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The national government is more likely to reflect the policy preferences of the nation’s strongest and best-organized interest groups than are 89,000 state and local governments. This is true, first, because the costs of “rent seeking”—lobbying government for special subsidies, privileges, and protections—are less in Washington in relation to the benefits available from national legislation than the combined costs of rent seeking at 89,000 subnational centers. Organized interests, seeking concentrated benefits for themselves and dispersed costs to the rest of society, can concentrate their own resources in Washington. Even if state and local governments individually are more vulnerable to the lobbying efforts of wealthy, well-organized special interests, the prospect of influencing all 50 separate state governments or, worse, 89,000 local governments is discouraging to them. The costs of rent seeking at 50 state capitols, 3,000 county courthouses, and tens of thousands of city halls, while not multiplicative by these numbers, are certainly greater than the costs of rent seeking in a single national capitol.

Moreover, the benefits of national legislation are comprehensive. A single act of Congress, a federal executive regulation, or a federal appellate court ruling can achieve what would require the combined and coordinated action by hundreds, if not thousands, of state and local government agencies. Thus, the benefits of rent seeking in Washington are greater in relation to the costs.

Dispersing Costs to Unorganized Taxpayers.

Perhaps more important, the size of the national constituency permits interest groups to disperse the costs of specialized, concentrated benefits over a very broad constituency. Cost dispersal is the key to interest group success. If costs are widely dispersed, it is irrational for individuals, each of whom bear only a tiny fraction of these costs, to expend time, energy, and money to counter the claims of the special interests. Dispersal of costs over the entire nation better accommodates the strategies of special interest groups than the smaller constituencies of state and local government.

In contrast, state and local government narrows the constituencies over which costs must be spread, thus increasing the burdens to individual taxpayers and increasing the likelihood that they will take notice of them and resist their imposition. Economist Randall G. Holcombe explains: “One way to counteract this [interest group] effect is to provide public goods and services at the smallest level of government possible. This concentrates the cost on the smallest group of taxpayers possible and thus provides more concentrated costs to accompany the concentrated benefits.”4 He goes on to speculate whether the tobacco subsidies granted by Washington to North Carolina farmers would be voted by the residents of that state if they had to pay their full costs.

The rent-seeking efficiencies of lobbying in Washington are well known to the organized interests. As a result, the policies of the national government are more likely to reflect the preferences of the nation’s strongest and best-organized interests.

American Federalism: Variations on the Theme

American federalism has undergone many changes in the more than 200 years since the Constitution of 1787. That is, the meaning and practice of federalism have transformed many times.

State-Centered Federalism (1787–1865).

From the adoption of the Constitution of 1787 to the end of the Civil War, the states were the most important units in the American federal system. People looked to the states for the resolution of most policy questions and the provision of most public services. Even the issue of slavery was decided by state governments. The supremacy of the national government was frequently questioned, first by the Antifederalists (including Thomas Jefferson) and later by John C. Calhoun and other defenders of slavery and secession.

Dual Federalism (1865–1913).

The supremacy of the national government was decided on the battlefields of the Civil War. Yet for nearly a half-century after that conflict, the national government narrowly interpreted its delegated powers and the states continued to decide most domestic policy issues. The resulting pattern has been described as dual federalism, in which the state and the nation divided most government functions. The national government concentrated its attention on the delegated powers—national defense, foreign affairs, tariffs, commerce crossing state lines, money, standard weights and measures, post office and post roads, and admission of new states. State governments decided the important domestic policy issues—education, welfare, health, and criminal justice. The separation of policy responsibilities was once compared to a “layer cake,” with local governments at the base, state governments in the middle, and the national government at the top.5

Cooperative Federalism (1913–1964).

The distinction between national and state responsibilities gradually eroded in the first half of the twentieth century. American federalism was transformed by the Industrial Revolution and the development of a national economy; the federal income tax in 1913, which shifted financial resources to the national government; and the challenges of two world wars and the Great Depression. In response to the Great Depression of the 1930s, state governors welcomed massive federal public works projects under President Franklin D. Roosevelt’s New Deal. In addition, the federal government intervened directly in economic affairs, labor relations, business practices, and agriculture. Through its grants-in-aid, the national government cooperated with the states in public assistance, employment services, child welfare, public housing, urban renewal, highway building, and vocational education.

