Special Message to the Congress on Special Revenue Sharing for Urban Community Development.

To the Congress of the United States:

As the size of Federal programs for renewing our cities has grown in recent years, so has the evidence of their basic defects. Plagued by delay and duplication, by waste and rigidity, by inconsistency and irrationality, Federal grant-in-aid programs for urban development have simply not achieved the purposes for which they were established. Sometimes, they have even worked to complicate and extend the very problems they were designed to remedy.

The time has come for us to stop merely giving more money to these programs and to begin giving more thought to them. That is why I am proposing today two new instruments for renewing and rebuilding our cities. One is a new plan of Special Revenue Sharing for Urban Community Development. The other is a new program of Planning and Management Assistance for State and local governments which will benefit both urban and rural areas.

GROWING NEEDS AND GROWING EXPENDITURES

The Federal Government's first significant involvement in community development came with the passage of the Housing Act of 1949, which established as a national goal the realization of "a decent home and a suitable living environment for every American family .... "We were already a nation of cities when that legislation was passed. In the two decades since that time we have become even more highly urbanized.

In 1950, some 56 percent of our population lived in metropolitan areas; today the comparable figure is almost 69 percent. The recent Census shows that three-fourths of our population growth in the last ten years came in metropolitan areas, especially in the suburbs which grew by more than 25 percent.

This concentration of population growth in already crowded areas is not a trend that we wish to perpetuate. This administration would prefer a more balanced growth pattern--and we are taking a number of steps to encourage more development and settlement in the less densely populated areas of our country. But this does not mean that we will avoid or slight the challenge of the cities and the suburbs. This is a highly metropolitan nation. It must have an effective strategy for meeting metropolitan problems.

As those problems have mounted in recent years we have often responded by creating more programs and by spending more money. Since 1949, we have committed more than $10 billion to those urban development programs which I would consolidate into this Special Revenue Sharing Program. We will commit almost three times as much money to these programs this year as we did six years ago. While a number of good things have been accomplished with this money, the returns have still fallen far short of even the most reasonable expectations.

On every hand we see the results of this failure: a sorely inadequate supply of housing and community facilities, vast wastelands of vacant and decaying buildings, acre upon acre of valuable urban renewal land lying empty and fallow, and an estimated 24 million Americans still living in substandard housing. Many of our central cities--once symbols of vitality and opportunity--have now become places of disillusion and decay. As many suburban neighborhoods have grown older, they, too, have begun to deteriorate and to take on the problems of the central cities. Even some of the newest suburban "subdivisions," planned and developed in a shortsighted, haphazard manner, are not prepared to provide essential public services to their growing populations. They are already on their way to becoming the slums of tomorrow.

It is a sad and ironic fact that even as America has become a more highly urbanized nation, its cities have become less attractive and their governments less able to deal with their problems. Federal assistance has failed to reverse these trends and frequently it has compounded them.

PROBLEMS WITH THE PRESENT SYSTEM

Just what is it that is wrong with our present system of Federal aid? There are two basic problems. First, Federal assistance is excessively fragmented--it is channeled through many separate and independent grant programs. Second, spending under each of these programs is excessively controlled at the Federal level.

I. Fragmentation. The present system of categorical grants-in-aid has grown up over the years by bits and by pieces. As each new goal or concern was articulated, new categorical programs were set up. Conventional urban renewal was begum in 1949 to help acquire and clear land in deteriorating areas and plan for its development. Other specialized urban renewal programs followed which focused on the demolition of unsafe structures, on making interim repairs in neighborhoods which were scheduled for renewal, and on helping localities enforce their own housing codes. In 1968 a new Neighborhood Development Program was established for funding urban renewal projects on a year-by- year basis rather than through commitments extending many years into the future.

Other programs were also created over the years for a variety of other purposes, including the rehabilitation of private buildings and the construction of water and sewer facilities and other public works. The tangle of separate Federal programs became so frustrating that when a new Model Cities program was added in 1966, it was expressly designed to provide general, flexible support for coordinated development programs, though only in a limited number of targeted areas.

