Federalism: Why & How, Part 3 of 4

Part 3: How and Why Federalism Has Changed

Key Points: The system of dual federalism set up by the framers has evolved into something more complex.  American federalism is now characterized by a mixture of dualism, cooperation, and coercion between the federal government and the states.  How that cooperation and coercion occurred is linked partly to choices in the way federal revenues are shared with the states.[i] The reasons why that happened have a lot to do with the degree to which the federal government and the states have and have not held shared interests in various policy arenas.  

Revenue Sharing Choices

There are four main ways that the federal government has shared revenues with the states.[ii]

  • General revenue sharing is a way to send money to the states without any strings attached.  General revenue sharing grants are distributed by formulas, have few restrictions on the purposes for which the funding may be spent, and have the least administrative conditions of any federal grant type. 
  • Categorical grants are the opposite; they are tightly controlled. Most categorical grants can be used only for a specifically aided program, usually are limited to narrowly defined activities, and have more administrative and policy conditions than other grant types. Most are distributed in accord with pre-defined formulas, although some are awarded on the basis of a competitive application process. For instance, Medicaid, a categorical grant that accounts for more than 65 percent of all federal aid, is distributed by a formula.
  • Block grants represent a compromise between general and categorical grants. Block grants address broad purposes, are distributed by formulas, allow greater flexibility in the use of the funds, and have fewer administration conditions than categorical grants. In practice, block grants often combine previously existing categorical grants within a particular policy area.
  • The federal government shares revenues from natural resource exploitation on federal lands with states and counties that host those federal lands.[iii] For example, as noted by the Office of Natural Resource Revenue, “Companies pay to produce energy and minerals on federal lands, Native American lands, and the Outer Continental Shelf. The payments these companies make include bonuses, rents, and royalties. The Office of Natural Resources Revenue (ONRR) collects these payments and distributes them. The payments go to federal and local governments and Native Americans.”
    • Note: The federal government also transfers some federal lands to the states via land grants. Most of the land grants occurred in the 19th century.  Roughly 328 million acres were transferred to the states.[iv]  Under the Federal Land Policy and Management Act of 1976 (FLPMA) that Congress expressly declared that the remaining public domain lands generally would remain in federal ownership.

In our nation’s earliest years, grants appeared simply because various states had specific needs. For example, in 1803, Congress waived tariff obligations for the residents of Portsmouth, NH, after a massive fire there.[v]  The first cash grants-in-aid appeared in 1887.  Many categorical grants followed, with the degree of federal oversight and conditionality increasing over time.  The first block grant was created in 1966 by grouping together nine categorical grants as mandated by the Partnership for Public Health Act.[vi] The first and only general revenue sharing program began in 1972 and ended in 1986.[vii]

Dual federalism

In general, there is little need for the federal government or the states to try to gain leverage over each other when there is consensus between them about various government functions and policies and when their own funding sources are sufficient.  For example, there is wide agreement that the states rather than the federal government shall administer birth and death records. In such cases, dual federalism, as spelled out in the Constitution, prevails.  

The states enjoy some advantages under dual federalism.  One advantage is that states can legislate in areas of exclusive federal power.[viii]  For example, when the Office of the President decided not to adopt the Kyoto Protocol on global warming in 2001, some state and local governments adopted their own Kyoto-style regulations.  Conversely, states can choose to maintain laws and regulations that the federal government has withdrawn. Thus, when the Office of the President declared in 2017 that the United States was withdrawing from the Paris Agreement on climate change, twenty states pledged to maintain the environmental standards of the agreement. 

A second advantage is that a state may provide stronger civil rights protections than what is found in the U.S. Constitution.  States and state courts may govern on the basis of their state constitutions so long as they are not in conflict with the U.S. Constitution or laws.[ix]  By way of example, the Arizona Constitution goes beyond the Fifth Amendment to U.S. Constitution, which says “nor shall private property be taken for public use, without just compensation” by adding “Private property shall not be taken for private use” with very few exceptions.[x] Examples from other states include rights related to education, health care, public assistance, and environmental quality.[xi] (For an informative slideshow, click here.)