This new pattern of federal–state relations was labeled cooperative federalism. Both the nation and the states exercised responsibilities for welfare, health, highways, education, and criminal justice. This merging of policy responsibilities was compared to a marble cake: “As the colors are mixed in a marble cake, so functions are mixed in the American federal system.”6

Yet even in this period of shared national–state responsibility, the national government emphasized cooperation in achieving common national and state goals. Congress generally acknowledged that it had no direct constitutional authority to regulate public health, safety, or welfare. It relied primarily on its powers to tax and spend for the general welfare in order to provide financial assistance to state and local governments to achieve shared goals. Congress did not legislate directly on local matters. For example, Congress did not require the teaching of vocational education in public high schools because public education was not an “enumerated power” of the national government in the U.S. Constitution. But Congress could offer money to states and school districts to assist in teaching vocational education and even threaten to withdraw the money if federal standards were not met. In this way the federal government involved itself in fields “reserved” to the states.

Centralized Federalism (1964–1980).

Over the years it became increasingly difficult to maintain the fiction that the national government was merely assisting the states in performing their domestic responsibilities. By the time President Lyndon B. Johnson launched the Great Society in 1964, the federal government had clearly set forth its own “national” goals. Virtually all problems confronting American society—from solid waste disposal and water and air pollution to consumer safety, street crime, preschool education, and even rat control—were declared to be national problems. Congress legislated directly on any matter it chose, without regard to its “enumerated powers.” The Supreme Court no longer concerned itself with the “reserved” powers of the states, and the Tenth Amendment lost most of its meaning. The pattern of national–state relations became centralized. As for the cake analogies, one commentator observed, “The frosting had moved to the top, something like a pineapple upside-down cake.”7

The states’ role under centralized federalism is that of responding to federal policy initiatives and conforming to federal regulations established as conditions for federal grant money. The administrative role of the states remained important; they helped implement federal policies in welfare, Medicaid, environmental protection, employment training, public housing, and so on. But the states’ role was determined not by the states themselves but by the national government.

Bureaucracies at the federal, state, and local levels became increasingly indistinguishable. Coalitions of professional bureaucrats—whether in education, public assistance, employment training, rehabilitation, natural resources, agriculture, or whatever—worked together on behalf of shared goals, whether they were officially employed by the federal government, the state government, or a local authority. State and local officials in agencies receiving a large proportion of their funds from the federal government feel very little loyalty to their governor or state legislature.

New Federalism (1980–1985).

Efforts to reverse the flow of power to Washington and return responsibilities to state and local government have been labeled the new federalism. The phrase originated in the administration of President Richard M. Nixon, who used it to describe general revenue sharing, that is, federal sharing of tax revenues with state and local governments, with few strings attached. Later the phrase “new federalism” was used by President Ronald Reagan to describe a series of proposals designed to reduce federal involvement in domestic programs and encourage states and cities to undertake greater policy responsibilities themselves. These efforts included the consolidation of many categorical grant programs into fewer block grants, an end to general revenue sharing, and less reliance by the states on federal revenue.

Coercive Federalism (1985–?).

It was widely assumed before 1985 that Congress could not directly legislate how state and local governments should perform their traditional functions. Congress was careful not to issue direct orders to the states; instead, it undertook to grant or withhold federal aid money, depending on whether states and cities abided by congressional “strings” attached to these grants. In theory, at least, the states were free to ignore conditions established by Congress for federal grants and forgo the money.

However, in its 1985 Garcia decision, the U.S. Supreme Court removed all barriers to direct congressional legislation in matters traditionally “reserved” to the states.8 The case arose after Congress directly ordered state and local governments to pay minimum wages to their employees. The Court reversed earlier decisions that Congress could not legislate directly state and local government matters. It also dismissed arguments that the nature of American federalism and the Reserved Powers Clause of the Tenth Amendment prevented Congress from directly legislating state affairs. It said that the only protection for state powers was to be found in the states’ role in electing U.S. senators, members of Congress, and the president—a concept known as “representational federalism.”

Representational Federalism.

The idea behind representational federalism is that there is no constitutional division of powers between states and nation—federalism is defined by the role of the states in electing members of Congress and the president. The United States is said to retain a federal system because its national officials are selected from subunits of government—the president through the allocation of electoral college votes to the states, and the Congress through the allocation of two Senate seats per state and the apportionment of representatives based on state population. Whatever protection exists for state power and independence must be found in the national political process—in the influence of state and district voters on their senators and members of Congress.

The Supreme Court rhetorically endorsed a federal system in the Garcia decision but left it up to the national Congress, rather than the Constitution or the courts, to decide what powers should be exercised by the states and the national government. In a strongly worded dissenting opinion, Justice Lewis Powell argued that if federalism is to be retained, the Constitution must divide powers, not the Congress. “The states’ role in our system of government is a matter of constitutional law, not legislative grace… [This decision] today rejects almost 200 years of the understanding of the constitutional status of federalism.”

