Goldwater Institute: Federal Funds Distort Arizona's Legislative Process

By Benjamin Barr

James Madison, writing in the Federalist Papers, explained the importance of states' rights by noting that the "powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite." These days, the pendulum of federalism has swung out of balance, favoring federal encroachment over state sovereignty.

Arizona's current budget struggle shows that Arizonans pay a dear price for ever-expanding federal programs. These programs often involve matching-fund agreements, promising "free" federal dollars tied to state financing commitments. While the Grand Canyon state readily enjoys the bounty of such programs as No Child Left Behind and Medicaid, their state-side costs have usually remained hidden. For example, in 2000, Arizona General Fund spending on Medicaid was $463 million. By 2005, that figure had risen to $914 million, and it is projected to grow to $1.3 billion in FY 2008.

Timelines, past and present, show that as states buy into federal funding programs, they tend to expand their own state budgets. Over time, those programs grow faster than wholly state-owned functions and account for an ever-larger portion of state budgets. All along, citizens get more government than they are willing to pay for, though not necessarily better government.

By opting into additional federal programs, Arizona surrenders its own legislative and policy-setting authority to Washington. Because federal funds must be matched to state funds, that money is taken off of the legislative table. Today, the state legislature's ability to appropriate, or to have meaningful control over, its own funds is limited to about 25 percent of state spending. That type of constraint forces Arizona to be a servant to Washington, rather than define its own priorities.

There are a number of ways we can right this imbalance of power. The best way to remedy this situation would be to decline participation in federal programs that increase costs to the state. Currently, states can opt out of participating in federal programs, but they can't opt out of paying for them. States should fight for the right to opt out of paying for federal programs in which they choose not to participate. This includes providing citizens and businesses of non-participating states a credit against their income taxes.

Benjamin Barr is a Goldwater Institute Senior Fellow.