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A federal era ends. For 14 years federal revenue-sharing has helped big cities and tiny communities across the nation. Now it is over, the victim of a huge US deficit and redefined federalism

On an October day 14 years ago Richard M. Nixon, en route to a lopsided presidential reelection victory, swept through Philadelphia's historic Independence Hall and into the sunny courtyard beyond. There, before several hundred invited guests, he signed into law his much-publicized proposal for federal revenue sharing.

In so doing the President thrust the United States into a 14-year experiment in shaping a new relationship between Washington and state and local governments, through the sharing of billions of federal dollars with all states and virtually all 39,000 local governments in the nation.

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``We are giving the government back to the people,'' Mr. Nixon proclaimed then in Independence Square, adding that revenue sharing would help to satisfy the public desire for ``better government, not bigger government.''

Whether revenue sharing met these grandiose hopes is problematic; but the program, officially ended just last week, has funneled to every American community money which has been used for everything from police and firefighter salaries to road construction and maintenance.

With the program's demise, most local governments now will have to cut services, raise taxes, or do a little of both. In the past 14 years they have received slightly more than $82 billion in general revenue sharing funds from Uncle Sam.

The first $30 billion came in the initial five years; since then the annual rate has been lower. It stood at about $4 billion for the fiscal year that ended Sept. 30.

At its inception revenue sharing ``came out of quite a different era,'' when the federal government expected a revenue surplus and states and local governments faced major shortfalls, says George Peterson, a senior fellow at the Urban Institute in Washington, D.C. Its intellectual original: that it was ``more effective'' to let states and cities decide what to spend funds on, and that they had a greater need for additional revenue than Washington did.

Both basic premises, Mr. Peterson says, are ``now substantially out of date.'' Many states have been running surpluses, while the federal government is struggling to pare a current annual deficit estimated at more than $220 billion.

The Reagan administration, in words later echoed by the House Democratic leadership, opposed continuing revenue sharing beyond Sept. 30 of this year on grounds that ``there is no revenue to share.''

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But 14 years ago circumstances were quite different. In the early years of the program, state and local governments ``spent the great bulk'' of their funds ``on one-time capital expenditures'' like new roads or municipal buildings, notes Mr. Peterson. But as the program became institutionalized, localities began to depend more on it, and to use funds for operating expenses. Revenue sharing has paid for many state and local government expenses over the years, but how significant it has been depends on whom you talk with. State and local officials insist that, although revenue sharing makes up a relatively small amount of most communities' budgets, it will be very difficult for most communities to do without it.

Miami's Mayor Xavier L. Suarez insists that many communities, including his own, ``could not fund adequately'' basic services -- such as police, fire, sanitiation, and public works -- with their own resources. The demise of general revenue sharing, he says, will force his and other communities ``to reduce services below accepted standards.''

Many cities and small communities insist that they cannot raise local taxes, in many cases because they already are at the statutory ceiling.

Other observers see the effect of revenue sharing in less glowing terms.

``Its relative importance has varied considerably'' from community to community, says Philip M. Dearborn, vice- president of the Greater Washington Research Center.

Revenue sharing constitutes a ``relatively small overall percent'' of the operating budgets of large cities -- only 2.2 percent of the 1984 revenues of 29 of the largest American cities, he says, although it can run to 4 or 5 percent. ``It's not a lot of money,'' Mr. Dearborn notes, ``but they are operating on a pretty thin margin. It doesn't take [the removal] of much money to put them in a deficit condition.'' And, he points out, most American cities are forbidden by law to run a deficit.

For many rural counties and small towns, revenue sharing funds are the only monetary aid directly provided by Uncle Sam.

The funds will be particularly difficult for recipients to replace in areas now undergoing hard times, such as parts of the Midwest hard hit by the farm economic crisis, and in oil-dependent areas of Oklahoma, Texas and Louisiana, where depressed energy prices also have caused severe local economic problems.

Across the US the two largest current uses of revenue-sharing funds, say representatives of local governments, are to pay portions of salaries of police and firefighters. But there are many others.

New Orleans, which needs to make up a $38 million budget shortage by the end of December, uses its $14 million in revenue sharing mostly for police and firefighter salaries.

Jamestown, N.Y., an old manufacturing city of 35,000 people that has been trying to pull itself up in recent years, uses its $600,000 for the same purpose, and for operating funds for the public library and a local bus system.

Charlotte, N.C., has been using about half its $6 million annual grant to build 50 units of low-income housing every year. It uses the remainder to help maintain municipal buildings.

Kansas City, Mo., pays the electric bills for its street lights with half its yearly $10 million grant. Most of the remainder finances neighborhood groups that work for economic development, better housing, and neighborhood improvement.

Los Angeles County, which receives the country's highest grant -- $80 million -- uses virtually all of it for health care services for the poor through public hospitals.

Dade County, Fla., used last year's grant to provide services to elderly residents outside of Miami.

And Miami itself used its 1985 share of $7 million -- 3.7 percent of its city budget -- for a variety of purposes: 34.5 percent to police, 23.6 percent to firefighters, 11.5 percent for social services, 5.3 percent for recreation and child care, 3.8 percent for park maintenance, 2.19 percent for a new park in the black community, and .5 percent for handicapped services.

Doing without these funds will not be easy, which is why cities and rural communities made an all-out, last-ditch effort to renew revenue sharing this year. The drive came a cropper at the last minute, in a way that left them embittered.

They still seek to get Congress to reverse course, in what can only be called a very long shot. But even as they do, a new move to revamp, fundamentally, the relationship between the federal government and state and muncipal governments is trying to gather steam.

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