How the return to Federalism can control the

debt and lower the cost of the Federal government.

In accordance with the U.S. By virtue of the Constitution, the federal government was endowed with limited and specific authority, while the majority of governmental responsibilities were delegated to the states. In order to underscore the constraints on federal authority, the Founding Fathers of the United States of America ratified the Tenth Amendment, which states, "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States, respectively, or to the people." This amendment exemplifies federalism, which James Madison defined in Federalist No. 45 as the belief that federal and state governments have distinct policy domains and that federal activities are "limited and defined."

Local and state fiscal affairs were largely out of the purview of the federal government until the middle of the 20th century. Subsequently, however, Congress has intervened more frequently through "grant in aid" programs, which consist of state subsidies accompanied by top down regulations. Presently, the federal government offers over 1,300 assistance programs for housing, transportation, highways, health care, and numerous other endeavors.

In 2019, federal assistance to the states was $721 billion in total. Then, in an effort to combat the pandemic, Congress substantially increased aid to an estimated $1.23 trillion in 2022, $829 billion in 2020, and $1.25 trillion in 2021. The years in question are fiscal in nature. Local and state tax revenues have increased substantially over the past two years, providing governments with the means to manage the crisis. As a result, the majority of this aid was ultimately unnecessary.

The states have developed an excessive reliance on federal assistance. The federal government does not have regional subdivisions in the form of state administrations. Creating a costly bureaucracy, diminishing political accountability, stifling diversity, and undermining local democratic control are all outcomes of the aid system. The subsequent discourse examines nine justifications for the reduction of federal aid.

There are nine justifications for reducing federal aid.

1. Assistance encourages extravagant expenditures. Advocates of federal aid frequently assert that state governments are financially incapable of financing programs, while the federal government appears to possess boundless financial resources. Large deficits provide the appearance of substantial coffers on the part of the federal government; however, each dollar of federal aid for state programs ultimately originates from state taxpayers. Because state governments are more fiscally prudent than the federal government and must balance their budgets and limit debt issuance, it is preferable to fund state activities at the state level.

State policymakers weigh the benefits of spending against the costs of increasing taxes to finance programs that are funded internally. Nevertheless, in the case where federal aid contributes to the funding of a program, state and federal policymakers share in the credit for the expenditures while bearing only a portion of the tax liability. Federal aid induces excessive spending by inflating the proportion of political benefits derived from expenditures relative to the associated tax costs.

Additionally, numerous federal aid programs necessitate that states contribute a portion of the funding, thereby encouraging further expenditures. In the case of Medicaid, where the federal reimbursement is open-ended, states are motivated to consistently expand their programs in order to receive additional funding from the federal government. By converting matching programs to fixed block grants, squandering incentives could be reduced.

2. Aid influences purchasing decisions. Advocates of aid anticipate that federal authorities will effectively distribute funds to endeavors of significant value throughout the country. However, there is no evidence to suggest that federal authorities possess a superior ability to allocate resources for housing, transportation, education, and other endeavors than state authorities. In fact, flawed formulas and pork barrel politics frequently impede the efficient allocation of federal aid.

Certain developing states, including Texas, receive inadequate assistance in comparison to the petroleum tax revenue they contribute to the federal transportation fund. Federal assistance for airports is disproportionately allocated to smaller airports, neglecting larger airports that would yield greater benefits. Similar to this, rural areas with low terrorism threats have received a disproportionate amount of assistance for homeland security.

Although the common perception is that federal aid is intended for less developed areas, this is rarely the case. The ten states with the highest per capita income in 2019 received $2,354 in federal aid, while the ten states with the lowest per capita income received $2,068, according to my calculations. The fact that Medicaid's matching formula has incentives more affluent states to expand the program than impoverished states has contributed to this circumstance; as a result, wealthier states receive more matching dollars from Washington.

States are incentivized by federal aid to allocate greater resources towards activities that are subsidized by the federal government while allocating fewer funds towards other activities that may be preferred by state residents. As an illustration, the allocation of federal transit aid primarily towards capital expenditures rather than operational costs has prompted dozens of municipalities to invest in costly rail systems as opposed to more fuel-efficient bus systems.

The states have been compelled to make expenditure decisions unrelated to the requirements of their own citizens as a result of federal aid. The urban renewal or "slum clearing" initiative of the middle of the 20th century, which utilized billions of dollars in federal aid to demolish impoverished neighborhoods in favor of unsuccessful redevelopment plans, is a classic example. Jane Jacobs stated in The Death and Life of Great American Cities regarding these initiatives, "This is not the reconstruction of cities. This constitutes the city-sacking."

