Federalism

The states’ current fiscal crisis is due not only to the country’s economic downturn but also to changes in fiscal federalism that have exposed state fiscal systems to the impacts of federal policymaking, economic developments and demographic changes to greater degrees than in the past. Essentially, the states face growing long-term contradictions between escalating spending pressures and eroding tax bases over which states have only limited control. Short-term crisis-management actions, such as cutting spending, increasing taxes, accelerating tax collections, delaying bill payments, expanding gambling and using up reserves, are damaging, stopgap tactics. Long-term solutions will require more fundamental remedial fiscal reform by both the federal government and the states.

Congressional preemption of state governments’ regulatory powers dates to 1790, but it generally did not have a major impact until 1965, when the number of preemptive statutes increased sharply. Most congressional preemptions involve commerce, the environment, finance and health. Technological developments and interest group lobbying will result in the enactment of new preemption statutes — particularly in the areas of banking, communications, finance services, insurance and taxation — unless states initiate actions producing harmonious interstate regulatory policies.

The distribution of federal funds affects a wide array of organizations, individuals and activities throughout the United States economy. Data abound on the size of the overall federal government budget and on spending by federal departments and agencies. However, only one primary source shows not only the agency and program detail, but also the geographic distribution of these funds: the U.S. Bureau of the Census’ Consolidated Federal Funds Report. This article provides details and insights into the make-up and significance of these huge flows of federal funds on state and local areas.

The American federal system has been shaken by the impact of recent traumatic events, especially the threats to homeland security and the states’ fiscal crises. These developments have produced deep seated tensions across a wide range of intergovernmental relationships. Recent trends toward coercive relations may be ameliorated by strategies fostering contingent collaboration.

American federalism demonstrated remarkable continuity and responsiveness throughout the horrific events associated with the 2000 presidential election and the terrorist attacks of 2001. Yet, the contemporary era has also been one of coercive or regulatory federalism, marked by historically unprecedented levels of federal preemptions, mandates, conditions of aid and other extensions of federal power into state affairs. The U.S. Supreme Court has pursued a countervailing state-friendly federalism jurisprudence since 1991, but in the political realm, there is substantial bipartisan and even intergovernmental support for coercive or regulatory federalism.

This article describes the division of political powers between state and local governments, the emergence of innovative state programs assisting substate governments, state initiatives to improve the coordination and effectiveness of state and local government service-delivery and regulatory programs, and the desirability of broadening the powers of general-purpose local governments to allow them to achieve their goals in the most economical, efficient and effective manner.

The fact that most governmental services in the United States are provided directly to citizens by local governments is testimony to their importance. Nevertheless, these substate units, although they may be termed “home-rule” municipalities, are not autonomous. In all states, local governments are subject to various controls by their respective state governments, including costly state mandates, which are the principal irritant in state-local relations in a significant number of states.

This article examines recent developments involving a sample of interstate compacts and formal interstate administrative agreements, the purpose of which is to promote harmonious relations between sister states by resolving disputes and encouraging interstate cooperation.

 

Chapter 9 of the 2000-01 Book of the States contains the following tables:

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