OPINION:
In his State of the Union address, President Biden mocked Republicans for their hypocritical approach to spending bills. Frankly, he’s not wrong to do so. The president noted that while Republicans voiced opposition to, for example, the $1 trillion infrastructure package, they happily accepted the oodles of cash that flowed to their constituents once it was passed. “If any of you don’t want that money in your district, just let me know,” Mr. Biden chirped.
His comments expose a dark truth about the Grand Old Party, which touts fiscal responsibility. Unfortunately, Republicans are just as hooked on federal dollars as Democrats, and Washington is happy to exploit that dependence. They need to start honoring their promises to protect freedom in their states by breaking their addiction.
Members of Congress are celebrated for “bringing home the bacon” because federal money in their districts helps their reelection prospects. Many state leaders are also eager to accept federal dollars because it allows them to increase spending without raising taxes themselves. In turn, they appear fiscally responsible.
The Democrats are known for this gambit. Illinois, which features a Democratic trifecta, has the worst credit rating of any state in the nation. This is thanks to over $100 billion in debt without reforms. If Washington were to cut federal dollars (nearly one-third of the state’s budget), the Land of Lincoln would instantly face a fiscal crisis.
Thanks to Illinois, the dependence on federal government dollars in red states often flies under the radar. Louisiana, which features a Republican trifecta, relies on the federal government to fund a whopping 51% of its budget. South Dakota, which also has a Republican trifecta, relies on nearly 40% of its budget from the federal government.
The latest figures show that the average state gets 38% ($21.6 billion) of its revenue from federal funds, the largest single category of any funding source. This has been the case since 2020. Since 1999, however, federal dollars have consistently been the second-largest funding source for state budgets.
As we advance, it’s likely to get worse. Mr. Biden’s proposed 2025 budget promises billions more to state and local governments for everything under the sun. Also, states have until 2026 to spend the last of their pandemic funds. Moreover, states are already expected to commit 10% of funding for Medicaid expansion, which was promised as a “free lunch” 10 years ago. As time passes, we can expect federal programs to the states such as Medicaid to look more like unfunded mandates than free lunches.
The larger issue with federal dollars is that they violate federalism by allowing Washington to dictate policy and effectively hold states hostage. For example, Public Law 98-363 requires that federal highway funds be withheld from states that have a minimum drinking age below 21. In the 1930s, the federal Public Works Administration suspended all loans to Arkansas until its default and bond-funding issues were resolved. When other states inevitably face fiscal crises, we can expect the federal government to employ the same tactics.
This type of cartel federalism allows government at all levels to grow and floods state and local governments in transfer payments. The more state politicians rely on those transfer payments, the more they listen to politicians in Washington and ignore the voters who elected them.
To keep their states free, Republicans should follow the lead of Utah, which enacted “Financial Ready Utah” in the wake of the Great Recession. This package of bills requires state agencies to have emergency plans in place for a 5% to 25% reduction in funding and to seek legislative approval before applying for federal funds.
Yet spending must be constrained at all levels of government. A constitutional spending rule like the Taxpayer Bill of Rights would prevent Washington from wantonly throwing money at the states by tying spending to the growth of population plus inflation. In turn, elected officials would be forced to get taxpayer approval before raising new taxes. Even egregious offenders would likely think twice before going on a spending spree.
• Thomas Savidge is a research fellow at the American Institute for Economic Research. Follow @thomas_savidge.
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