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Taking the Long Way Home: Federal Aid to States and Localities

By: Nick Zaiac - @NickZaiac - Mar 27, 2014, 9:06 am

Español The Whitehouse’s Office of Management and Budget recently released the latest federal budget proposal to the public. Overall spending is expected to rise notably, from US$3.46 trillion to $3.65 trillion.

As expected, it is full of unnecessary, wasteful spending. One of the worst offenders is the “aid” the federal government sends to states and localities to pay for hundreds of different programs, ranging from environmental remediation to health care. Such spending totals more than $607 billion for 2014, accounting for nearly 17 percent of all federal spending.

So where is this mountain of money going?

Federal Aid to States and Localities, Excluding Medicaid
Fist and foremost, the majority — $309 billion — of aid-to-state dollars go to Medicaid for the nation’s poor. Beyond this, the story gets interesting. Tens of billions of dollars are spent on things like “community development,” highways, and health and education efforts.

All of this sounds well and good until you realize that the money never had to run through the federal bureaucracy in the first place. Is there any reason that fundamentally local issues, such as revitalizing neighborhoods or subsidizing people’s rent, should be paid for by the federal government?

Many observers have documented for years the way states and localities waste their resources lobbying for federal dollars, hoping to finance their own programs with the dollars of taxpayers nationwide. This alone is evidence that something should be done.

Spending tax dollars lobbying for federal aid benefits only two groups: lobbyists and the well-connected states and localities they represent. Individuals nationwide lose. State officials seem to see money flowing from Washington as a free lunch, not acknowledging that someone needs to pay for it, and that someone is often their own constituents.

The fact that the money flows through the federal government means that not all the tax dollars work their way back to the localities themselves. The multiple layers of bureaucracy involved, and hundreds, if not thousands, of bureaucrats along the way cost massive sums of money just to administer the transfer of the hundreds of billions of dollars involved.

All of this would be solved by ending the federal role in funding state and local activities and cutting taxes so that the states could then fund what they feel is important. Some might choose to end unnecessary programs altogether, while others would find that they want more spending on whatever program they see fit. In any case, it brings the cost of government more in line with those receiving the benefits.

If states and localities want to have some subsidy or program, it should fall on their own people to pay the price. Residents of Iowa have no reason to pay for sport fish restoration in Guam just like a New Yorker shouldn’t be paying for rural housing subsidies in Nebraska.

Nick Zaiac Nick Zaiac

Nick Zaiac is a public-policy researcher in Washington, DC. He also serves as a policy analyst at the Maryland Public Policy Institute. His column, The DC Leviathan focuses on the often-ignored bureaucratic agencies, from the Department of the Interior to the General Services Administration. He has been published in the Baltimore Sun, City AM, CapX, and other outlets. Follow @NickZaiac.