The Sequester and the States


So now the National Governor’s Association is teaming up with President Obama to warn about the devastation to be wrought by the dreaded sequester (although Obama’s ham-fisted attempt to enlist GOP governors seems to have backfired). But wait, why should state governors care about cutting 2.3% of federal spending?

A few decades ago, the governors probably would not have cared. But today, the governors are addicted to federal cash – relying on it to plug their budget shortfalls. Take a look at this map from the Tax Foundation – it shows how much of each state’s revenue comes from federal sources. Mississippi tops the list with 49% of its general revenue coming from Washington; Alaska, by contrast, gets only 24% of its general revenue from the feds.

Virtually all of that money goes to programs and infrastructure projects that are administered at the state or local level and have no need for federal oversight. But by running the money through DC, you justify extra layers of bureaucracy and more opportunity for pork, earmarks, and rent-seeking. This whole sordid business of running money through Washington is unconstitutional. The enumerated powers of Congress do not include the power to fund state governments.

If the sequester happens, perhaps people will ask why state capitols should find themselves beholden to dysfunctional Washington for their fiscal health. 

There are 9 comments.

  1. Member

    The states like assistance from the Fed because the states get to look good by keeping their tax rates lower than they may need to be and/or provide a bunch of extra goodies to their constituents. 

    This is a problem for the left and the right of course. The Fed government funding so much bred a lot of bad governance. 

    Unfortunately, Adam, I don’t think people will ask why did the states got themselves into it in the first place. They’ll simply ask why the cash flow was turned off. The GOP is more or less trying to pull a fast one on Obama by agreeing the sequester is bad and then blame it on Obama, but the fallout will land on them because people like money and Obama. The mistake was to not get ahead of the sequester and explain why it is more or less a good thing to cut some spending. Instead the GOP bought into the scare tactics game, and they simply can’t win a head to head with Obama when it comes getting their point across. For a variety of reasons. 

    • #1
    • February 27, 2013 at 8:44 am
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  2. Member

    Scott Walker in Wisconsin has been trying to disconnect us from the Federal Spigot as much as possible, and for very valid reasons. The Feds will grant short-term cash for the creation of state-level programs, but that only lasts for so long before it dries up and the state then has to pick up the full tab or cut the program.

    Programs are never cut.

    • #2
    • February 27, 2013 at 9:10 am
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  3. Inactive

    And everyone thinks Rick Perry is a crank and goofball for highlighting this very issue.

    • #3
    • February 27, 2013 at 9:36 am
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  4. Member

    It is an interesting map. You don’t see much of a pattern to which states are most dependent on the federal dollar. You have Mississippi and Alaska, both Republican states on either end. You have North Dakota and Montana right next to each other geographically with very different dependencies. Most of the democratic states are in the middle, but the republican states seem to have a bimodal distribution.

    It would be interesting to see this map also calculated in terms of federal monies to the states on a per capita basis, then you might be able to weed out why Virginia has a pretty low federal subsidy but Georgia has a pretty high subsidy.

    • #4
    • February 27, 2013 at 10:01 am
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  5. Member

    The only pattern I can see is states with a history and reputation for poverty receive higher subsidies. AZ, NM, SD, and MT have significant Native American populations which utilize poverty services like medicaid and Food Stamps at a higher rate. States like LA, MS, and MO also have a history of poverty and low wages.

    States like AK and ND have lot’s of oil revenue, and VA gets most of its federal subsidies indirectly through all of the federal defense dollars located in VA.

    • #5
    • February 27, 2013 at 10:10 am
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  6. Member

    You can argue the principles of a social safety-net all day long, but the social safety net just becomes a snare when the states and the government are in such massive debt. There may not be a transition time between “winding down” and mass firings. At some point in time people depending on these programs will simply be kicked off because there won’t be money to pay for it. 

    I actually don’t think the sequester is a bad thing. I think without sequester we are risking a major problem with debt. There may be time to make some hard choices. But if we keep the deficit spending up we will probably run out of hard choice time.

    • #6
    • February 27, 2013 at 11:33 am
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  7. Inactive

    This is why some governors wisely don’t drink from the poisoned chalice of federal money. Accepting the federal government’s agenda either begets more dependency on the feds, or obligates the states to unsustainable forays into new responsibilities. High-speed rail is a good example. The feds will give you grants to build it, but not operate it. Governors Walker, Kasich and Scott wisely said no. Their wisdom seems to be lacking when it comes to Medicaid expansion.

    • #7
    • February 28, 2013 at 1:09 am
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  8. Contributor
    Adam Freedman Post author

    The dependency numbers are staggering. I forgot to note, however, that the Western States can be partially excused because the federal government has refused to relinquish title to millions of acres of land in their territories, despite promises to do so when those states were admitted to the union. If the federal government would get out of the land-owning business, those states would get a huge bump in homegrown revenue.

    • #8
    • February 28, 2013 at 1:47 am
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  9. Member

    One amazing part is how dependent all of the state governments are upon federal revenues. I think it is time for a grand swap where the Federal and State governments swap for responsibilities they both are currently sharing. One swap might be for the states to take on all of food stamp spending for Feds taking over medicaid entirely, or vice versa.

    • #9
    • February 28, 2013 at 12:31 pm
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