Taking federal dollars is different than respecting federalism
(NOTE: An earlier version of this article has had some math calculations corrected. The author acknowledges that she studied political science so she wouldn’t have to do math, and apologizes for any confusion on the reader’s part caused by her difficulty in calculating large numbers!)
Federalism is a form of government that maintains the notion that some powers are best left to national-level governance (international relations and national defense, for instance) but that governance not specifically in the hands of the national government belongs rightfully to the states (or to the people, individually, or through local governance).
A few months ago, we made note of the Federalism Scorecard, which raised some questions about how vulnerable Nebraska is to federal overreach and interference in the powers that rightfully belong to state and local governments.
Some interesting numbers have recently crossed our desks, raising even more questions about Nebraska’s vulnerability to national overreach.
Most of us know that the national government contributes money for infrastructure, education, and lower-income health care needs. While we could argue about whether the feds should be involved in those areas, that seems to be an already decided argument. Somewhere in time, the national government got involved in some of these areas, imposed mandates on the states to provide services, and then decided that the national government should pick up some of the cost for those services. Hence, we get cost-sharing for services needed in the states.
Of course, as with many things in life, the state/local government’s relationship with the national government is transactional, following the “golden rule”: Those who have the gold make the rules. Suppose state and local governments want the money provided by the national government through assorted cost-sharing and grants. In that case, they must follow the compliance standards and rules of the granting level of government. In some instances, that may mean a higher service cost than the state would have to pay were it working independently.
So how much danger is Nebraska in?
The map above represents the percentage of total state and local revenue (as of 2021) from the national government. The top five states, in terms of dependency on federal dollars (not including the District of Columbia), are Montana, New Mexico, Kentucky, Louisiana, and Alaska. Their reliance on federal funds exceeds 30% of their state revenue.
The bottom five states in terms of dependency are Vermont, California, Minnesota, South Dakota, and Iowa–all with total revenue dependence of 15% or less of the state revenue budget.
As with many things, Nebraska’s numbers are middling. Nearly 20% of our state and local budget is dependent on national dollars.
Another way to look at this is to consider how much federal money comes into the state per person.
Nebraska is neither at the top nor the bottom of the list in per person dollars received from the national government, coming in at just under $3500 per person flowing from Washington, D. C. to some level of government in Nebraska.
Some would argue that this is money being returned to the states from federal taxes paid, and that we should get as much as we can.
In 2021, the Internal Revenue Service identified a total of $28, 527, 699,000 from Nebraska. Nebraska’s population is approximately 1,968,000. Dividing revenue the IRS receives by population suggests that Nebraskans paid $14,500 in taxes for every $3,500 received.
Checking the math, for the same year, Kansans paid nearly $10,000 for every $2750; California paid about $15,000 per person in federal taxes for every $4160.
Most states see about $1 come back to the state for every $3 individuals and businesses paid to the IRS.
Another report defines revenue and spending nationally in fiscal year 2023. It’s no secret that our national government routinely has a deficit budget and that interest on the debt is now over 10% of the national budget each year. In 2023, “Transfers to States” amounted to $1.09 trillion, and the revenue deficit was $1.7 trillion.
While receiving funding from the national government is a fact of life for state governments as well as assorted local government entities (including schools), it might be prudent to consider that increasing funding levels from the national government may seem like “getting some of what we’ve paid back,” or it might seem like “free money.” Still, those dollars contribute to growing national budget deficits and debt, further devaluing the dollar.
Increased dependence on federal funding threatens to make us less free as Nebraskans. Federal dollars come with federal strings attached. Compliance with federal rules and regulations often requires more state regulations to be adopted. Federal dollars, in other words, undermine the goals of federalism by blurring the lines of responsibility between local, state, and national governments.