With President Ronald Reagan’s 100th Birthday a day away, one cannot help but reflect on his wisdom and political philosophy. One of Reagan’s strongest beliefs was that the U.S. Constitution separates government powers so that the voters can hold government officials accountable. Government power is separated in two ways - the first being the legislative, executive, and judicial branches and the second separation being federal, state, and local levels.
However, with the radical growth of federal programs and federal money in state budgets since the late 1990s, the separation of powers among federal, state, and local levels has become blurred and accountability thereby diminished. In 2008, federal aid to states and state matching funds accounted for an average of 45 percent of government spending within states according to the Heritage Foundation, and that share has continued to rise. As a result, states are slowly becoming subservient to federal whims and federal spending programs. Even when looking at raw state budgets alone, on average about a third is directly federally funded. This has led to a two fold problem in state budgeting, (1) an inefficient allocation of money and (2) inflexibility within state budgets leading to complete state dependence on federal money.
The inefficient allocation of money benefits some of the states and hurts the others, depending upon if you are on the surplus or deficit side of things. In New York’s FY 2011 budget briefing book (pg. 133), it notes that over the last decade NY taxpayers paid $600 billion more to the federal government in taxes than it has received back in aid. Of course, such a number cannot be equal as there are legitimate national expenditures – but $600 billion is quite an imbalance, the highest nationally. For 2008 alone, the imbalance was negative $55.5 billion in New York, $50 billion in NJ, and $42 billion in Minnesota. Meanwhile smaller states have seen massive surpluses. Virginia’s surplus in federal funding in 2008 compared to what it paid out was $51 billion, Kentucky $27 billion, and Maryland $23 billion. Florida also makes the 2008 top 10 surplus list at $15 billion.
These inefficient allocations leave states unable to handle there own internal affairs. People often ask why states like NY have such a large budget deficit. The simple answer is that the Feds got their hands on the money of NY’ers before the state could! States in NY’s deficit condition are being choked by Washington.
There is great inflexibility within state budgets due to what amounts to federal bribery. While Federal intrusions into state systems are unwarranted in any case, it would be political suicide not to participate in federally funded or aided programs. From large programs like Medicaid, food stamps, race-to-the-top, or the interstate highway system; to small programs like school lunch programs and the National Shellfish Sanitation Program – are all federally funded or aided. When states are trying to cut their budgets and reign in deficits, the sheer volume of these programs makes it very hard. No one wants to lose free Federal money since a state will pay out to the Federal Government the same amount of money no matter how much it gets in return. Therefore, the goal is to maximize that return. That means spending state dollars on federally aided programs. It is quite the task to find large state programs that are purely state funded in order to make the needed cuts in these days of budget shortfalls.
The Federal Government has gotten itself into all areas of the state budget and the lines of accountability are now blurred. If a state spends more on Medicaid, is that because the state voters demanded that their state government expand Medicaid or because the voters gave the federal government a mandate to expand the program nationwide? If state voters want to restrain state spending, should they turn to their State Capitol or Washington?
Once the Federal Government got its hands on the people’s purses via the income tax, there was no going back to our state dominated system. The tables have turned, contrary to what our founding fathers wanted, and the Federal Government is in the driver’s seat. Without federal aid and match programs, states no longer have enough internal revenue to function. Unlike the Federal Government, states cannot print their own money as needed. This trend of forcing states to spend more with participation in “voluntary” programs if not halted, will lead to states becoming nothing more than administrators and the eventual erosion of state power.
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