Fiscal Federalism - Augusta County Public Schools

Politics of Modern Federalism
Politics of Modern Federalism
Federal Grants-in-aid
• Grants show how political realities modify legal
authority. (Money
changes everything!)
• A way for the federal government to get money into
state hands without violating the Constitution.
Politics of Modern Federalism
Federal Grants-in-aid
• Federal cash grants became popular in the early 20th
Century, made possible by:
• Federal budget surpluses resulting from tariffs.
• Federal income tax increased revenues
• Federal control of money supply (Federal Reserve could print
Politics of Modern Federalism
Federal Grants-in-aid
• Grant-in-aid system is popular with state & local
governments: they don’t have to tax.
• For a state official, federal money is like “free”
What’s not to like?
Politics of Modern Federalism
Federal Grants-in-aid: Problem #1
• It is politically difficult for the federal government to
spend money in one state without spending money in
all states.
• Elected officials support each other’s programs.
When money goes to one state, it usually goes to
other states.
Politics of Modern Federalism
Federal Grants-in-aid: Problem #2
• Beginning in 1960s, federal money started to come
“with strings attached.”
• Federal grants were targeted at national programs
rather than state needs.
The Changing Purpose of
Federal Grants to State
and Local Governments
Politics of Modern Federalism
Federal Grants-in-aid
Categorical Grants
Block Grants
• Most federal aid is distributed to
states in form of categorical
• Block grants: federal grants
given for more general
purposes, broad policy areas
• Can only be used for a specific
• Welfare, public health,
community development,
• Examples: building new airport,
crime-fighting in certain areas,
natural disaster relief.
• States prefer block grants;
designed to allow state to
spend money as it sees fit
Politics of Modern Federalism
Federal aid = federal control
Conditions of Aid
• Tell state governments what
they must do if they wish to
receive grant money.
• “Strings attached”
• Example: To receive federal
highway funds, states must
raise their drinking age to 21.
• Federal rules that states or
localities must obey.
• Generally have little or nothing
to do with federal aid.
• States must comply with
mandates, even if they have to
spend their own money
(unfunded mandate).
Politics of Modern Federalism
Federal aid = federal control
• Most federal mandates concern
the environment and civil rights.
• Examples: school bussing to
achieve desegregation
• Most unfunded mandates
have concerned the
• Example: Safe Drinking Water
Act (1996)
No Child Left Behind Act
• Requires states to regularly test students and show improvement
in test scores or face a reduction in federal funding.
• Considered by some to be the most intrusive federal law on how
schools operate.
• Proponents: national testing standards needed to improve
American schools.
• 10% of school funding comes from federal government.
• Schools must meet NCLB requirements to receive federal funding
• NCLB is a mandate.
DEVOLUTION: Beginning in the 1980s, many political
leaders worked to return authority to state governments.
• 1980s: President Ronald Reagan
supported returning power to the
• Believed the national government
was too big and too intrusive in
people’s lives.
• Believed states were better at
providing services.
• Cut federal grants and relaxed
spending rules states had to
The Devolution Revolution
• 1994 elections: Contract with
America—Republican campaign
promise to achieve specific goals
• Central idea: devolution—returning
power to states
Newt Gingrich
Speaker of the House
• Reduce size and power of national
government by eliminating costly
federal programs.
Debriefing on Devolution
• Federal and state spending on most programs
increased after 1996.
• Public support for devolution was not strong. Most
people favor “shifting responsibility to the states,” but
not if it means cutting programs they value.
• Resulted in more, not fewer, government rules and
For discussion
• Do grant programs enable Congress to do what it pleases by
bribing states into compliance?
• Or do these programs merely increase the likelihood of national
policy uniformity? Is that good or bad?
• What would be the consequence if a state refused federal grant
• Does the system of grants-in-aid upset the balance of federalism
designed by the Framers?
For review
1. Why do states like federal grants?
2. What is the difference between a block grant and a categorical
grant? Give an example (real or hypothetical).
3. What is a condition-of-aid? Give an example (real or
4. What is a federal mandate?
5. What do states not like about federal mandates?
6. What is an unfunded mandate?

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