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Foundation Plan To Be Accepted, Budget Suggests

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Washington--Even before President Reagan announces his decision on the future of the Education Department--a decision expected to be included in the Presidential State-of-the-Union Message this week--the Office of Management and Budget (omb) is functioning as if the department already has been replaced by a foundation.

Officials of the federal budget office, who are in the final stages of preparing Mr. Reagan's proposed fiscal 1983 budget, have removed references to the "Education Department" from the computer printouts and galley proofs of budget documents, Education Week learned last week.

Instead, education programs are listed as part of the "Foundation for Education Assistance." Even the budget "clearance" numbers assigned to each education program are said to be changed to reflect the change in status from Cabinet-level agency to a small foundation.

''They are converting everything,'' said one source, who asked not to be identified.

Other sources said the omb action indicated that the President was likely to discuss during Tuesday's speech his approval of the foundation--which was originally proposed last August by Secretary of Education Terrel H. Bell.

In addition, Mr. Reagan was said to be considering a plan under which the states would assume full responsibility for certain education, transportation, and welfare programs, while the federal government, in exchange, would take full responsibility for certain social programs now partially carried out by the states.

The plan, which late last week was only beginning to take shape, was said to involve a complex financial arrangement whereby the states would assume financial responsibility for the $4-billion federal share of the Aid to Families with Dependent Children (afdc) program, $4 billion in transportation programs, and $1 billion in education programs.

Total Responsibility

In exchange, the federal government would assume total responsibility for Medicaid payments for the elderly and Supplemental Security Income payments for the disabled and the elderly.

It was unclear at midweek which education programs might be included in such a proposal. Sources said that if the President approves the plan, vocational education is the most likely to be included.

Also included in the proposal would be an increase in certain federal excise taxes, such as those for tobacco, alcohol, and cigarettes. Part of the income from the increase would go to lessen the growing federal deficit. The rest would be passed on to the states.

'New Federalism'

The controversial proposal, if accepted by the President, would represent the second step in the program of "new federalism" that Mr. Reagan outlined during the 1980 election campaign.

The first step involved block grants, which transferred responsibility for federal programs to the states, but added no new revenue sources.

The plan being considered last week represents a more radical realignment of authority between the state and federal governments, sources said.

That proposal is one of several blueprints for "new federalism" that have been analyzed, at the request of the Reagan Administration, this year by the Advisory Commission on Intergovermental Relations, an independent federal commission.

The commission, in a report last month, described the new nomenclature for the revenue-sharing and program-exchange process.

The program-for-program swap is known as "program tradeoffs." The revenue-raising aspect of the plan is called "tax turnbacks." And programs that are spun off from the federal government to the states are said to "devolve."

Reagan's Rationale

Mr. Reagan discussed his rationale for such a plan in a published press interview last November. "My dream is that the block grants are only a means to an end ... The [federal] government....which has preempted over the years so much of the tax-revenue potential in this country, [should] turn back tax sources so that the tax source itself goes to [the states]."

Mr. Reagan also mentioned his reasons for including education programs in the plan.

"We built the greatest school system the world has ever seen ... at the local school district level... And then the federal government got into the school business through ... money. But in return for the help, they wanted to also regulate and have interfered to a large extent," he said.

The idea for revenue-sharing to fund education programs originated with former U.S. Senator Norris Cotton, a New Hampshire Republican who objected during the early 1960's to President Lyndon B. Johnson's plans to expand the federal role in education, Mr. Reagan said.

'Sin Tax' Opposed

The Senator "looked at the amount of money that was suggested--and the federal government was protesting that it meant no interference, just wanted to help by giving money--and he said, 'Well, if that's really true, why don't we turn the tobacco tax over to the states and the only restriction is that it be used for education?"'

Mr. Reagan said the Senator was defeated by colleagues who argued that "it wouldn't be right to educate our children with a sin tax."

"So the federal government got its foot in the door and went on from there. That's all we want to stop or change," he added.

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