The federal government has a large and growing presence in state and local policy activities. This rising intervention has been facilitated by “grants-in-aid,” programs that combine federal subsidies with top-down regulations micromanaging state and local affairs.
A new analysis finds the number of federal aid programs for state and local governments totaled 1,122 in 2010, more than triple the number 25 years ago. Some of the most expensive programs are in the areas of education, housing, health care, and transportation.
Federal lawmakers would better serve the nation by focusing on national issues instead of trying to fix potholes and run schools. In addition, aid ties up the states in bureaucratic knots and reduces state policy innovation. The $646 billion aid system should be cut.
Federal Powers ‘Few and Defined’
The Constitution assigns the federal government specific limited power, and leaves most government functions to the states. To ensure people understood the limits on federal power, the Framers added the Constitution’s Tenth Amendment: “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.”
The amendment embodies federalism, the idea that federal and state governments have separate policy areas and proper federal activities are “few and defined,” as James Madison, who wrote the Constitution, said.
President Ronald Reagan noted in a 1987 executive order, “Federalism is rooted in the knowledge that our political liberties are best assured by limiting the size and scope of the national government.” Sadly, policymakers have ignored federalism in recent decades as Congress has undertaken many activities through grants-in-aid that it has no legal or practical reason to be involved in.
Rapid Expansion Since 1960s
In the 19th century, federal aid to the states was rare outside of land grants. The number of aid programs began growing slowly and steadily in the first half of the 20th century.
The big change came in the 1960s. The aid system exploded in size under President Lyndon Johnson. He added hundreds of programs for housing, urban renewal, education, and other local activities. Policymakers at the time had great optimism that federal experts could solve virtually any local problem.
That optimism did not last. President Richard Nixon lambasted “the idea that a bureaucratic elite in Washington knows best what is best for people everywhere.” Then President Jimmy Carter proposed a “concentrated attack on red tape and confusion in the federal grant-in-aid system.”
President Reagan criticized the “confused mess” of federal grants, and he had some success at cutting them.
From 653 to 1,122 in 10 Years
Unfortunately, Reagan’s efforts to trim the federal aid empire were reversed after he left office, particularly under Presidents George W. Bush and Barack Obama. The number of aid programs has soared from 653 in 2000 to 1,122 in 2010, based on my count of programs in the Catalog of Federal Domestic Assistance.
A few dozen of the new programs were enacted temporarily under the 2009 “stimulus” legislation, but the great majority were enacted as permanent programs. The 2010 health care legislation was the source of about two dozen aid programs in the new program count.
Other legislation of recent years added a wide range of new programs, such as specialty crop block grants, beginning farmer and rancher development grants, second-chance prisoner reentry initiative grants, clean fuel vehicle purchase grants, and America’s marine highway grants.
Federal spending on these aid programs was $654 billion in fiscal 2010 and $646 billion in fiscal 2011, double the fiscal 2001 cost.
System Is Roundabout, Unaccountable
The federal aid system is a roundabout funding system for state and local activities that undermines attempts to have a more frugal and accountable government. Under the aid system, federal politicians spend money on a wide range of special interest activities and then blame other levels of government when policy failures occur.
The aid system does not deliver efficient, high-quality public services to the nation’s citizens. It delivers bureaucracy, overspending, and regulatory micromanagement from Washington. It also creates a political tug of war between the states over funding.
By contrast, when spending and taxing decisions are made together at the state and local levels, policy tradeoffs are likely to better reflect the local preferences of citizens.
The federal aid system should be scaled back and ultimately abolished. The explosive growth in the aid system is turning once proud and diverse states into little more than regional subdivisions of an all-powerful national government.
And with huge and ongoing federal deficits, there is simply no room in the budget for state and local activities. Congress should revive federalism and begin terminating its huge catalog of 1,122 aid programs.
Chris Edwards ([email protected]) is director of tax policy studies at the Cato Institute in Washington, DC. A longer version of this article and the story on the opposite page appeared in the February 2011 issue of Cato Institute Tax & Budget Bulletin: http://www.cato.org/pubs/tbb/tbb_63.pdf. Reprinted with permission.