3. Aid is the cause of bureaucracy. For aid programs to prepare applications, devise procedures, file reports, submit waivers, audit recipients, litigate disputes, and comply with regulations, legions of administrators, accountants, and attorneys are required. The application process for federal aid is laborious and can require hundreds or even thousands of pages to comply with the numerous federal regulations. Selected states were awarded $4.3 billion in Race to the Top school grants during the Obama administration. However, in order to qualify, states were obligated to submit applications that typically exceeded 600 pages in length.

In conjunction with state and local administrative expenses, the federal administrative costs of aid programs may devour as much as 10 percent of program expenditure. For instance, local governments spent an average of 17 percent of Community Development Block Grant funds on administration, according to the Government Accountability Office (GAO). Millions of state and local government employees are necessary to manage federal aid spending and related regulations, according to Paul Light's research on the "true size of government."

4. Aid fosters abuse and fraud. Fraud, abuse, and excessive waste are problems in numerous federal aid programs. The provision of "free" funds from Washington provides state administrators with little motivation to curtail such expenditures. Congress members, on the other hand, are politically motivated to support all federal expenditures in their districts, which provides little incentive to reduce such waste.

Consider Medicaid, the largest assistance program. 21 percent, or $85 billion, of the program's expenditures in 2020 were improper, erroneous, or fraudulent, according to the GAO. State administrators are less motivated to reduce Medicaid waste as a matching program requires them to identify waste exceeding two dollars in order to save one dollar for state taxpayers. In fact, the states engage in questionable strategies to inflate the matching dollars they receive from Washington in order to abuse Medicaid.

The school breakfast and lunch programs receive substantial federal funding that is also susceptible to pervasive misuse. In 2019, the GAO reported that school breakfasts and lunches were improperly compensated at a rate of 23% and 23%, respectively. Local administrators perform minimal recipient eligibility verification due to a lack of motivation to do so. Administrators are, in fact, motivated to exaggerate the number of children who are eligible for benefits.

As a result of the lack of incentives to exercise cost control, infrastructure projects that receive federal funding frequently experience budget overruns. The cost of the Big Dig highway project in Boston increased by more than fourfold, from $2.6 billion to $14.6 billion, with the federal government contributing $8.5 billion of that amount. Randal O'Toole found in his 2018 book Romance of the Rails that cost overruns on 64 main urban rail projects financed by the federal government averaged 43 percent.

5. Aid is contingent on expensive regulations. Since the first aid program for land-grant colleges was established in 1862, state and local agencies administering the programs have been subject to regulations imposed by the federal government. As of today, aid recipients are burdened with mountains of environmental, labor, and safety regulations imposed by the federal government. As a result of these regulations, project costs increase. As an illustration, Davis-Bacon regulations mandate that laborers engaged in federally funded construction endeavors are generally entitled to higher union wages; this stipulation results in an approximate 20 percent escalation in project wage expenses. Aid-related federal environmental regulations also cause project delays. Since the 1970s, the average time required to obtain federal environmental approvals for infrastructure projects has increased from 2.2 to 6.6 years.

6. Aid stifles diversity in policy. Different states may have distinct policy preferences regarding, among other things, education, transportation, highways, and taxes. State and local governments can maximize value in the federal system of the United States by basing their policies on the preferences of their constituents, while individuals can enhance their quality of life by relocating to jurisdictions that are more to their liking.

Federal aid and associated regulations undermine the diversity of beneficial state policies and local options. An illustrative instance was the nationwide speed limit of 55 miles per hour, which was implemented from 1974 to 1995 under the threat of federal highway aid withdrawal. These one-size-fits-all regulations are detrimental to value because they disregard variations in state geography, traditions, and resident values.

"The nature of our constitutional system encourages a healthy diversity in the public policies adopted by the people of several states in accordance with their own conditions, needs, and desires," stated Executive Order 12612 on federalism issued by President Ronald Reagan in 1987. "States and communities are free to experiment with a variety of approaches to public issues in pursuit of enlightened public policy." However, states cannot be free to experiment if Washington dictates public policy through aid programs.

Although Reagan identified as a conservative, liberals have also advocated for policy diversity as a social ideal. In 1932, liberal Supreme Court Justice Louis Brandeis stated that federalism allows each state to "act as a laboratory and try novel social and economic experiments without endangering the rest of the country." Pursuing policy experiments at the state level entails a lower degree of risk compared to their federal counterparts, where the nation suffers when federal politicians commit catastrophic errors. The mid-20th century high-rise public housing initiatives serve as an illustrative instance, currently recognized as a policy catastrophe. Why did numerous American cities erect unsightly concrete fortifications for the impoverished and bulldoze neighborhoods? Because the initiatives were funded and promoted by the federal government,.