Cooperative federalism

The constitutional independence of the federal government and the states does not rule out the possibility of cooperation. Cooperative federalism makes the most sense when the federal government and the states need each other to achieve some goal.[xii]  In general, Congress and the President often want to use the constitutional authority and administrative capacity of the states to implement federal policy – while the state governors and legislators want to benefit from federal funding.[xiii] A natural quid pro quo arises in which states gain the use of federal grant monies in exchange for accepting federal policies.

Grant priorities have shifted over time.  Transportation grants were dominant in the years 1959-66 as a result of the 1959 National Interstate and Defense Highways Act. Between 1967 and 1980, the priorities become education, training, employment, and social services.  As of fiscal year 2019, the states were implementing an enormous range of federal policies, including 1,253 categorical grant programs and 21 block grant programs with a total value of $749 billion.[xiv] The vast majority of that spending was for categorical grants, and roughly 60 percent of those grants were for health care.[xv]

Some experts in federalism find a lot to like about federal grants-in-aid to the states.[xvi] Many categorical grants have built-in flexibility so that different states can tailor them to their needs. Many grants include rules for distribution that help fill the gaps between the richest and poorest states. Federal grants can be used to promote minimum national standards for many activities, including health insurance and pollution.[xvii] States can go further than the minimums if they wish.  While these advantages are real, other experts urge caution.

Coercive federalism

Some experts in federalism argue that cooperative federalism has become more coercive over time.[xviii]  The evolution of federal grants since the Social Security Act of 1935 (SSA) provides a good illustration.  The SSA was the most significant legislative enactment of the New Deal period – and not only for its economic impact.[xix] The Act created several federal-state programs, including unemployment insurance and the Aid to Families with Dependent Children program. It also authorized federal oversight of state and local governments by requiring auditing requirements for most of the Act’s grant programs. In 1939, state employees administering SSA programs were required to be selected by merit system procedures, thus reducing the influence of state and local party bosses. In 1939, the Hatch Act restricted the political activities of state and local government employees paid with federal funds.

According to one expert, the coercive nature of some federal grant programs emerged most strongly in the 1970s and 1980s in response to the resistance of some states to social movements favoring civil rights, poverty reduction, and pollution controls.[xx]  In addition to policy conditions, two of the more coercive elements include unfunded spending mandates and federal preemptions of state laws.  Both have been used more and more over time.  A more complete list can be found here.

  • Mandates:  Some grants require states to spend more than they receive.[xxi] The Clean Air Act amendments of 1970 and 1990 are good examples: they required billions of dollars in spending that the states did not have.  In 1995, lawmakers enacted the Unfunded Mandates Reform Act in part to ensure that Congress debates the potential effects of unfunded mandates as it considers proposed grants legislation. The Act slowed but did not eliminate unfunded mandates.
  • Preemptions: The Constitution’s Supremacy Clause is the foundation for the doctrine of federal preemption.[xxii] According to the preemption doctrine, federal law supersedes conflicting state laws. In some cases, Congress will set a minimum national standard while allowing states to set higher standards. That practice is referred to as partial preemption. Preemptive and partially preemptive federal statutes shape the regulatory environment for most major industries. As a result, the federal government’s preemption power is frequently debated in the courts, in Congress, and in the business community.

The Nixon and Reagan administrations attempted to push back against the growing use of coercive federalism – without lasting effect.  The Nixon and Reagan administrations worked with Congress to consolidate dozens of categorical grants into broader block grants.[xxiii]  Yet, today, block grants account for only a fraction of the total grant-in-aid shared with the states.  The Nixon administration also introduced the use of general revenue-sharing grants. General revenue sharing distributed funds to states from 1972 to 1981 and to localities from 1972 to 1986.[xxiv]

Why are block grants not a larger share of total grants?  In theory, block grants can make sense when federal and state objectives are aligned, and the states are assessed as knowing best how to meet policy objectives.[xxv]  In reality, according to some experts, many federal politicians dislike the reduced oversight and reduced opportunities for receiving political credit.[xxvi]  Those same reasons may have contributed to the end of general revenue-sharing as well — in addition to the appearance of budget surpluses in many states at a time when the federal deficit was growing.[xxvii]

The state’s role in national policies

The states are far from powerless under the realities of cooperative and coercive federalism.[xxviii]  The states can and do influence national policy, in some cases by plotting their own course and in other cases by pushing back against federal policy.

