INTRODUCTION

The November 1994 elections reignited interest in many fundamental issues. The assignment of functional roles to local, state, and federal governments, the appropriate balance between the public and private sectors, and the types of grants provided by the federal government all could be significantly altered. As this is written in early 1996, it is not clear whether major policy changes will be enacted before the November elections, but the probability appears to be high that federal policies will be significantly altered no later than 1997.

This paper addresses the implications of these developments for the country and for public finance research. In terms of research needs, it is concerned with two primary questions: How can research be improved so that it is better able to explain the policy choices that state and local governments are making? What can be done to make research more useful to state policy makers?

THE CONTENT OF THE DEVOLUTION REVOLUTION

Devolution refers to passing responsibility down to another level of government. It is difficult to discuss for several reasons. First, it is inherently complicated, with numerous important effects on states and citizens and major differences in how various states will be affected. Second, as the cliche says, the devil is in the details. Some approaches to reducing federal aid and increasing state flexibility have very different effects than others. Third, the welfare and Medicaid systems would be fundamentally altered, confronting state governments with new choices.