Federal Budget and Intergovernmental Fiscal Issues: can the twain meet?

The evolution of fiscal interdependence and conflict

Dual FederalismCooperative FederalismCoercive FederalismContentious Federalism

Trends in federal grants19

4819

5019

5219

5419

5619

5819

6019

6219

6419

6619

6819

7019

7219

7419

7619

7819

8019

8219

8419

8619

8819

9019

9219

9419

9619

9820

0020

0220

0420

0620

0820

1020

12

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

Total Outlays to State and Local Governments by Category (1948-2013)

Payments for IndividualsCapital InvestmentRemainder

Source: FY15 OMB Historical Tables, Table 12.1

In B

illio

ns o

f Con

stan

t FY0

9 Do

llars

Rise of Federal Mandates

T

G

N

C AC R TR A

Polarization and the federal system: Variable speed federalism

• Mandate resistance – Real ID, NCLB, Medicaid mandates

• Opt out = conservative states who decline to participate in Medicaid expansion, health exchanges, Race to the Top, high speed rail

• Partial preemption – states with more stringent rules in air pollution, carbon dioxide and banking regulation

5

Vertical Equalization: The Obama Stimulus

GAO State and Local Simulation

State sales tax bases have been eroding

8

9

State and Local Pension Costs as shares of budgets

Deinstitutionalization of IGR

• 1980– ACIR– OMB– GAO– Congressional IGR subcommittees– Academy for State

and Local Government

• 2013– CBO cost estimation– GAO– Whither state and local

groups?

Federalism in an Age of Austerity

Go it alone federalismPartial and ineffective solutionsPublic confusion

Cost shiftingUnfunded mandatesFiscal substitution

Fiscal coordinationWin-win strategiesVATSorting out responsibilities

Centralizing Effects of Deficit Commission Proposals

Reduced discretionary budgets will prompt cuts in federal grants

Tax expenditures reexaminedState and local deductionTax exempt bonds

Cost shifts and mandates Extend social security coverage

Revenue nationalization - VATCap and consolidate

Medicaid long term careHomeland security grants

A Federalism reform agenda?• Tax policy

– Tax expenditure reform– Consumption taxation– Tax base sharing

• Grants– Sorting out– Consolidation/performance grants– Targeting

• Regulatory– Unfunded mandates act– Performance outcomes– Variable speed federalism

• Institutions– National/federal for engagement– Fiscal impacts– State capacity for engagement