The proliferation of separate grant programs has created a difficult situation for local governments that wish to utilize Federal development money. For each community must now make a series of separate applications to a series of Federal officials for a series of separate grants, each of which must be spent for a stipulated purpose---and for nothing else. Ideally, all of these grants should fit into a single comprehensive development program, tailored to each community's particular needs. But it is extremely difficult for any community to create an overall strategy for development when each element in that strategy must be negotiated separately by officials who cannot be sure about the outcome of all the other negotiations.

To make things even worse, some of these Federal programs require local communities to work through semi-autonomous local officials--often bypassing the elected local leaders. Thus, even if one leader, a mayor, for example, does manage to create a comprehensive development plan for the money he controls, he is often unable to include in his plan that Federal assistance which goes directly to an urban renewal agency or a local sanitary district. Often, mayors are unable even to calculate the overall level of Federal development aid that is coming into their communities.

These categorical programs, in other words, are separated not only on the giving end in Washington, but also on the receiving end in the local community. And there is no one, anywhere, who can plan so that all the various parts will fit into a comprehensive whole.

The fragmentation which afflicts the planning process continues after the grants are made. Each program is surrounded by its own wall of regulations and restrictions and coordination between programs is often very difficult. Sometimes programs work at cross-purposes and sometimes they needlessly duplicate one another. For example, the Federal Government, working through two different agencies, has been known to fund two different local authorities to build two sewer systems to serve the same neighborhood.

The inflexibility of the present system often means that money cannot be used where the need for money is greatest. If a city suddenly finds that it must put in new street lights, it cannot use funds that are earmarked for demolition or rehabilitation. Geographic restrictions are also a problem. Money for an urban renewal project which has been approved for one carefully defined neighborhood, for example, cannot be used at a closely related site just across the street, if that street happens to be the boundary of the renewal area.

The result of these fragmented and inflexible grant programs has been a highly irrational pattern of development in many urban communities. Rather than focusing and concentrating resources in a coordinated assault on a common problem, the categorical grant system works to divide and scatter those resources and severely to diminish their impact.

2. Federal Control. The first major problem, fragmentation, concerns what happens among various grant programs. The second major problem concerns what happens within each program as a result of excessive Federal control.

Almost all of our present development grant programs require a local community to file an extensive application with Federal authorities who, if they approve the plan, will then pay out available money on a project-by-project basis. Because competition between localities for limited Federal dollars is most intense, local officials are highly motivated to meet both the formal requirements and the informal preferences of Federal officials as they file their applications. And since Federal monitoring often continues after the funds are approved, local decisions inevitably continue to reflect Federal viewpoints.

But what is gained by these requirements? There is simply no good reason why a Federal official should have to approve in advance a local community's decision about the shape a new building will have or where a new street will run or on what corner it will put a new gas station. Yet that is precisely the kind of matter that now must be reviewed at the Federal level. In one case, in fact, the Federal reviewer actually turned down a grant application because the architect had included an eight-sided building in his design and the Federal regulations did not specifically allow for funding octagonal buildings.

Decisions about the development of a local community should reflect local preferences and meet local needs. No group of remote Federal officials--how. ever talented and sincere--can effectively tailor each local program to the wide variety of local conditions which exists in this highly diversified land. The only way that can be done is by bringing more tailors into the act, tailors who are elected to make sure that the suit fits the customer.

While little is gained by inordinate Federal involvement; a great deal can be lost. Excessive Federal influence can work to limit the variety and diversity of development programs--which means that the opportunity to experiment with new techniques and to learn from a wide range of experiences is also limited. Because little decisions tend to drive out bigger ones, the present arrangements give the Federal Government less opportunity to focus on the questions it can answer best. And even under the best of circumstances, excessive Federal control results in massive inefficiency and intolerable delays.

I looked recently at some of the applications that communities have submitted for certain urban development funds. One of them was two and a half feet high. I am told that Federal participation in any given urban renewal project now involves almost 300 separate procedural steps. No wonder it now takes an average of three years for an urban renewal plan to be developed and accepted and an average of ten years before a project is completed.

