How the stimulus robbed states of their sovereignty

Sven Larson Contributor
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Obama’s so-called “stimulus bill” did not do much good for our economy. On the contrary, numbers provided by recovery.gov show that whatever jobs the bill “created” have come at astronomical costs. One very telling example: as of the first quarter of 2011, each “stimulus” job in Wyoming had cost taxpayers $477,000.

The harm done to the economy by this waste of money is bad enough. But the damage goes far beyond that. Perhaps its most significant long-term damage is what it has done to the federal structure of the United States.

State independence is a core element of a federation like ours. The Constitution clearly defines states as independent jurisdictions. They can make their own laws and go about their business as they see fit, with limited, enumerated powers left for the federal government.

The Obama stimulus bill did not change a word in the Constitution. But it practically ended America as a federation anyway.

In order to be independent, a state has to have two kinds of sovereignty: constitutional and fiscal. Constitutionally, the states are still sovereign, but fiscally they are far from it.

By using a little-known program called Federal Aid to States, the Obama stimulus bill flooded states with so much money that they are now practically in the pockets of the federal government:

  • In 2010 the federal government was the largest income source for 27 states.
  • Oklahoma gets 51 cents of every dollar the state spends from the federal government.
  • Another eight states get at least 40 percent of their revenue from the federal government.

Big states like Arizona, California, Florida, Pennsylvania and Tennessee are all in this group. Small states such as New Hampshire, Rhode Island and South Dakota also depend on Uncle Sam as their first line of revenue.

While many states have been good at cutting their general fund spending, federal money has been flowing like honey from a beehive. A typical example is South Carolina, where Governor Nikki Haley has been very selective in her fiscal conservatism. Her spending restraint only applies to the general fund; she quietly accepts that 45 cents of every dollar spent by the state comes straight from Washington, D.C.

A story out of Kansas shows what this federal dependency can lead to. In March the Topeka Capital Journal reported that Governor Sam Brownback — another supposedly strong fiscal conservative — was told by federal bureaucrats to either expand education spending or lose millions of dollars in funding. The state legislature immediately responded by proposing a $35 million increase in special-ed spending.

The stimulus funds will go away over the next year. According to the Office of the Management of the Budget, the budget overseer in the White House, some programs will take big cuts in 2012 compared to 2010. A good example: federal funds for Medicaid, the largest expense item for states, will shrink by almost $20 billion.

This drop in federal funding would be an excellent opportunity for states to restore some of their lost fiscal sovereignty. That is unlikely to happen, though: in February the National Governors Association sent a desperate plea to their benefactors in Congress, asking them to please not cut state-bound funds.

The Federal Aid to States program effectively gives Washington central planning power over state spending. Any attempt by a governor or state legislature to reduce government is quickly countered by threats from bureaucrats inside the Beltway: close the ranks of big government — or lose your allowance.

This is not the America our Constitution talks about, is it?

Sven R. Larson is a research fellow with Wyoming Liberty Group, a free-market think tank. He has written two books and numerous research papers and articles about economic policy, state budgets, health reform and the welfare state. He is often interviewed by TV, radio and newspapers on his topics of expertise.