Federal funding and the lock on state innovation

By Jim Stergios
May 29th, 2008

Tip of the hat to Bridgett Wagner of Heritage for passing on “Federal Funds and State Fiscal Independence” by Sven Larsen. Larsen notes:

Today, federal aid to states and state matching funds account for 45 percent of state spending, and that share is rising. As a result, state spending is gradually being reduced to the mere execution of federal spending programs. In addition to blurring the lines of accountability, this trend also erodes state fiscal independence.

Considering the large role of off-budget state expenditures, she certainly has a point. Larsen finds that the increasingly large role of federal transfers

erodes legislators’ accountability to voters, increases the public’s and the states’ dependence on the federal government, weakens incentives to restrain government spending, and even encourages state lawmakers to design and expand their spending to maximize federal aid to their states.

What would the last of the true federalists (Ronald Reagan) have thought? See his “Federalism, Statement of Principles” (1986):

I. Federalism is rooted in our knowledge that our political liberties are best assured by limiting the size and scope pf the national government.

II. The people of the United States created the national government when they delegated to it those enumerated governmental powers relating to matters beyond the competence of the individual States. All other sovereign powers, save those expressly prohibited the States by the Constitution, are reserved to the States or to the people.

III. The Constitutional relationship among sovereign governments, State and National, is formalized in and protected by the Tenth Amendment to the Constitution.

IV. The people of the States are free, subject only to restrictions in the Constitution itself or in constitutionally authorized Acts of Congress, to define the moral, political, and legal character of their lives.

V. In most areas of governmental concern, State and local governments uniquely posses the constitutional authority, the resources, and the competence to discern the sentiments of the people and to govern accordingly. In Jefferson’s words, the States are the most competent administrations for our domestic concerns and the surest bulwarks against anti-republican tendencies.

VI. The nature of our constitutional system encourages a healthy diversity in the public policies adopted by the people of the several States according to their own conditions, needs, and desires. in the search for enlightened public policy, individual States and communities are free to experiment with a variety of approaches to political issues.

VII. Acts of the national government — whether legislative, executive, or judicial in nature — that exceed the enumerated powers of that government under the Constitution violate the principle of federalism established by the Founders.

VIII. Policies of the national government should recognize the responsibility of — and should encourage opportunities for — individuals, families, neighborhoods, local governments, and private associations to achieve their personal, social, and economic objectives through cooperative effort.

IX. In the absence of a clear constitutional or statutory authority, the presumption of sovereignty should rest with the individual States. Uncertainties regarding the legitimate authority of the national government should be resolved against regulation at the national level.

X. These principles should guide the departments and agencies of the national government in the formulation and implementation of policies and regulations.

A pretty darn clear and common sense vision of the states’ role in driving innovation and ensuring a heterogeneous (diverse) political culture.