  • States can make national policy through the constitutional amendment process (Article V). Thus far, however, no constitutional amendment has resulted from petitions from two-thirds of the states.
  • The states can lead through policy innovation and diffusion.  The 19th Amendment, giving women the right to vote, was adopted in 1920, was achieved in this manner.[xxix] In 1869, the Wyoming Territory granted the right to vote to all female residents age 21 and older. When Wyoming was admitted to the Union in 1890, that right remained part of the state constitution. Between 1910 and 1918, the Alaska Territory and 16 additional states extended voting rights to women. Seeing the writing on the wall, Congress adopted the Susan Anthony Amendment granting women the right to vote in 1919. By 1920, three-quarters of the states had ratified the amendment. 
  • Some states can create de facto national laws because of their large markets. For example, many car manufacturers follow California’s air pollution standards, even though they are more demanding than federal regulations because they do not want to miss out on California’s market.[xxx] 
  • Coalitions of state attorneys-general can exert strong legal pressures to create de factor national policies. 
    • These coalitions can be bipartisan. State A.G.s can and do cooperate, particularly in corporate litigation, to address allegedly widespread, illegal behavior.  Notable examples include efforts by 41 states in 2017 to address the role of the major pharmaceutical firms in the opioid epidemic and, before that, an agreement between 46 states and four major cigarette manufacturers in 1998 to restrict the sale and advertising of cigarettes.[xxxi]
    • The coalitions can also be partisan.  Groups of state A.G.s have been increasingly willing to sue the federal government. For example, in 2015, a number of Republican state A.G.s filed suit against a Clean Power Plan proposed by the Obama administration. In 2017, seventeen Democratic A.G.s filed suit when the Trump administration sought to repeal the same Clean Power Plan.

Overall, both political parties tend to compete more strongly in the state arenas when they cannot control the federal government.[xxxii] Examples of outcomes achieved within the states include regional environmental compacts, anti-abortion laws, pro-gay marriage laws, gun rights, gun-controls, and pro-marijuana laws.

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© Center for Free, Fair, and Accountable Democracy

July 2021

This booklet is to be used only for civic education.

It may be copied and distributed only for non-profit, non-partisan, educational purposes and only with proper credit to the Center for Free, Fair, and Accountable Democracy.

Written by Peter Alexander and Douglas Addison
for the Center for Free, Fair, and Accountable Democracy.

Principle Reviewers:

John Kincaid, Robert B. and Helen S. Meyner Professor of Government and Public Service,
Director of the Meyner Center for the Study of State and Local Government,
President of the Center for the Study of Federalism
Lafayette College

Mark J. Rozell, Dean and Ruth D. and John T. Hazel Chair in Public Policy,
Schar School of Policy and Government,
George Mason University

Internal Reviewers:

Cheryl Cook-Kallio, Review Board

Mark Molli, Advisory Board

The reviewers are not responsible for any errors of omission or commission.

CFFAD is a non-profit organization providing non-partisan civic education.

Cover image: U.S. Department of Commerce, Economics & Statistics Admin., U.S. Census Bureau

END NOTES

[i] A fuller summary from Kincaid, 2017, pp. 1061-1062 follows: The federal government has eight key tools to induce one-way state and local cooperation: (1) grants-in-aid, (2) deficit spending, (3) minimum national-standards schemes, (4) waivers of federal law, (5) compliance-deadline extensions, (6) federal forbearance, (7) court orders and consent decrees, and (8) statutory and regulatory penalties. In turn, there are six important advocates of state and local cooperation with federal policies: (1) nongovernmental organizations, (2) state and local administrator lobbyists, (3) public sector union lobbyists and litigators, (4) interest-group lobbyists, (5) citizen lawsuits, and (6) congressional oversight. In turn, six social and political forces facilitate state and local administrative cooperation with federal policies: (1) professional norms, (2) administrator socialization, (3) public support for federal policies, (4) moral approbation, (5) territorially dispersed diversity, and (6) partisan congruence and bipartisan ratchets.

