May 25, 2007

The Fading Of Federalism

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.


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Comments (11)

Posted by Lew | May 25, 2007 11:26 AM

Stop the Federal Gravy Train? Are you kidding? This is the life blood of every politician we've ever sent to Washington since the 1820's. In those days the debate was about "Internal Improvements" and "The American System" and the founders' notions of federalism lost the debate.

Nobody in his right mind is going to turn off the spigot of "free" money to finance all of his local ambitions. If that happened we'd have to raise local taxes to pay for all our own stuff, and we hate it when that happens. We'd all rather raise the 20% necessary in local funds to get the other 80% from the feds. That way my local Congressman gets to look good and my local statehouse guys get to look good and even the local city hall types get some of the gravy. Its a win - win - win deal and everybody gets re-elected. Who could NOT like this deal?

But damnit, we gotta get this runaway federal spending under control - somehow!!!!!

Posted by hapmoorii | May 25, 2007 11:29 AM

Oddly enough, Senator Coburn seems willing to put an end to it. A CNN piece this morning touching on the same topic was pretty damning for Congressmen in general but especially for a couple of big-name Democrats.

Posted by locomotivebreath1901 | May 25, 2007 11:34 AM

The vestige of 'true' federalism died with Gen Lee's surrender at Appomattox Courthouse and the imposition of federal authority through cold steel & hot lead (no..this is NOT an endorsement of slavery).

A further erosion in the pretense of federalism occured with the ratification of the 16th & 17th amendments.

Federalism's coffin was nailed shut and the modern frankenstein nanny state was officially declared with FDR's new deal, with-holding taxes and the mil-indust complex after WWII. The life's blood of this ever growing monster is $$$. The only way to kill this never shrinking monster is to cut off the blood supply.

Fair tax, flat tax ,whatever the IRS, abolish with holding taxes and repeal the 17th amendment! That's a good start for this generation.

Posted by bayam | May 25, 2007 11:40 AM

Note that this study covers the W years- another sign of how well this country has been managed under his leadership.

Of course, this massive spending spree includes the first war in American history that has an almost invisible price tag- let our young men and women die on the battlefield, but don't ask anyone else to sacrifice by buying war bonds or paying higher taxes.

Lee Iacoca was interviewed last night and pointed out that interest payments alone on our federal debt now exceed $400 billion annually. And Cheney says that deficits don't matter. I don't think anyone's kids will be thanking Dick in 20 years.

Posted by ajacksonian | May 25, 2007 12:19 PM

One of the delightful things coming from actually have to put together a relatively modest program inside the government was doing all the numbers work on things like 'efficient work time' and 'productive hours percentage'. Basically during an 8 hour day there is a percentage applied to that to find actual time spent doing this thing known as *working*. In the industry equivalent for the system I was looking to get in there was a differential between private industry and the federal government. From memory, the industry had an 80% efficiency and our agency had a 65% efficiency. Just apply the percent to the work hours and get out the effective work hours, the 8 hours being part of 'burdened' work hours (all other overhead gets thrown into that). So at point for point in the workflow the system needed adjustment to get actual warm bodies necessary to get the work done.

Sounds ghastly, doesn't it?

Once I was through with the major portion of the calculations I learned that the agency was *proud* of that percentage as one of the *best* in the Federal Government! 45-55% is the norm with some agencies (remain untold but assured by the finance folks) there were some at 30-35%. Call it 55% to be generous for the entire government on average. That means 45% of the money spent in government goes to waste with a pure 25% due to inefficiencies, overhead, filing forms and reports, writing up work summaries, and so on... and those percentages shift *up* when money just to track each individual, put in money for healthcare and such get thrown in.

Your tax dollars inaction.

Posted by Count to 10 | May 25, 2007 12:52 PM

It may come down to a Constitutional ammendment to prevent the federal government from doing transfer payments. I'm not sure how to word it though.

Posted by LarryD | May 25, 2007 1:29 PM

So bayam, are you prepared to support a Balanced Budget Amendment?

