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Lloyd Omdahl, Published June 09 2013

Omdahl: Revenue sharing lessons

If you are holding your breath until the passage of an immigration bill, this saga about federal dispatch may convince you that you will turn purple before anything happens.

In the early 1960s, the federal government cut income taxes and the result was a hefty surplus. This bit of “countercyclical spending” catapulted its chief advocate, Walter Heller, chairman of the President’s Council of Economic Advisers, into stardom.

Since the federal government didn’t need the money, Heller and his fellow believers suggested sharing this growth in federal income with the state governments. Thus, the idea of federal revenue sharing was born.

No one could be happier than the governors. They had a litany of needs so they quickly bought into the idea.

The National Governors’ Conference organized a committee on revenue and named Gov. George Romney of Michigan chairman and chose 10 other governors to help him. Among them was Gov. William Guy of North Dakota.

A “do-it-today-bunky” sort of guy, Romney lost no time getting his committee into action and called his first meeting at the O’Hare Airport in Chicago.

Joining Romney were Vice Chairman Gov. Phil Hoff of Vermont and nine tax commissioners and/or finance executives representing the other nine busy governors. As the North Dakota tax commissioner at the time, I was designated to represent Guy.

At this first meeting, Romney outlined his plan. We thought he had a pretty good package, with the states sharing the money on a per capita basis.

At our second meeting several weeks later, the word of our planning had circulated in Washington. When we convened, we found that we had guests from the National League of Cities.

They presented a strong argument for being included. After all, the urban areas had the biggest problems. They also had political clout and would not support our plan unless they were cut into the deal.

Realizing the politics of the situation, we decided that we could not afford to alienate this powerful group. So we took them in. (When push came to shove, it was the League that muscled Congress into passing the plan.)

Then at the third meeting some weeks later, we had more company. Representatives from the National Association of Counties appeared, arguing that they had urban counties deserving consideration. Furthermore, there were urban townships that were strapped for cash.

So we broadened the coalition some more. Everybody was in the boat.

While we were developing a position for the next National Governors’ Conference, members of Congress were concocting a wide range of schemes.

By 1965, they had introduced 49 bills, offering 49 different plans for federal revenue sharing. Washington think tanks and interest groups had even more ideas.

Many differences had to be resolved, but most of them evaporated when President Richard Nixon offered his plan in 1969. With the president on board, revenue sharing was going to happen.

There was only one problem. By this time, the Vietnam War had escalated and gobbled up the surplus. In 1972, when revenue sharing became effective, the country was running a deficit of $23 billion and there wasn’t any revenue to share.

But the idea had gained such momentum that there was no turning back. The process had taken eight years and the federal government ended up borrowing money to fund a program based on the idea of sharing surpluses.

Immigration reform? Who knows what could happen during the years required to pass a law? Maybe Mexico will strike it big and the illegal immigrants will all go back.


Omdahl is a former North Dakota lieutenant governor and a retired University of North Dakota political science teacher. Email ndmatters@q.com