fiscal federalism and devolution

END OF ISOLATION

Before the 20th century, lack of transportation or geographic separation and communication methods resulted in some isolation. This is not happening anymore partly due to National security concerns like World War I in the early 1900s where we needed a somewhat mass mobilization, transportation and communication inventions, innovations or methods and our national values. We're not always, at often times, consistent across every state. So the belief that we needed to use the federal government's power to kind of bring everybody into the understanding of what our national values or things that we care about like poverty alleviation were suggested. But we have now come to understand that the 10th amendment limits the federal government influencial power. Therefore, it's only so much the federal government can use to basically coerce lower level governments to do things consistent with the national values. As a result, the introduction of financial inducement becomes an important tool; federal financial resources that the state and local governments don't have will be used in an attempt to coordinate action for more consistency across the country. This is called fiscal federalism.

FISCAL FEDERALISM

Laws and programs have mandates that have to be applied uniformly or evenly all over the nation or across all 50 States and localities within the 50 states (e.g., busing, welfare, etc.). The theory relating to Friscal Federalism is based on this notion that the public sector has three problems to solve:

  1. To receive the highest equitable distribution of income

  2. Maintain an abundance of high employment and stable prices

  3. Achieving efficient resource allocation by setting aside resources for the future. States, however, haven't always been so good at this. Therefore, many believe that the federal government should step in for this part make sure that allocation is equitable or that particular local and state governments are meeting our minimum standards. Because if they're not, the federal government should step in to help with those shortcomings occurring across jurisdictions or spill over affects that benefit one jurisdiction at the cost of another.

  4. They solve these shortcomings through two systems of making grants: categorical (specific) versus block (flexible)

FISCAL FEDERALISM: SUPPORT FOR STATE AND LOCAL GOVERNMENTS

The majority of financial support the states receive from the federal government are in health care. The spike in financial support for healthcare in 2010 came from the Medicaid payments associated with the Affordable Care Act. There is also income security, transportation, education, community development support from the federal government to the state level governments.

CONSEQUENCES: DEPENDENCE

One of the results of this fiscal federalism is this idea of dependence. In a 1970s, there was even a belief that New York City became victim of this behavior. A vast social service network or welfare network was established in New York City. Then, when the recession hit, New York City ended up in a financially tough place. As a result, New York City requests for some guaranteed loans programs from the Ford administration that resulted in the following Daily News headlines: “Ford To City: Drop Dead”. In other words, the federal government is saying, “this has gone far enough. This is where we draw the line.” This even illustrates how much tension there was back then between the federal and local governments during the hard economic periods but Ford did eventually provide the aid that New York City requested for after a certain period of time.

CONSEQUENCE: THE DEVOLUTION REVOLUTION

We also start to see local and state governments start to despise the mandates that come from the federal programs, regulations and laws the require a certain amount of money. They even start to despise the strings that are attached to federal financial aid which gets worse in 1994 with the Williamsburg Resolve. 1994 was basically interesting because this is also the year where the contract with America happened where the Republican party took charge of the House of Representatives for the first time in a long time; the Republicans had the majority. It was also at this time where the Republican governors of states basically said in Williamsburg Virginia: we're done kissing the ring of the federal government. Yes, we still want the money but we don't want the strings attached to it (federal money without federal mandates). This devolution movement also resulted in the change in how policies were made. For example, the shift in our welfare system known as AFDC or Aid To Family With Dependent Children transformed into TANF or Temporary Aid To Needy Families. The word temporary is an important word to take note of. The role of AFDC, if you qualified, was to give you a welfare check from the government. Now, TANF prime the more money to training programs to those people that required assistance and they had a certain amount of time to get the assistance. They also have to prove their job searching time. Additionally, instead of a centralized federal government agency, this was decentralized or moved to the states where they can utilize private organizations to offer these programs; devolving these programs to local and state level gives the states and local governments more control over how they are ran. That's the definition of devolution.

IDEOLOGY VERSUS REALITY?

What makes this interesting is the governments at the time that were against the Williamsburg meeting, were those that depended heavily on federal aid: the American West “is where archetypally the place where big government is distrusted, the land of the independent man going it alone. Yet much of it - states such as arizona, for instance - wehas depended, not marginally or occasionally but always and totally, and federal money from Washington for its economic existence.” (Hughes 1993). In conclusion, many believe that the federal government should stop telling States and local governments what to do through these fiscal federalism programs.