Power Shifts in Intergovernmental Relations: A Result of Fiscal Federalism

Fiscal federalism is the result of the states' dependence on the
national government for funds. Until 1913, the national government had minimal
monetary resources, thus possessing little control over the affairs of the
states. Once effected, the Sixteenth Amendment resulted in the amassing of
government funds on the national level. This reserve of money enabled the
national government to initiate a multitude of national programs--such as the
interstate highway--as well as provide grants to the states. It is primarily
through these grants that the national government can exert influence over state
affairs; for, by designating restrictions in the distribution of these grants,
the national government can compel states and localities to make or alter
policies and legislation in accordance with its agenda. The manner in which the
national government has wielded the influence of money throughout the history of
the nation has continually altered intergovernmental relations. Since the
Depression, fiscal federalism has caused the national government to dominate the
states; recently, however, reforms have begun to return power to the states.
Policies and precedents of the New Deal centralized power in the
national government. To remedy the devastation of the Great Depression, it
assumed a more direct and prevalent role in the lives of the people. Congress
passed the 1935 Social Security Act, providing retired persons pensions and
benefits for the unemployed and disabled. In addition to Social Security, the
government also established the Federal Emergency Relief Administration in 1933
which provided states with money for the needy. The Aid to Families with
Dependent Children (AFDC) program was state-administered and federally funded,
another example of state dependence on the national government. The Works
Progress Administration is one of the multitude of programs implemented to
provide employment to aid in recovery. Formerly a state responsibility, the
national government became the primary source for relief. The national
government broadened its powers in response to this crisis and began to
supersede the state governments in decision-making. As a result, the states
began to relinquish their power and defer to as well as depend on the national
government. This increase in federal power did not exist solely under
Roosevelt's Depression-era administration but extended over to later
administrations as well.
The remainder of the century until the present was marked by legislation
limiting the states even further. During the Great Society of the 1960s,
Congress passed Johnson's proposals for increased federal aid to education--
augmenting federal control and involvement over education, a power reserved for
the states. Moreover, Congress passed Medicare and Medicaid, health insurance
plans for the elderly and the poor or disabled, respectively, expanding the
federal role in social welfare programs. During Nixon's tenure, existing
programs of assistance for the aged, blind and disabled administered by the
states were federalized, requiring more money from the national government.
Additionally, general revenue sharing was signed into law, once again increasing
state dependence on federal funds. Nixon's New Federalism implemented major
expansions of federal regulatory power over state and local governments.
Concerned about the dominance of the national government, the reaction to this
continual increase in federal power and influence is a decrease in cooperative
The government has recently shifted its former practices, creating
legislation empowering the states. Through a series of tax-cutting, budget-
cutting and deregulatory initiatives, Reagan lessened the role of the federal
government in intergovernmental relations. Under his administration, general
revenue sharing was ended, further advancing the liberation of states and
localities from federal dominance. Clinton's administration began a steady
campaign in the devolution of power from Washington to the states. States were
recently given greater flexibility in administrating AFDC; they now have wide
discretion in determining eligibility. The welfare overhaul bill gives states
greater control over awarding benefits; policy will be determined largely by
states and localities themselves. There is increasing support towards turning
welfare, Medicaid and federal job programs over to the states, which would
independently establish criteria for eligibility and administer the benefits.
This would return the present system of cooperative federalism to a more
separate, dual system.
Throughout the twentieth century, it is evident that the extent of the
control exerted by the national government on the states and localities is a
direct result of the practice of fiscal federalism. An unprecedentedly severe
economic downturn caused the advent of cooperative federalism in
intergovernmental relations, as a national crisis requires the involvement of
the national government to obtain recovery. This involvement continued for most
of the century, continually increasing federal power as the national government
began to implement national regulation. Currently, intergovernmental relations
are more inclined to favor the states, as a power shift to states is being
promoted to reduce the