One result of such delays is a particularly troubling urban problem which is known as "planner's blight." It often sets in between the time a Federal renewal project is announced and the time it is actually started. During this interval, a neighborhood frequently stagnates. Since they have been marked for eventual destruction, streets and parks and buildings are allowed to fall into disrepair. Residents and businesses move away and no one moves in to replace them. As the quality of life declines in one area, surrounding neighborhoods--which have not been marked for renewal--can also be adversely affected. Thus a program which was set up to cure a problem, can actually work to make that problem worse, particularly for the poorer residents of the neighborhood who are often unable to receive relocation assistance until the project actually begins.

"Planner's blight" is one dramatic result of Federal red tape. But there are many other costs as well. Instead of focusing their time and their resources and their talents on meeting local needs, city officials must concentrate on pleasing Washington. They must learn to play a terrible game called "grantsmanship," in which the winners are those who understand the rules and intricacies of the Federal bureaucracy rather than those who understand the problem that needs to be solved. Many local governments now feel they must hire experts who have specialized in grantsmanship to carry on their dealings with Washington. Additional distortions in local efforts occur when local resources are diverted from higher priority programs in order to provide the matching funds which are needed to qualify for many Federal grants.

Deprived of the freedom and the tools to undertake broad programs of renewal and development in their jurisdictions, local officials grow more and more frustrated. And so do local voters who too often find that the official who is most accessible to them can escape from their complaints by saying, "We had to do it this way to qualify for Federal money."

Two Traps To Avoid

Clearly we can do better than this-indeed, we must do better if our cities are to be revived. But our search for a better answer will never be successful unless we avoid two temptations which have trapped us in the past.

The first is the temptation to try to force progress with money. If only we appropriate more funds, we are often told, then everything will be all right. How long will it take us to learn the danger of such thinking? More money will never compensate for ineffective programs. The question we must ask is not "how much?" but "how?"-- and the answer to that question lies not in the quantity of our resources, but in the quality of our thinking.

The second trap we must avoid is that of confusing national interest with Federal control. We have too easily assumed that because the Federal Government has a stake in meeting a certain problem and because it wants to play a role in attacking that problem, it therefore must direct all the details of the attack. The genius of the Federal system is that it offers a way of combining local energy and local adaptability with national resources and national goals. We should take full advantage of that capacity as we address the urban challenge.

HOW THE NEW PROGRAM WOULD OPERATE

The $5 billion program for General Revenue Sharing which I proposed to the Congress on February 4th was designed to give greater resources to hard-pressed States and localities. But a lack of resources is only one of the deficiencies from which State and local governments now suffer. They also lack the opportunity to exercise sufficient responsibility in meeting social needs. As a further step in revitalizing State and local governments, I am therefore recommending a series of six Special Revenue Sharing programs under which the National Government would set certain general goals while programmatic decisions would be made at the State and local level. I have already sent two such proposals to the Congress--in the fields of law enforcement and manpower training.

My third Special Revenue Sharing proposal is for urban community development. I recommend that four categorical grant programs now administered by the Department of Housing and Urban Development be consolidated into a single fund. The size of this fund in the first full year of operation would be $2 billion. Cities would be able to spend their money as they see fit, provided only that they used it for community development purposes.

The four elements which would be combined to form this new fund would be the current programs for urban renewal, Model Cities, water and sewer grants, and loans for the rehabilitation of existing structures. The urban renewal program, in turn, now contains several subcategories which money will become part of the new fund, including so-called "conventional" urban renewal, the Neighborhood Development Program, assistance for concentrated local code enforcement, interim assistance for blighted neighborhoods, demolition grants and rehabilitation grants. I am proposing that this new program begin on January 1, 1972. In its second year of operation, I would add to this fund by including the money which the Office of Economic Opportunity now spends on some of the elements of its Community Action Programs.

DISTRIBUTING THE FUNDS

How would the money be distributed? Because these funds are designed to achieve the specific purpose of urban development, most of the money would be sent to the metropolitan areas of our nation where the vast majority of Americans live and work. Eighty percent of this Special Revenue Sharing fund would be assigned for use in Standard Metropolitan Statistical Areas. The Office of Management and Budget defines a Standard Metropolitan Statistical Area as an area which contains a central city or cities with an aggregate population of 50,000 or more and those surrounding counties which have a metropolitan character and are socially and economically integrated with the central city. There are 247 such areas in the United States at the present time.

