Money and Federalism Essay example

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Money and Federalism
Interdependence of sectors of society compelled government to take larger role.
Another factor: Federal government has a superior ability to tax and borrow.
Why?
Why?
States and localities are in an inherently competitive situation with regard to taxation.
People and business can move to another state or locality.
National government dependent on personal and corporate income tax.
State and localities: license fees and property taxes.
Federal Government and Money
Can raise more taxes than do all the 50 states.
Can control the American dollar (the Federal Reserve).
Can borrow money to cover its deficits.
States and localities can go bankrupt - harder to find credit.
Fiscal Federalism
Federal government’s revenue raising advantage has helped make money the basis for many of the relations between the national government and state and local government.
Carrot and stick approach.
Principle method: Grants in Aid.
Grants in Aid: The Carrots
Defined as: money paid by one level of government to another level of government to be spent for a specific purpose.
Have been used to fund projects in: mass transportation health care urban renewal drug rehab housing crime
Three types of Grants
Categorical- grants given for specific purposes
Block- grants given for general purposes
Revenue Sharing - grants given with no strings/direction given for its disbursement
Two types of categorical grants
Formula: those that are distributed according to a formula.
Project grants: awarded on a competitive basis through a federal agency
The Stick Approach
Direct Orders: legal measures adopted by the national government and enforced by civil and criminal penalties that require certain actions by state and local governments.
Equal Opportunity Act of 1972: Barred job discrimination by state and local governments on the basis of race, color, religion or national origin.
Another Example: Direct Order
Americans with Disabilities Act of 1990: requires that local governments see to it that all fixed rate public transportation systems be made accessible to the disabled as well as other new public transportation facilities.
The national government passes a law that DIRECTLY requires some action on the part of state and local governments.
The Stick: Preemption
Preemption is the national government’s removal of an area of authority from state and local governments.
Example: Clean Air Act 1990, Amendments in 1989 dealing with hazardous and solid waste, Water Quality Act of 1987.
Took away state authority and often imposes costs in form of unfunded mandates.
Partial Preemption
Occurs when the national government establishes minimum standards in certain areas and authorizes state and local governments to exercise primary responsibility for
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