Federalism: Grants, Fiscal Trends, New Federalism, and Mandates

Creative/Centralized Federalism (1964-1980)

• Definition: Federal government takes primary responsibility for initiatives at state/local levels, leading through federal priorities.
• Mechanism: Grant-in-aid system.
  • Block Grants: More flexibility for states in spending.
  • Categorical Grants: More federal direction and restrictive spending requirements.
  • Federal government uses grants as leverage to influence state policies (e.g., requiring seat belt laws for highway grants, setting blood alcohol levels, Medicaid eligibility).

Fiscal Trends and State Reliance

• Increased Federal Grants: Significant increase in federal grants to states from $1960$ to $2021$.
  • Major Drivers:
    • Medicaid program (enacted $1965$) is a primary driver of federal spending via grants.
    • COVID-$19$ spending ($2020$-$2021$) caused massive spikes, dwarfing prior spending.
• Grant Allocation: Most federal grant money to states goes towards healthcare.
• State Reliance: States heavily rely on federal grant money, often making up $25\%$ or more of their annual budgets. This creates political incentives to accept federal stipulations rather than raise state taxes.

New Federalism (Reagan Era)

• Period: Briefly, but importantly, involved returning power and authority to the states.
• Concept: Devolution - the returning of power and authority to the states.
• Reagan's Philosophy: Believed "government is the problem, not the solution" and advocated for smaller government with less involvement in state affairs.
• Implementation: Attempted to cut back and reorient the grant-in-aid system.
  • Converted some block grants to categorical grants.
  • Eliminated general revenue sharing.
  • Reduced overall grant funding.
• Executive Order 12612: Issued by Reagan, aimed to restore divisional governmental responsibilities between national and state governments, emphasizing limiting federal scope to matters beyond individual state competence.
• Impact: States were unprepared for funding cuts, leading to friction and reductions in state-level programs. Federal grants dipped significantly from $1980$ to $1990$.

Federal Mandates

• Definition: Direct federal government orders to states that do not come with additional funds for implementation, forcing states to comply and bear the costs.
• Examples:
  • National Energy Policy Act ($1992$): Required redesigned toilets with lower flushing capacity (e.g., $1.5$ gallons instead of $3.5$ gallons).
  • Safe Drinking Water Act ($1986$): Mandated municipal water supplies meet federal cleanliness standards, requiring states to upgrade filtration systems if needed.
  • National Voter Registration Act ($1993$) ("Motor Voter Act"): Required states to allow voter registration when accessing services like driver's licenses.
  • No Child Left Behind Act ($2002$): Introduced federal education standards, inserting the federal government into local education policy.
• Consequence: Federal mandates increase federal influence over state activities, often shifting implementation and financial burdens to states.