Federal Preemptions.

The supremacy of federal laws over those of the states, spelled out in the National Supremacy Clause of the Constitution, permits Congress to decide whether or not there is preemption of state laws in a particular field by federal law. In total preemption, the federal government assumes all regulatory powers in a particular field—for example, copyrights, bankruptcy, railroads, and airlines. No state regulations in a totally preempted field are permitted. Partial preemption stipulates that a state law on the same subject is valid as long as it does not conflict with the federal law in the same area. For example, the Occupational Safety and Health Act of 1970 specifically permits state regulation of any occupational safety or health issue on which the federal Occupational Safety and Health Administration (OSHA) has not developed a standard; but once OSHA enacts a standard, all state standards are nullified. Yet another form of the partial preemption, the standard partial preemption, permits states to regulate activities in a field already regulated by the federal government, as long as state regulatory standards are at least as stringent as those of the federal government. Usually states must submit their regulations to the responsible federal agency for approval; the federal agency may revoke a state’s regulating power if it fails to enforce the approved standards. For example, the federal Environmental Protection Agency (EPA) permits state environmental regulations that meet or exceed EPA standards.

Federal Mandates.

Federal mandates are direct orders to state and local governments to perform a particular activity or service, or to comply with federal laws in the performance of their functions. Federal mandates occur in a wide variety of areas, from civil rights to minimum wage regulations. Their range is reflected in some examples of federal mandates to state and local governments:

• Age Discrimination Act of 1986 Outlaws mandatory retirement ages for public as well as private employees, including police, firefighters, and state college and university faculty.

• Asbestos Hazard Emergency Act of 1986 Orders school districts to inspect for asbestos hazards and remove asbestos from school buildings when necessary.

• Safe Drinking Water Act of 1986 Establishes national requirements for municipal water supplies; regulates municipal waste treatment plants.

• Clean Air Act of 1990 Bans municipal incinerators and requires auto emission inspections in certain urban areas.

• Americans with Disabilities Act of 1990 Requires all state and local government buildings to promote handicapped access.

• National Voter Registration Act of 1993 Requires states to register voters at driver’s license, welfare, and unemployment compensation offices.

• No Child Left Behind Act of 2001 Requires states and their school districts to test public school pupils.

• Help America Vote Act of 2002 Requires states to modernize registration and voting procedures.

• Real ID Act of 2005 Requires that each state produce a “Real ID” driver’s license that meets standards set by the Department of Homeland Security.

State and local governments frequently complain that compliance with federal government mandates such as these imposes costs on them that are seldom reimbursed.

“Unfunded” Mandates.

Federal mandates often impose heavy costs on states and communities. When no federal monies are provided to cover these costs, the mandates are said to be unfunded mandates. Governors, mayors, and other state and local officials have often urged Congress to halt the imposition of unfunded mandates on states and communities. Private industries have long voiced the same complaint. Regulations and mandates allow Congress to address problems while pushing the costs of doing so onto others.

Money and Power Flow to Washington

Money and power go together. As institutions acquire financial resources they become more powerful. The centralization of power in Washington has come about largely as a product of growth in the national government’s financial resources—its ability to tax, spend, and borrow money.

Federal Grants-in-Aid.

The federal grant-in-aid has been the principal instrument for the expansion of national power. As late as 1952, federal intergovernment transfers amounted to about 10 percent of all state and local government revenue. Federal transfers creeped up slowly for a few years; rose significantly after 1957 with the National Defense (Interstate) Highway Program and a series of post-Sputnik educational programs; and then surged in the welfare, health, housing, and community development fields under President Lyndon B. Johnson’s Great Society programs (1965–1968). President Nixon not only expanded these Great Society transfers but also added his own general revenue-sharing program. Federal financial interventions continued to grow despite occasional rhetoric in Washington about state and local responsibility. By 1980, more than 27 percent of all state and local revenue came from the federal government. So dependent had state and local governments become on federal largess that the most frequently voiced rationale for continuing federal grant programs was that states and communities had become accustomed to federal money and could not survive without it (see Figure 12–1).

President Ronald Reagan briefly challenged the nation’s movement toward centralized government. The Reagan administration succeeded in consolidating many categorical grant programs in larger block grants, allowing for greater local control over revenue allocation. Categorical grants are awarded to specific projects approved by a federal department distributing designated funds. A block grant is a payment to a state or local government for a general function, such as community development or education. State and local officials may use such funds for their stated purposes without seeking the approval of federal agencies for specific projects.

