Since the inception of the New Deal programs in the 1930s to address the Great Depression, the federal government has continued to impose its will on more and more aspects of American society.  It has accomplished this power grab by expanding interpretations of the Constitution’s spending and welfare clauses and using its taxing powers to raise the amounts needed to “incentivize” states to adopt and implement federal policy through grants. While the federal government made grants to the states starting in 1900, those grants generally subsidized existing state programs. From the 1960s forward, Congress enacted many new programs, and it needed help to implement them. It found a creative solution – raise taxes to generate sufficient funds to provide grants to states as an incentive for the states to implement federal programs. There were around 132 state grant programs in 1960. Today they number over 1,300. 

Due to a variety of factors, the “heady” decades of federal aggrandizement of power will likely be coming to an end. The states are resisting implementation of specific federal programs they do not want to administer or are not fairly compensated for administering. At the same time, the federal government has amassed debt of almost $22 trillion and annual trillion-dollar budget deficits, thereby making continuing payment for these programs questionable.

Without compromise, capitulation or the continuous printing of money, it is difficult to imagine the current federal-state relationship continuing. If there is a break-up what will happen to the federal programs? What will happen to the federal-state relationship? Could a breakup be the start of a shrinking federal government that devolves powers to the states?

States Returning or Refusing to Implement Federal Programs Has Already Started

The warning sign of state frustration with implementing federal programs is the conflict over “sanctuary states and cities.” Over three-hundred states or cities have refused to enforce federal immigration laws requiring the deportation of unauthorized immigrants, even though they have accepted federal grant monies for law enforcement and other local activities.

The President is frustrated with these challenges to federal authority; however, there is little that can be done other than eliminating the grants. The limits arise under several U.S. Supreme Court decisions which hold that the Tenth Amendment forbids the federal government from commandeering states to implement federal law. Moreover, even when the federal government conditions receipt of federal monies on the implementation specific federal programs, the grant monies can only be withheld when a state or local government agrees to a contract provision that is clear enough for it to decide whether or not to accept the funds. The Supreme Court further limits federal control over grants to state or local governments by forbidding funding conditions in grants so coercive that the circumstances amount to a “gun to the head” situation.

In addition to the outright refusal of states to implement federal programs, not of their liking, there are federal programs, e.g., environmental, that states want to implement but the federal grants only cover a fraction of the cost of implementation. According to a 2016 study by the U.S. Chamber of Commerce, The Growing Burden of Unfunded EPA Mandates on States, https://www.uschamber.com/report/the-growing-burden-unfunded-epa-mandates-the-states the states implement approximately 96% of federally delegated environmental programs but only receive 28% of the cost of implementation.

Complicating the debate will be the long-festering issue of state grant inequality. Naturally, that while every federal program is paid for with the tax dollars citizens send to Washington, not every state receives a dollar for dollar return on the money its citizens send to Washington. According to a March 8, 2017 article in The Atlantic, “Which States Are Givers, and Which States Are Takers”, the amount of money given the respective states varies dramatically. South Carolina receives $7.87 for every dollar its citizens send to Washington in taxes. Other states are not so lucky. Fourteen states receive less grant money than they send to Washington in taxes, i.e., Delaware, Minnesota, Illinois, Nebraska, Ohio, Kansas, New York, Colorado, Utah, New Jersey, Oklahoma, Wyoming, Massachusetts, and California. Then comes the realization that off the top of every dollar states send to Washington, the federal government takes a percentage cut of the state tax money for having its bureaucrats oversee a state grant program the federal government wants to be implemented.

In each situation, (state not wanting to implement a federal program; the federal government under-compensating the state for its efforts; or the unequal distribution of federal funds), tensions arise over the implementation of these federal programs. These tensions place federal programs at risk of the state refusal to administer them.

The Feds Might Also Pull the Funding Plug

According to a May 7, 2018 study by the Congressional Research Service, Federal Grants to State and Local Government: A Historical Perspective on Contemporary Issue, the federal government is expected to provide state and local governments about $728 billion in grants in FY 2018. More than half of the monies ($400 billion) goes to health care (Medicaid), and the rest to highways, environment, child nutrition, disaster relief, tenant rental assistance, education for the disadvantaged, children’s health insurance, and urban mass transit, among other programs.

These federal funds comprise 1,319 grants, and according to the Tax Foundation, the awards represent between 26% – 49% of state spending, depending on the state. For example, federal funds to Indiana represent 35% of its total state spending. Federal grants to Texas represent 40% of its state’s spending. Federal grants to Virginia only represent 27% of its state’s spending. The amount of these grants has more than doubled from FY 2000, going from $286 billion in FY 2000 to $728 billion in FY 2018.

To the federal government, these grants represent about 18% of its $4 trillion annual budget. The present federal debt carries interest payments of around $250 billion annually. The historically low-interest rates between 2009 – 2107 kept interest payments manageable, but still consuming about 7.4% of the federal budget. The Office of Management and Budget is projecting that interest rates will rise to around 3.6% by 2028, consuming 12.2% of the federal budget and drain the treasury by $761 billion annually, an amount that exceeds the total amount of grants made to states. This deficiency means the federal government will need to find an additional $511 billion annually by 2028 to service the increased debt or it will need to find other budget reductions such as state program grants, to remain at the same fiscal position as today.

Could This Be the Start of Devolution?

The conflicting trends of states not wanting to implement specific federal programs and the federal government not having sufficient money to fully compensate the states for implementing them will start the debate over which programs must be administered and by whom? Therefore, while the federal government becomes more irritated at states that resist administering federal programs, the states that receive less federal funding than needed to implement federal programs or receive an inequitable return on their tax dollars sent to Washington, also become irritated with federal management of the grant programs.

This situation will force states to decide what programs they genuinely want to administer. States will have to balance the impact on their budgets of the loss of federal funds against the cost to the state of administering the federal programs. It might seem that the loss of any federal funds would be a substantial budget impact on states; however, that may not be the case since many states supplement the federal grants with state funds to achieve full implementation of specific federal programs or send more money to Washington than it receives back in grants. 

On the federal side of the equation, the federal government is forced to determine what are its priority programs and to recognize it will have to provide sufficient amounts of money to incentivize full state implementation of priority programs. The selection of priority programs means the federal government, due to budget deficits, will have to reduce or eliminate some state program grants.

Eventually, however, the federal government will have to stop printing money it does not have. State resistance will merely give the federal government a reason to revise or defund certain state grant programs. Once this occurs, the devolutionary process will play out, which means the federal government will stop expanding its authority through incentives to states to implement federal programs. Conversely, States will decide which federal programs they want to continue. In many cases, the states will pay for current federal programs they wish to administer with the dollars saved by eliminating the cost of administering unwanted federal programs and by keeping the tax dollars of their citizens in their state, rather than sending the dollars to Washington for redistribution.

As with any Hobson’s Choice, there is no choice at all. The federal government will shrink, and the states will implement the programs wanted by the citizens of their state. This devolutionary process will restore sovereignty to the states while shrinking federal power to that given the federal government by our Constitution.

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