I will shortly send this Congress a message describing this program.  I want to emphasize, however, that its full details will have been worked out only after close consultation with congressional, State, and local officials.

Starting in fiscal 1984, the Federal Government will assume full responsibility for the cost of the rapidly growing Medicaid program to go along with its existing responsibility for Medicare.  As part of a financially equal swap, the States will simultaneously take full responsibility for Aid to Families with Dependent Children and food stamps.  This will make welfare less costly and more responsive to genuine need, because it’ll be designed and administered closer to the grass roots and the people it serves.

In 1984 the Federal Government will apply the full proceeds from certain excise taxes to a grass roots trust fund that will belong in fair shares to the 50 States.  The total amount flowing into this fund will be $28 billion a year.  Over the next 4 years the States can use this money in either of two ways.  If they want to continue receiving Federal grants in such areas as transportation, education, and social services, they can use their trust fund money to pay for the grants.  Or to the extent they choose to forgo the Federal grant programs, they can use their trust fund money on their own for those or other purposes.  There will be a mandatory pass-through of part of these funds to local governments.

By 1988 the States will be in complete control of over 40 Federal grant programs.  The trust fund will start to phase out, eventually to disappear, and the excise taxes will be turned over to the States.  They can then preserve, lower, or raise taxes on their own and fund and manage these programs as they see fit.

In a single stroke we will be accomplishing a realignment that will end cumbersome administration and spiraling costs at the Federal level while we ensure these programs will be more responsive to both the people they’re meant to help and the people who pay for them.

Hand in hand with this program to strengthen the discretion and flexibility of State and local governments, we’re proposing legislation for an experimental effort to improve and develop our depressed urban areas in the 1980’s and ’90’s.  This legislation will permit States and localities to apply to the Federal Government for designation as urban enterprise zones.  A broad range of special economic incentives in the zones will help attract new business, new jobs, new opportunity to America’s inner cities and rural towns.  Some will say our mission is to save free enterprise.  Well, I say we must free enterprise so that together we can save America.

Some will also say our States and local communities are not up to the challenge of a new and creative partnership.  Well, that might have been true 20 years ago before reforms like reapportionment and the Voting Rights Act, the 10-year extension of which I strongly support.  It’s no longer true today.  This administration has faith in State and local governments and the constitutional balance envisioned by the Founding Fathers.  We also believe in the integrity, decency, and sound, good sense of grass roots Americans.