The Cato Institute has released an intriguing analysis of the decline of federalism over the last twenty years. Part of the supposed legacy of the Reagan Revolution was a renewed commitment to federalism and its insistence on moving power from Washington DC to state legislatures. That renewed commitment has largely failed, and federal subsidies to states have exploded over the last two decades:
In recent years, members of Congress have inserted thousands of pork-barrel spending projects into bills to reward interests in their home states. But such parochial pork is only a small part of a broader problem of rising federal spending on traditionally state and local activities.
Federal spending on aid to the states increased from $286 billion in fiscal 2000 to an estimated $449 billion in fiscal 2007 and is the third-largest item in the federal budget after Social Security and national defense. The number of different aid programs for the states soared from 463 in 1990, to 653 in 2000, to 814 by 2006.
The theory behind aid to the states is that federal policymakers can design and operate programs in the national interest to efficiently solve local problems. In practice, most federal politicians are not inclined to pursue broad, national goals; they are consumed by the competitive scramble to secure subsidies for their states. At the same time, federal aid stimulates overspending by the states, requires large bureaucracies to administer, and comes with a web of complex regulations that limit state flexibility.
At all levels of the aid system, the focus is on spending and regulations, not on delivering quality services. And by involving all levels of government in just about every policy area, the aid system creates a lack of accountability. When every government is responsible for an activity, no government is responsible, as was evident in the aftermath of Hurricane Katrina.
The Cato summary uses polite language to say what should be said in blunt terms. The federal government uses subsidies to extort compliance with federal agencies. Federal subsidies are like crack cocaine to state legislatures -- one taste and they cannot bear the thought of detoxing. These subsidies come with implicit and explicit transfers of power to the federal government (transportation aid is a well-known culprit) and usually require states to spend their own money on federal priorities in order to receive them at all.
The Reagan Revolution did attempt to address this. A look at Figure 1 shows that the percentage of the federal budget devoted to state subsidies dropped from 1980 (15.5%) to 1990 (10.8%). By the time the Clinton era came to an end, it had reached a historical high (16.0%), about where it remains today. During this time, both Republican and Democratic executives and Congresses contributed to the problem.
How much money does this cost us? In each of the last seven years, we have spent more than $200 billion in subsidies to the states for non-health programs, in 2007 dollars. That exceeds the prior peak in 1975, at the beginning of the stagflation and economic ennui that led to the Reagan Revolution. In 1955, we spent less that $30 billion in 2007 dollars on state subsidies. In fifty years, we have quintupled the federal subsidy program.
So what kind of programs deliver these subsidies? Cato takes a browse through the extensive catalog:
Couldn’t state and local governments or the private sector fund those activities? Do we really need the federal government involved in school lunches, farmers’ markets, hunter education, seniors’ community service, airport improvement, and boating safety? If First Lady Laura Bush wants to give $24 million to libraries, shouldn’t she collect the funding privately, instead of imposing on taxpayers to pay for the Laura Bush 21st Century Library Program?
Another curious program is Sport Fishing Restoration. In fiscal 2006 the U.S. Fish and Wildlife Service program handed out to state governments $290 million in grant money raised from various excise taxes and import duties. In 2000 the GAO criticized the program’s mismanagement and “culture of permissive spending,” but the agency seems to have since cleaned up its act. In 2006 federal administration costs for the program were $22 million, and it’s not hard to see where the money goes when you examine the program’s activities. For example, program officials at different levels seem to get together for frequent meetings in locations such as Las Vegas, Charleston, and Lake Placid.
Sounds a lot like pork, doesn't it? It operates on the same power principle. Once the federal government has the power to distribute funds like this, the only argument is where it will get directed. This leads to lobbyists gaming the system, states accommodating federal expansion of power to get their hands on the money, and all of the rest of the ills of Washington DC and American politics in general.
If Congressional reformers wanted to truly make a difference, they would attack the federal subsidies to state programs, and the vast amount of money that the federal government uses to extort power from the states. Cato provides a handy guide for that purpose.