Fiscal Federalism - Augusta County Public Schools

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Federalism
Politics of Modern Federalism
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.
Federalism
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
money.)
Federalism
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”
money.
What’s not to like?
Federalism
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.
Federalism
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.
Federalism
1960
The Changing Purpose of
Federal Grants to State
and Local Governments
2006
Federalism
Politics of Modern Federalism
Federal Grants-in-aid
Categorical Grants
Block Grants
• Most federal aid is distributed to
states in form of categorical
grants
• Block grants: federal grants
given for more general
purposes, broad policy areas
• Can only be used for a specific
purpose.
• Welfare, public health,
community development,
education
• 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
Federalism
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.
Mandates
• 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).
Federalism
Politics of Modern Federalism
Federal aid = federal control
Mandates
• Most federal mandates concern
the environment and civil rights.
• Examples: school bussing to
achieve desegregation
• Most unfunded mandates
have concerned the
environment.
• Example: Safe Drinking Water
Act (1996)
Federalism
No Child Left Behind Act
(2002)
• 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
(conditions-of-aid).
• NCLB is a mandate.
Federalism
Federalism
DEVOLUTION: Beginning in the 1980s, many political
leaders worked to return authority to state governments.
• 1980s: President Ronald Reagan
supported returning power to the
states
• 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
follow.
Federalism
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
1995-1999
• Reduce size and power of national
government by eliminating costly
federal programs.
Federalism
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
regulations.
Federalism
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
money?
• Does the system of grants-in-aid upset the balance of federalism
designed by the Framers?
Federalism
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
hypothetical).
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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