The federal deficit has been going down the past few years, despite our fighting a war, though I sure the new Congress will do it's best to reverse that. And Edwards wants to increase spending by a huge amount.

I think that not giving people a way to contribute to the war effort, right after 9/11, was a mistake. But war bonds would just be more deficit financing, and aren't necessary anyway. It would have just encouraged more pork spending.

Posted by jdavenport | May 25, 2007 4:23 PM

Federalism is the core of the American liberty system. There is no such thing as liberty without local control - structural - devolution.

Every argument against federalism that I have EVER read is FALSE, as in NOT TRUE. Not murky - just plain not true.

The disadvantages are an illusion mistaken as real by those that don't view the system in its entirety. That includes the argument against it listed above.

Posted by Mike | May 25, 2007 4:27 PM


Glad you brought this to our attention - a fundamental argument against this sort of spending.

Posted by Jon | May 25, 2007 8:43 PM

Larry, I'd support any effort to bring the deficit under control. I hate spending but I hate deficits even more.

The falling deficit is relative- it's grown so grotesquely high that this short fall isn't very substantial. Remember that most war spending remains outside of the federal budget, so if you look at the wrong numbers you'll get a very distorted figure.

Posted by ajacksonian | May 26, 2007 7:08 AM

A great and good joy of this modern era of communications is that much of what once sat in books on dusty shelves and have been long forgotten have now resurfaced to the light of day for perusal. Over at Teaching American History they have a good collection of documents from the era of the Revolution to the Constitution including more than just the Federalist Papers, but other Federalist writing and those that opposed the Constitution as it was formed. Anti-Federalist is a bit of a misnomer as some agreed with the Federalist concept but disagreed with the structure of the Constitution itself.

The voice of those individuals comes alive in their writings, especially those that criticize that Congress would be: 1) too few to represent the diversity of the People, 2) too far removed to make wise decisions for the Nation, and 3) drift into aristocratic views and seek to insulate themselves from the People and rule over the People. To us it may seem that the Constitution as made is a general and good basis for republican government via representative democracy. In that era, which is the basis for making the Constitution and which put in the Bill of Rights to address the ills seen by the 'Anti-Federalists', came that final compromise and actually reading the outlooks and seeing the way the structure was made then puts forward things that were obvious then and not today.

The 'checks and balances' exist not only within the Federal, but are a network of checks out to the States and the People so as to balance the Federal externally and hold it accountable. The States and the People do not give up their right to defend themselves as is seen not only by Amendment II but in Article I, Section 10 so that the States and their People will have legitimate and lawful ways to be secure in times of 'invasion or Danger' when the Federal does not or can not hold to its part of the bargain. Even further is the right of the States to withdraw their approval for their Congressional delegation and call them home and deny support of the Union until the needs of the State are addressed.

Alexander Hamilton, himself, address a failure state of Congress when it has conspired to not even debate if the Union needs a standing army every two years. He puts that forward as one of the most compelling things in a vital democracy: to hear debate on if the People should defend themselves directly or if an army is needed. His view in Federalist No. 26 is... well, the man was a revolutionary... if Congress fails to uphold its powers or does not even put forward means to debate its control over the militia, then Hamilton calls for direct recall of all representatives, denying power to government and to break the States down to the smallest units of government and start over.

Today 1:30,000 for proportional representation seems radical, but the Anti-Federalists wanted more than that and saw no reason a House of 1,500 could not be able to work properly. Makes the size set by Congress in 1911 of 435 seem miniscule to the kind of democracy envisioned at the founding. Actually *knowing* your representative or having a good chance of having direct community with them so as to talk with them frankly about the issues of the day was paramount to having vital democracy and a federal republic.

And now we have abuse of the public purse going unchecked, Congress trying to shift the demographics of the Nation by not enforcing the Laws they put forth and now acting as a favoritist body that dispenses the public goods for private gain. To that, the words of Jefferson, Hamilton and others ring out clear today... if we bother to listen to them instead of slipping into safe tyranny of rule by the unaccountable.