7. Aid undermines democracy. Policy decisions regarding federal aid programs are frequently rendered by unelected officials based in Washington, DC, as opposed to elected officials at the local level. Aid programs delegate decision-making authority from the over 500,000 elected state and local officials in the United States to thousands of unidentified and inaccessible federal agency personnel.

While the 535 elected members of Congress are ostensibly responsible for overseeing assistance programs, the majority of their authority has been delegated to federal bureaucracies. You may express your disapproval of a policy implemented by your child's public school to local officials. However, if Washington imposes the policy, it will be difficult for you to have your concerns addressed.

Moreover, the enormous scale of the federal government hinders democratic participation. Given that the federal budget is one hundred times larger than the average state budget, state and local policymakers have more time than federal policymakers to address citizen concerns regarding a program. Former U.S. representative: "Citizens are effectively disenfranchised" due to the federal aid system. According to Saving Congress from Itself: Emancipating the States and Empowering Their People, a 2014 book by Senator James L. Buckley,.

Each state is guaranteed a representative democracy, or a "republican form of government," under the U.S. Constitution. However, this guarantee is weakened whenever the states become bureaucratic subdivisions of the federal government. Federal aid comprises 25% of the expenditures allocated to state and local governments. This 25% portion serves as the foundation for program control at the federal level, owing to the regulatory authority vested in the federal government.

Without a Child Left Behind program: a collection of top-down mandates imposed on public schools by the George W. Bush administration. The administration of Barack Obama attempted to micromanage neighborhoods by regulating federal housing funds. The administration of Donald Trump threatened to reduce funding to public schools that failed to adopt its reopening strategy during the COVID-19 pandemic. It would have been more prudent in each of these situations to repeal the aid programs that formed the foundation and permit the states to fund and manage their own initiatives.

8. Assistance erodes accountability. In its inception, the three tiers of American governance—federal, state, and local—resembled a well-organized layer cake, wherein distinct responsibilities were assigned to each tier. The public was aware of who merited commendation and who merited censure for policy actions. However, as aid has increased, the government has evolved into a marble cake, with policy responsibilities distributed across multiple strata. Reagan lamented in his budget message to Congress in February 1982, "Over the last two decades, the once-clear delineation of responsibilities and obligations among the federal government, states, and local governments has transformed into a disorganized and perplexing jumble."

The disarray has impeded the ability of the public to hold politicians responsible. Politicians tend to attribute responsibility for failures to subordinate branches of government. They place the responsibility for inadequate calamity responses, substandard public school performance, and numerous other disappointments on others. When each government participates in an endeavor, failings are not the responsibility of any government.

9. Assistance disrupts private activities. Federal assistance motivates state governments to eliminate or "crowd out" private service providers. Infrastructure investments in airports, transit systems, and bridges illustrate this issue.

Due to the expansion of federal aid, private highway bridges were crowded out. Robert Poole noted in Rethinking America's Highways: A 21st-Century Vision for Better Infrastructure that the majority of toll bridges in America were formerly privately owned. However, beginning in the 1930s, federal and state governments subsidized government-owned bridges, putting private bridges at a competitive disadvantage and resulting in the government's acquisition of many of them.

Prior to the 1960s, urban transit systems in the majority of American cities were privately owned and operated. Subsequently, private transit began to decline. The rise of automobiles undermined private transit, but the Urban Mass Transportation Act of 1964, which offered federal assistance to government-owned bus and rail systems and encouraged governments to take over the private systems, put an end to that.

An analogous event transpired within the realm of aviation. During the early years of commercial aviation in the 1920s and 1930s, approximately half of U.S. airports were privately owned, including the primary airports in Los Angeles, Miami, Philadelphia, and Washington, D.C. Although the airports were prosperous and pioneering, they succumbed to unjust government competition. Government airports were exempt from paying taxes and could issue tax-exempt bonds. Then, in 1946, the federal government initiated a policy of consistent aid payments to airports owned by the government. This ultimately resulted in the demise of private commercial airports.

In summary, the federal aid system finances state and local activities in an indirect and ineffective manner. Aid administration results in wasteful expenditure and bureaucracy. It undermines democratic control and policy diversity. It represents a triumph of irresponsible spending and should be reduced and eventually eliminated.