Today, federal grants again account for about one-quarter of all state and local government spending. It is unlikely that centralizing tendencies in the American federal system can ever be permanently checked or reversed. It is not likely that presidents or members of Congress will ever be moved to restrain national power. People expect them to “Do something!” about virtually every problem that confronts individuals, families, communities, states, or the nation. Politicians risk appearing “insensitive” if they respond by saying that a particular problem is not a federal concern.

FIGURE 12–1 State and Local Government Dependency on Federal Grants

State and local government dependency on federal money rose sharply prior to 1980; during the Reagan presidency federal grants were curtailed, but have risen again in recent years.

Federal Grant Purposes.

Federal grants are available in nearly every major category of state and local government activity. So numerous and diverse are they that there is often a lack of information about their availability, purpose, and requirements. In fact, federal grants can be obtained for the preservation of historic buildings, the development of minority-owned businesses, aid to foreign refugees, the drainage of abandoned mines, riot control, and school milk. However, health (including Medicaid for the poor) and welfare (including family cash aid and food stamps), account for more than two-thirds of federal aid money (see Figure 12–2).

Federalism Revived?

Controversies over federalism are as old as the nation itself. And while over time the flow of power has been toward Washington, occasionally Congress and even the Supreme Court have reasserted the constitutional division of power between the federal government and the states.

FIGURE 12–2 Purposes of Federal Grant-in-Aid Money

Medicaid is the largest category of federal grant money, followed by welfare, education, and transportation.

SOURCE:Budget of the United States Government, 2009.

Welfare Reform and “Devolution.”

In 1995, with new Republican majorities in both houses of Congress, “Devolution” became a popular catch word. Devolution meant the passing down of responsibilities from the national government to the states, and welfare reform turned out to be the key to devolution. Since Franklin D. Roosevelt’s New Deal, with its federal guarantee of cash Aid to Families with Dependent Children (AFDC), low-income mothers and children had enjoyed a federal “entitlement” to welfare benefits. But in 1996 the welfare reform bill passed by Congress and signed by President Clinton (after two earlier vetoes) turned over responsibility for determining eligibility for cash aid to the states, ending the sixty-year federal entitlement. The Temporary Assistance to Needy Families established block grants to the states and gave them broad responsibility for determining eligibility and benefits levels. But Congress did add some “strings” to these grants: states must place a two-year limit on continuing cash benefits and a five-year lifetime limit. This was a major change in federal welfare policy (see Chapter 5).

Supreme Court Revival of Federalism.

Recent decisions of the U.S. Supreme Court suggest at least a partial revival of the original constitutional design of federalism.

In 1995, the Supreme Court issued its first opinion in more than sixty years that recognized a limit on Congress’s power over interstate commerce and reaffirmed the Founders’ notion of a national government with only the powers enumerated in the Constitution. The Court found that the federal Gun-Free School Zones Act was unconstitutional because it exceeded Congress’s powers under the Interstate Commerce Clause. Chief Justice William H. Rehnquist, writing for the majority in a 5-to-4 decision in United States v. Lopez, even cited James Madison with approval: “The powers delegated by the proposed Constitution are few and defined. Those which are to remain in the state governments are numerous and indefinite.”9

The Supreme Court also invalidated a provision of a very popular law of Congress, the Brady Handgun Violence Protection Act. The Court decided in 1997 that the law’s command to local law enforcement officers to conduct background checks on gun purchasers violated “the very principle of separate state sovereignty.” The Court affirmed that the federal government may “neither issue directives requiring the states to address particular problems, nor command the states’ officers, or those of their political subdivisions, to administer or enforce the federal regulatory program.”10

These decisions run counter to most of the Court’s twentieth-century holdings that empowered the national government to do just about anything it wished to do under a broad interpretation of the Interstate Commerce Clause. The narrowness of the Court votes in these decisions (5–4) suggested that this revival of federalism might be short-lived. But in 2000, to the surprise of many observers, the Supreme Court held that Congress’s Violence Against Women Act was an unconstitutional extension of federal power into the reserved police powers of states. Citing its earlier Lopez decision, the Court held that noneconomic crimes are beyond the power of the national government under the Interstate Commerce Clause. “Gender-motivated crimes of violence are not, in any sense, economic activity.” The Court rejected Congress’s argument that the aggregate impact of crime nationwide has a substantial effect on interstate commerce. “The Constitution requires a distinction between what is truly national and what is truly local, and there is no better example of the police power, which the Founders undeniably left reposed in the States and denied the central government, than the suppression of violent crime and vindication of its victims.”11 But this decision, too, was made by a 5–4 vote of the justices, suggesting that the replacement of justices might reverse this current trend toward federalism by the Supreme Court.

