For much of the nation’s history, policymakers recognized that the federal government’s powers were “few and defined,” as James Madison noted. Issues like education and community development were largely left to the states. Unfortunately, the separation of responsibilities between the federal government and states has been eroded to the point that federal funds now account for approximately a third of total state spending. A consequence is that federal aid to the states has fostered bigger government at all levels.
State policymakers are addicted to federal money. The appeal is obvious: they get to take credit for all the wonderful things they do with money that they didn’t have to tax out of their state’s voters. Thus, it has been interesting to observe Republican governors who willfully fed at the federal trough now pontificate on the dangers of Washington’s spending addiction as potential or declared candidates for president.
Although he ultimately decided against running for president, Indiana Gov. Mitch Daniels has carefully crafted a public image as a voice of reason when it comes to addressing the federal government’s budget problems. When he was flirting with a run for president, Daniels received fawning coverage from various observers for labeling the federal government’s debt the “new red menace.”
One problem with this image is the fact that Gov. Daniels has been a “just another politician” when it comes to grabbing federal dollars. Indeed, Daniels signed an executive order on his first day in office creating a state agency devoted to increasing Indiana’s take from the federal honey pot. As an official with the Indiana state Office of Management and Budget, I can attest that it was the Daniels administration’s policy to find ways to use federal dollars instead of state dollars where possible.
Last week, a local Indianapolis television channel ran an investigation of the state’s Office of Federal Grants and Procurement. Although the agency has cost Indiana taxpayers almost a half-million dollars, the investigation team couldn’t figure out what it has been doing with the money. State legislators that were interviewed didn’t know much about the agency even though they continue to fund it. I admit that I can’t remember dealing with it (other than to be completely disgusted by its existence).
Daniels declined to be interviewed for the story, and instead sent out his deputy chief of staff, Cris Johnston, to take the heat. Johnston’s best defense was that Indiana has improved its ranking when it comes to bringing in federal taxpayer dollars. I suppose that means Daniels’s red menace isn’t such a menace when the federal spigot’s flow is being directed toward his state’s coffers.
I’ll wrap this up by making a suggestion to the journalists out there covering the presidential candidates with a background in state government: did they eschew federal handouts or did they have their hands out? It’s an important question because the next president is going to be facing an epic fiscal mess and we really can’t afford another politician who talks the talk but didn’t walk the walk.
See this Cato essay for more on the importance of fiscal federalism and why the flow of federal funds to the states needs to be shut off.
originally published at Cato-at-Liberty
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