The money assigned to Standard Metropolitan Statistical Areas---eighty percent of the total fund--would be allocated among the SMSA's according to a strict formula which would be written into the law so that each SMSA would be assured in advance of its fair share. The central cities and other cities in each SMSA with a population of more than 50,000 would, in turn, automatically receive a stable annual share of the SMSA's funds--again, according to the same objective formula.

In each Standard Metropolitan Statistical Area, some balance would remain after the major communities had received their formula share. In the initial years, this balance would be used by the Department of Housing and Urban Development to compensate any major city in that metropolitan area which received less from the formula allocation than it received annually from the old categorical grant programs over the past few years. Thus, all of these cities would be "held harmless" against reductions in the total urban development support they receive from Washington. None would be hurt-and many would receive more assistance than they do at present.

This administration also recognizes the needs of the growing and changing suburban and smaller communities--with populations under 50,000---within metropolitan areas. After the formula allocation and "hold harmless" commitments have been honored within each Standard Metropolitan Statistical Area, the remaining balance would be available to assist such smaller units, as well as counties, and to encourage area wide developmental cooperation.

The formula according to which the funds would be distributed among the Standard Metropolitan Statistical Areas and among the cities within them would be "problem oriented"--so that the money would be channeled into the cities which need it most. The formula would take into account the number of people who live in an area or a city, the degree of overcrowding there, the condition of its housing units, and the proportion of its families whose income is below the poverty level.

The remaining twenty percent of the Special Revenue Sharing fund for Urban Community Development--the part that did not go by formula to the Standard Metropolitan Statistical Areas--would be available to the Secretary of Housing and Urban Development to distribute. Much of this money would be used during the transitional period to help hold communities harmless against reductions in the overall level of their urban development support. These funds would also be used to encourage state involvement in urban community development, to perform research, to demonstrate new techniques and to aid localities with special needs and with special opportunities to implement national growth policy.

SPENDING THE FUNDS

How would cities use this money? For community development purposes-which could include investments in both physical and human resources. All of the activities which are eligible for support under the present urban development categorical grants would be eligible for support from the new Special Revenue Sharing fund which would take their place. Cities could thus use their allocations to acquire, clear and renew blighted areas, to construct public works such as water and sewer facilities, to build streets and malls, to enforce housing codes in deteriorating areas, to rehabilitate residential properties, to fund demolition projects, and to help relocate those who have been displaced from their homes or businesses by any activities which drew on these urban community development special revenue sharing funds. They could also fund a range of human resource activities including those now funded by Model Cities and Community Action programs.

Just which of these activities would be supported and what proportion of available funds would be channeled into each activity are decisions that would be made locally. No Federal approval would be required. Cities would simply be asked to indicate how they plan to use their funds and to report periodically on how the money was expended. This requirement is included merely to insure that funds would be used for eligible activities.

As is the case with all other revenue sharing programs, there could be no discrimination in the use of these funds. The rights of all persons to equitable treatment would be protected. Any monies expended under this program would be considered as Federal financial assistance within the meaning of Title VI of the Civil Rights Act of 1964.

THE TRANSITION PROCESS

The Department of Housing and Urban Development has already taken a number of steps designed to achieve more coordination among grant programs and greater decentralization on decision making within the present structure of categorical grants. For example, the Department has been encouraging cities to create total community development strategies and has been working to fit categorical aids into such strategies wherever possible. It has also delegated substantial authority to its own regional and area offices. Such efforts are helping to lay a foundation for Special Revenue Sharing and all of them will continue.

One of the most important existing stepping stones to revenue sharing is the Model Cities program which was designed to provide a local community with flexible funding and sufficient freedom so that it can coordinate a wide variety of development programs in a given target area. The Model Cities idea grew out of a mounting frustration with traditional categorical grants. Ideally, it embodies--on a limited basis--the principles we are trying to extend to all development aid through Special Revenue Sharing.