Comparing Public Policies of the States

An overview of state and local government spending suggests the variety of policy areas in which these governments are active. Education is by far the most expensive function of state and local governments: Education accounts for about 35 percent of all state–local spending. Most of this money goes to elementary and secondary schools, but about 9 percent nationwide goes to state universities and community colleges. Welfare, health and hospitals (including Medicaid), and highways place a heavy financial burden on states and communities (see Figure 12–3).

The American states provide an excellent setting for comparative analysis and the testing of hypotheses about the determinants of public policies. Policies in education, welfare, health, highways, natural resources, public safety, and many other areas vary a great deal from state to state, which allows us to inquire about the causes of divergent policies.

FIGURE 12–3 State–Local Government Expenditures by Function

State and local governments spend more money on education than any other function.

SOURCE: Data from U.S. Bureau of Census, Governmental Finances 2002, April 28, 2005.

Variations in State Educational Spending.

Spending for elementary and secondary education varies a great deal among the states (see Table 12–2). Some states (for example New Jersey, New York, Connecticut) spend well over twice as much as other states (for example Utah, Idaho, Arizona, Oklahoma) for the education of the average pupil in public schools. How can we explain such policy variation among the states?

Economic Resources and Public Policy.

Economic research very early suggested that public policies were closely related to the level of economic resources in a society. We can picture this relationship by viewing a “plot” between per capita personal income and per pupil spending in public schools, as shown in Figure 12–4. Per capita income is measured on the horizontal, or X, axis, and per pupil spending is measured on the vertical, or Y, axis. Each state is plotted in the graph according to its values on these two measures. The resulting pattern—states arranged from the lower left to the upper right—shows that increases in income are associated with increases in educational spending. The diagonal line is a representation of the hypothesis that income largely determines educational spending.

TABLE 12–2 Policy Variation among the States Federalism allows wide variation among the states in public policies including spending for public schools. Per Pupil Spending for Public Elementary and Secondary Education

SOURCE: Data from the National Center for Education Statistics, http://nces.ed.gov/pups2008 .

FIGURE 12–4 Fifty States Arranged According to per Capita Personal Income and per Pupil Educational Expenditures

Personal income is the principal determinent of how much states spend on the education of each pupil.

SUMMARY

American federalism creates unique problems and opportunities in public policy. For two hundred years, since the classic debates between Alexander Hamilton and Thomas Jefferson, Americans have argued the merits of policymaking in centralized versus decentralized institutions. The debate continues today.

1. Eighty-seven thousand separate governments—states, counties, cities, towns, boroughs, villages, special districts, school districts, and authorities—make public policy.

2. Proponents of federalism since Thomas Jefferson have argued that it permits policy diversity in a large nation, helps to reduce conflicts, disperses power, increases political participation, encourages policy innovation, and improves governmental efficiency.

3. Opponents of federalism argue that it allows special interests to protect positions of privilege, frustrates national policies, distributes the burdens of government unevenly, hurts poorer states and communities, and obstructs action toward national goals.

4. The nature of American federalism has changed radically over two centuries, with the national government steadily growing in power. “Coercive federalism” refers to Washington’s direct mandates to state governments in matters traditionally reserved to the states. “Representational federalism” contends that there is no constitutional division of powers between nation and states and federalism is defined only by the states’ role in electing the president and Congress.

5. Over time, power has flowed toward Washington and away from the states, largely as a result of the greater financial resources of national government and its involvement in grant-in-aid programs to state and local governments. These governments are obliged to abide by federal regulations as a condition of receiving federal money. And these governments have become increasingly reliant on federal aid. Today federal aid constitutes about one-quarter of state–local government revenue.

6. Federalism, however, has enjoyed a modest revival in recent years. Congress strengthened federalism in the Welfare Reform Act of 1996 by ending a sixty-year-old federal guarantee of cash assistance and “devolving” the responsibility for cash welfare aid to the states. Nonetheless, Congress attached many “strings” to its welfare grants to the states in the Temporary Assistance to Needy Families program.

7. Federalism has also been strengthened by a series of (narrow 5–4) decisions by the Supreme Court limiting the national government’s power under the Commerce Clause and reasserting the authority of the states in the exercise of their police powers.

8. Considerable policy variations exist among the fifty states. For example, tax burdens in some states are more than twice as high as other states, and educational spending per pupil is almost three times greater in some states than others. Economic resources are an important determinant of overall levels of taxing, spending, and services in the states.

Dye, Thomas R. Understanding Public Policy Vitalsource eBook for Ashford University, 13th Edition. Pearson Learning Solutions. VitalBook file.