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Feds becoming biggest part of state budgets

NEW ORLEANS – This will be the first year that federal aid will become the largest individual component of state budgets, expanding Washington control over more of the decisions at that level, according to a report by an educational and research organization.

Already 27 states rely on federal aid as their primary source of funding, but the report by the Wyoming Liberty Group describes this year’s level as a critical breaking point.

“It sends a profound message,” says Wyoming Liberty Group research fellow Sven Larson, the author of the report. “There is a growing consensus among the states that dependency on the federal government is tolerable, even desirable.”

Shock the Washington establishment by participating in the “No More Red Ink” campaign and shut down all new plans for bailouts, “stimulus” spending and even the funding for Obamacare.

While state revenues have declined during the current economic downturn, debt-financed federal aid has risen. Nationwide it now stands at more than one third of total state revenues, with greater state conformity over the level of federal aid dependence.

Last year, Oklahoma and Louisiana were the most dependent, with federal aid comprising 50 percent or more of their revenue. Ten other states were more than 40-percent dependent, compared to only one state in 2005, Louisiana, at 45 percent.

The rankings also reveal that another 16 states have dependency levels above one-third of their budget.

The Wyoming Liberty Group has documented the trend in sources for state revenue, which includes general funds for the ordinary expenses of the executive, legislative and judicial departments, for debt servicing, and for capital outlay. Other funds include program-specific taxes and fee revenues that are not available for discretionary spending:

Larson, author of “Remaking America: Welcome to the Dark Side of the Wefare State” and an immigrant from Sweden, said the federal funding trend is part of a broader decline of federalism toward a European-style unitary United States. And he believes the nation is at a critical threshold in that direction.

“Evidence from Sweden primarily, but also from other European welfare states, indicates that once government passes 40 percent of GDP (precisely where the United States hovers) the productive sector can no longer keep up with the tax obligations that government puts on it.”

Larson explains that his research confirms that for states with the highest dependence, it has grown from 36.4 cents per dollar in the state budget to 45 cents.

He also notes for those states with the lowest dependency, the level of federal funds has grown from 14.5 cents per dollar to 21.4 cents.

“Every state has increased its dependency on federal funds, and low-dependency states have increased their dependency the most,” he said.

Chris Edwards, editor of DownsizingGovernment.org, in his February Tax and Budget Bulletin, also documented and denounced the large and growing federal presence in state policy.

He attributes state entanglement and dependency to the 1,122 federal aid programs in 2010, up 29 percent from 2005 and more than triple the 1985 level.

According to the Cato Institute, the Agriculture Department has 118 programs alone, spending nearly $37 billion. Health and Human Services runs 297 programs dispensing nearly $357 billion, and Housing and Urban Development runs 43 programs spending more than $42 billion. The Education Department runs 109 programs spending $86.5 billion.

The organization illustrates the massive growth in federal programs over the last 25 years:

“[These programs] combine federal subsidies with top-down regulations to micromanage state and local affairs… Furthermore, aid ties up the states in bureaucratic knots and reduces state policy innovation,” said Edwards.

President Obama

Robert Higgs, a senior fellow with the Independent Institute and a Louisiana resident, is a specialist on the growth of American government, most notably with his book, “Crisis and Leviathan.” Like Larson, Higgs warns that federal funding makes a mockery of genuine federalism, since states then have less independence to act in the interests of local people.

“Fearing the loss of such a large part of their funding, state authorities become nothing more than puppets of the federal authorities,” he said.

Alarm over the ever-increasing federal debt – it’s about $14.3 trillion at the moment – has prompted the creation of a “No More Red Ink” campaign that has delivered nearly 1 million red letters to House Republicans urging them to vote not to raise further the debt ceiling.

The move would create an immediate cut in federal spending. Already, some 125 House Republicans, who control the issue and by themselves could stop more borrowing, have expressed their desire to cut off the credit.