State Addiction to D.C. Money Has Federalism on the Ropes

Federalism has seen something of a revival in recent years as the government in D.C. asserts itself in increasingly sure-to-offend somebody ways. States inhabited by a large number of people people not so thrilled by those top-down policies have moved to shield themselves, to take a different path or simply to opt out. From marijuana legalization to Obamacare's health exchanges to gay marriage to land-use, states across the country have asserted a little more independence after decades of letting the feds take the lead. But, as Stephen Slivinski of Arizona's Goldwater Institute points out, state officials have long since put themselves at the mercy of the federal government, no matter what nominal power they may have to set their own policies. Writes Slivinski:

For decades, the federal government has hooked the states on federal taxpayer money. The number of federal aid programs for state and local government grew from 327 in 1965 to 1,122 in 2010. Sixty-five percent of that growth has occurred since 2000. Today, the federal government spends over $650 billion on these programs.

The lion's share of these programs is not state and federal partnerships like the federal highway system. Transportation programs only account for about 10 percent of the total – the third biggest chunk. The biggest portion is health and welfare programs (accounting for 55 percent), and the second largest is education (20 percent).

Some states, however, are more prone to this addiction than others. Arizona, for instance, is practically a ward of the federal government. Arizona's federal aid as a share of total state expenditures in 2011 was at least 30% according to the most recent Census Bureau data. This puts Arizona in the top ten of all states. Some of this is certainly a function of demographics, poverty rates, and the presence of federal and Indian land. But some of it is self-inflicted.

Progressives love pointing out how many "red" states take in more money from D.C. than they pay out in taxes, even as they complain of the federal government's dominance, and there's a lot of truth to that (though transfer payments directly to households play a role here, as does the fact that many "blue" states contain a larger proportion of high-income individuals). It's certainly true that Arizona politicians are happy to spew anti-D.C. headline fodder, even as they feed at the trough. And, let's be honest; he who takes the king's coin becomes the king's man. States may be blowing the cobwebs off the legal independence they possess under the Constitution, but they're all remittance men, and so long as Uncle Sam controls the purse strings, that independence is likely to be more nominal than real.

As Slivinski continues, "States can avoid much of this dependency on the federal government – and the strings that always come with federal money – by simply refusing to expand state programs for the purpose of getting federal matching funds." If states really want to get out from under D.C.'s thumb, that's exactly what they have to do. And that's why the debate over issues such as Medicaid expansion isn't just about whether it's a "good deal" for states, but also whether states that continue to embrace such dependent relationships with the federal government can maintain any sort of independent existence.

See Veronique de Rugy's excellent piece from the February 2013 issue of Reason on getting states off the federal dole.