Fiscal Federalism

Federalism is Defined by Money Fiscal Federalism: a concept of federalism where funding is appropriated by the federal government to the states. Funding is carried out by Grants-In-Aid (Resources given by the Federal Government to the states). The nature and the type of Grants relate to the “type” of Federalism being conducted

Land Grants Grants began mostly with Land Grants. The Federal Government originally did not collect much revenue but did have lots of territory under its control. Land was granted to the states. Most often for sale Land Grant Colleges were started. The state would sell Federal Land and use the proceeds to build Colleges and Universities

Cash Grants Relatively rare before the 20th Century Factors leading to increase The Income Tax (16th Amendment): Greatly increased the amount of revenue collected by the Federal Government Federal Surplus Federal Government controls Money Supply State Support (State didn’t have to spend any of their own money but could take credit for the results) Log Rolling- A process in which Legislators in House and Senate vote for each other’s projects in return to support for their own.

Types of Grants Project Grants Grants submitted either by states for a certain project they feel is needed OR set up by the federal government that is applied and competed for. Most Popular in 1920s to 1950s (although still used) Examples Construction on the 10 and 605 (Part of Stimulus Package) Race to the Top $4 billion in education funding given to states that improved test scores and other educational improvements Federal Pell Grants $30 billion dollars given out to students who demonstrate financial need.

Categorical Grants Categorical Grants Grants issues by the United States Government for very narrow or specific purposes. Main Source of aid for the States and Local Government Most Commonly Associated with Cooperative/Coercive Federalism Examples Food Stamps (Supplemental Nutrition Assistance Program) $75 billion dollar program to provide aid to families in poverty to buy food. Amount of money per state determined by formula (population, income level, cost of living) Interstate Highway System $114 billion ($425 billion adjusted for inflation) to set up a series of interconnected highways linking the states. Would improve commerce, ease of travel, and could be used for military in time of invasion Planned Parenthood $540 million in categorical grants to provide free/low-cost health services.

Block Grants Block Grants Grants issues by the United States Government for very broad or general purposes Gives states the freedom to design programs and allocate money Most Commonly Associated with New Federalism/Devolution Examples Welfare (Temporary Assistance for Needy Families) $16.5 billion dollar grant, divided by formulas per state. Welfare moved from a categorical grant to a block grant under the Devolution Revolution. Low Income Housing Energy Assistance Program $300 million dollar block grant also divided by formulas per state. Subsidizes energy costs for low income earners. Especially important for Northern States during winter. Mental Health Block Grant $450 million dollar block grant to provide aid for mental health treatment, also a formula grant to states. Changed from Categorical Grant to Formula during Reagan years.

The Irony of Categorical and Block Grants Although devolutionists and state’s right’s proponents in Government favor Block Grants to Categorical Grants…. There is more lobbying and general public support for Categorical Grants. Why? Because Block Grants are for general programs, very few know exactly who will get the money and how it will be spent. Categorical Grants fund specific programs and agencies. Those that work for these agencies or benefit from their services are invested in keeping them going.

Revenue Sharing Revenue Sharing A portion of all federal tax returns would be given back to the states. Used by Nixon in an attempt to give States more control. Examples Look this program failed miserably. It lacked oversight and nobody was happy with just giving money to be used for anything. If they ask you this on the AP Exam they are just being difficult for the sake of being difficult.

Other Forms of Federal Control Mandates Requirements that direct states and local governments to provide additional services under the threat of penalties. The crucial difference between Mandates and Grants is that there is no additional funding tied to acceptance of conditions. Instead money is withheld from the states

Funded vs. Unfunded Mandates Federal Government provides the money for the state to meet the requirements set. Examples No Child Left Behind Federal Speed Limit Federal Government does NOT provide the money for the state to meet the requirements set. Examples Americans with Disabilities Act Medicaid

An Easy Analogy Clothes Shopping as a Kid Project Grants: “Mom, I saw shoes I like. Can you give me money for them?” Categorical Grants: “Here son… try this on. Yes, I’m buying that for you” Block Grants: “You need clothes. Here is some money. Buy clothes. But bring me a receipt” Revenue Sharing: “I’m going to give you 5% of my inc... Ok this is stupid. Unfunded Mandate: “Go buy that shirt… Why are you holding out your hand?”

Pros and Cons of Federalism Advantages of Federalism Disadvantages Encourages diversity in local government Avoids concentration of political power Accommodated already exiting state governments States serve as training grounds for national leaders Keeps government close to the people The Constitution is not always clear about distribution of powers. Multiple levels of government make governing more complex. Duplication of offices and functions Conflicts of authority Allowed local authorities to pursue discriminatory policies (entrenches local interests)