Even in the Model Cities program, however, the ideal has not yet been fully realized. The program is still limited in scope and it still suffers from certain restrictions-the need to negotiate projects with Washington, for example, and the fact that some programs are still limited to certain neighborhoods. The Department of Housing and Urban Development has worked to minimize these limitations and it will continue to do so. At the same time, I hope that the Congress will enact this Special Revenue Sharing program and thus complete the work which began when the Model Cities program was set up five years ago.

I would emphasize that there will be no lessening of Federal support for urban development activities between now and January I, 1972, the proposed starting date for the new program. Our problems will not take "time out" and neither can our efforts to deal with them. Where long-range commitments have been made to fund urban renewal projects, those commitments will be honored. Amendatories--supplementary pledges which cover cost increases in urban renewal projects--will also continue to be funded. We will, however, discourage applications for new conventional urban renewal projects--since they would tie up future funds today which would mean cash through Special Revenue Sharing in future years. Instead, we will prepare for Special Revenue Sharing by placing greater emphasis in all programs on annual incremental funding--of the sort that is now used in Neighborhood Development Programs.

Similarly, all other affected programs will continue to be funded until the new program comes into effect. This includes our Model Cities and Community Action commitments. As soon as the starting date for Special Revenue Sharing is established by the Congress, this administration will work out transition arrangements, so that there will be neither a funding gap nor a period of double funding.

WHAT THIS PROGRAM WILL--AND WILL NOT DO

Special Revenue Sharing for Urban Community Development offers a precise and direct solution to the problems which now afflict our system of urban aid. Unlike fragmented and rigid categorical grants, this new plan would allow local leaders to marshal Federal and local dollars according to a simple, comprehensive plan which could be rationally formulated and then intelligently adjusted as conditions change. And--unlike the present system of Federal approval for local project grants--Special Revenue Sharing would give the responsibility for making local decisions back to local officials who can make them best. It is this feature which distinguishes Special Revenue Sharing from the so-called "block grant" which also consolidates categorical grants into a single fund but which retains the Federal approval process and the concomitant disadvantages of excessive Federal control.

Instead of spending their time trying to please Federal officials in Washington-so that money will continue to flow-local leaders would be able to concentrate on pleasing the people who live in their city--so that the money would do more good. A great deal of red tape would be eliminated at both the local and the Federal level--and with it a great deal of waste and delay.

The merger of several categorical programs into a single development fund would enhance the authority and capacity of local officials. It would also serve as a means to dramatize the overall share of national resources which are allocated to this process. The concern of Federal officials and the Congress would no longer be with the details of local projects but with the general place of urban development among our national priorities.

For a variety of reasons, local governments would find that they are better off financially under Special Revenue Sharing than they were before. In the first place, the new plan would provide cities with a level of urban development funding which is at least comparable to that which they have now. In addition, it would contain some extra money which would allow many communities to improve their position. In future years, the overall program could reasonably be expected to grow.

General Revenue Sharing, of course, would provide still more new dollars for these local governments. In addition, cities would get back their discretionary, power over the money they were previously spending on matching funds. Because they would not have to prepare and follow up on immense applications and detailed reports for Washington, local governments would save a considerable administrative expense. And, to the degree that they used their new freedom to make wiser spending decisions, they would find that their new Special Revenue Sharing dollars would go further than did their old grants-in-aid.

One point that should be very clearly understood is that no program currently funded by categorical grants need be discontinued under the new arrangement. Every community would have the capacity to maintain--and many would have the capacity to expand--any of these current programs. The suggestion that Model Cities programs, for example, would be terminated is extremely misleading. That would happen only if a locality made a deliberate decision that it wanted to terminate the program, something it is free to do right now. Since existing Model Cities programs require local governments to take the initiative in applying for participation, there is little reason to think that many cities would be motivated to dismantle their Model Cities projects under Special Revenue Sharing--unless they were fairly certain they could use the development money more effectively somewhere else.

Similarly, there is little reason to fear that the problems of impoverished areas would somehow be neglected under this plan. The political leverage of those who live in poverty areas has increasingly been focused on local governments in recent years--and it often has greater impact in such places than when it is diluted at the national level.

