Mapping Center Answer:

Yes, you can reduce the leading on labels.  First, in the Layer Properties of the feature that is labeling, on the Labels tab, click the Symbol button – this will open the Symbol Selector dialog.  Next, click Edit Symbol which will open the Editor dialog.  On the Formatted Text tab, you can change the Leading which will change the space between the two lines.  Note the units at the top right and modify the value for the Leading using these units.  You will want to make this a negative value to reduce the spacing.