additional suport in a period in which <br />federal support is falling off." Still, Nathan offers the <br />caveat that some state governments, which have cut taxes, <br />"are less than enthusiastic" about having local govern- <br />menu impose new taxes to make up for federal aid losses. <br /> The federal budget cuts, nonetheless, are going to <br />"cause the older cities to suffer," predicts Michigan State <br /> <br /> <br />