STRENGTHENING THE FEDERAL SYSTEM

This Special Revenue Sharing program is built upon a fundamental faith in the inherent capacity of local governments to govern well---if they are given sufficient resources and sufficient responsibility.

Some will argue against such a program by contending that a number of State and local officials will prove to be unresponsive or irresponsible. But this is no reason to reject revenue sharing. Whenever one is dealing with thousands of local officials, there is always a danger that some will prove to be less worthy of one's confidence than others. That is always the risk of moving toward greater freedom--it necessarily becomes more difficult for any one authority to guarantee how the many will behave.

The question is not whether revenue sharing is a foolproof way to avoid bad decisions. No system can do that. The question is whether--on balance--revenue sharing is more likely or less likely to produce good decisions than our present system of grants-in-aid.

The question is not whether there are risks in this program. Of course there are. The question is whether the rewards outweigh those risks.

I have already presented a number of reasons why I believe the potential rewards of revenue sharing are considerable. It should also be emphasized, however, that the risks are really very small. The Model Cities program has both demonstrated and enhanced the growing capacity of local leaders to deal skillfully with developmental questions. Moreover, those who talk about the risks of revenue sharing often forget that revenue sharing will itself do a great deal to strengthen and improve State and local government. That is why I so strongly believe that those who are most concerned about the shortcomings of State and local governments ought to be most enthusiastic about a strong Federal revenue sharing program.

In many fields today, State and local officials are often forced to function as wards of the Federal Government. Often, they are treated as children who are given a meager allowance, told precisely how to spend it, and then scolded for not being self-reliant enough to handle more responsibility. If we want State and local government to survive, then we must break into this vicious cycle.

The best way to develop greater responsibility at the State and local level is to give greater responsibility to State and local leaders. Only then can we reward and strengthen the many leaders who are effective and help the public to identify and to replace the few who are not. If we want to get more good people into government, then we must give them more opportunity to do good things. To do otherwise, to continue with programs that assign to appointed Federal bureaucrats decisions that should be made by elected local leaders, will only serve to compound the danger of governmental atrophy at the State and local level.

A NEW PLANNING AND MANAGEMENT PROGRAM

To strengthen State and local capacities even further, I am presenting a second proposal today, one that would do a great deal to help all of our revenue sharing proposals work even better. I am asking the Congress to authorize a new program of Planning and Management Assistance to States, to area wide agencies and to localities. Under this program, $100 million would be available for these purposes.

The new program would involve more money, and would provide recipient governments with broader and more flexible support for building up their capacity to govern effectively. It would be focused primarily on the chief executives of State and local general purpose governments-on governors, mayors and county executives-to enhance their ability to make well informed policy decisions, to lay intelligent long range plans, to allocate their budgetary resources wisely, and to coordinate complex development activities in many fields. It will place new emphasis on the creation of a comprehensive management process, one that ties together planning and action, not just in the community development field, but in fields such as transportation, education, law enforcement and all other fields of local and area wide governmental endeavor. Local officials would have a great deal of discretion in determining just how this planning and management assistance would be utilized.

Special Revenue Sharing itself can do a great deal to liberate local governments so that their planning and their programs can become more imaginative and more effective. A new program of planning and management assistance would help States and local officials take full advantage of this opportunity. It is a significant companion proposal to all of our revenue sharing initiatives.

CONCLUSION

For a variety of reasons, then, we can be confident that the States and localities will prove equal to their revenue sharing responsibilities. But as we consider these programs, we should also remember one more thing. To choose the revenue sharing mechanism is not to choose any one level of government over another level of government. In supporting revenue sharing we are not deciding against the Federal Government, but for the Federal system.

That system is one which has served our country well for nearly two centuries, allowing us to combine national unity and regional diversity, to balance our common ideals with our highly varied ways of pursuing them, to solve the ancient philosophical challenge of reconciling the many and the one.

But the Federal system does not work automatically. Like democracy itself, it lives only because those who work within it are committed to its success. It is now for us to decide whether the Federal system will decay or flourish in our time.

RICHARD NIXON

The White House

March 5, 1971