[ii] Congressional Research Service (2019a). Federal grants to state and local governments: A historical perspective on contemporary issues. R40638, and Congressional Research Service (2020). Block Grants: Perspectives and Controversies. R40486.

[iii] See pages 10-12 of Congressional Research Service (2021). Federal Lands and Related Resources: Overview and Selected Issues for the 117thCongress. R43429.

[iv] See p. 2 of Congressional Research Service (2020). Federal Land Ownership: Overview and Data. R42346.

[v] Kincaid, 2017, p. 1065.

[vi] Congressional Research Service (2020). Block Grants: Perspectives and Controversies. R40486.
     See footnote 1 on page 1.

[vii] See Congressional Research Service (2009). General Revenue Sharing: Background and Analysis. RL31936.  See also https://encyclopedia.federalism.org/index.php/Revenue_Sharing

[viii] In Sturges v. Crowninshield (1819), the Supreme Court said states can exercise powers delegated exclusively to Congress so long as Congress does not preempt them or the court does not find them in violation of interstate commerce.  See also Rozell & Wilcox, 2019, pp. 67-68.

[ix] See https://encyclopedia.federalism.org/index.php?title=Michigan_v._Long_(1983)

[x] Constitution of the State of Arizona. https://www.azleg.gov/const/2/17.htm

[xi] American Bar Association. https://www.americanbar.org/groups/crsj/publications /human_rights_magazine_home/2014_vol_40/vol_40_no_2_civil_rights/state_protection_of_human_rights/

[xii] Grant money to a state government for a specific program could instead finance a tax reduction or spending on non-program purposes if a state has already committed to spend on program goals without federal money.

[xiii] Kincaid, 2017, pp. 1071.

[xiv] Rozell & Wilcox, 2019, p. 62 and Congressional Research Service, 2019a, Table 4.

[xv] Congressional Research Service, 2020, Table 2.

[xvi] Rozell & Wilcox, 2019, pp. 62-65.

[xvii] Rozell & Wilcox, 2019, p. 68 & 74.

[xviii] Kincaid, J. (1990). From cooperative to coercive federalism. The Annals of the American Academy of Political and Social Science, 509(1), 139-152.

[xix] Congressional Research Service, 2019a, p. 19.

[xx] Kincaid, 2017, p. 1068.

[xxi] Rozell & Wilcox, 2019, pp. 67-68.

[xxii] Congressional Research Service (2019b). Federal preemption: A legal primer. R45825.

[xxiii] Congressional Research Service (2009 & 2020).

[xxiv] Congressional Research Service, 2019a, Footnote a in Table 4.

[xxv] Congressional Research Service, 2020, p. 11.

[xxvi] Congressional Research Service, 2020, p. 7.

[xxvii] Ferrara, P. (1985). For revenue sharing, time has run out. The Heritage Foundation.
     http://s3.amazonaws.com/thf_media/1985/pdf/bg417.pdf

[xxviii] This section draws on Nolette, P., & Provost, C. (2018). Change and continuity in the role of state attorneys general in the Obama and Trump administrations. Publius: The Journal of Federalism, 48(3), 469-494.

[xxix] See https://www.history.com/topics/womens-history/19th-amendment-1

[xxx] Rozell & Wilcox, 2019, p. 67-68.

[xxxi] Public Health Law Center, Mitchell Hamline School of Law. https://www.publichealthlawcenter.org/topics/ commercial-tobacco-control/commercial-tobacco-control-litigation/master-settlement-agreement

[xxxii] Kincaid, 1990, p. 152.  Kincaid, 2017, pp. 1078-1088. Rozell & Wilcox, 2019, p. 1.