Why States Have to Push for Federal Funds

by Mario Loyola

The issue of earmarks is completely different from the issue raised when states push for the largest possible share of federal funds. Earmarks are when a member of Congress secures funding for some pet project or constituent in his state or district. That’s bad enough. But federal grants to state governments (such as federal highway funds) present states with a Hobson’s choice that ought to be flatly unconstitutional. 

The federal government creates the problem by first taxing money away from residents of all the states and then rewarding some states and punishing others by distributing the money back to them unevenly and with conditions attached. First, the distribution of seats in Congress greatly weights the voting power of small states at the expense of large ones. This is why Texas finds itself eternally paying for highway projects in Alaska. Second, and infinitely worse, is that the federal government creates programs such as Medicaid, which require states to shape their own state policies according to federal preferences, or suffer the punitive transfer of billions of their residents’ tax dollars to other states.  

The whole practice of federal conditional funding is inherently inequitable because every state is either a winner or a loser; it is also confiscatory, coercive, and profoundly corrosive to the federal structure of our Constitution. This is not like earmarks, which people oppose chiefly because of their potential for self-serving political corruption in Congress. The rent-seeking manipulation of federal grants to states by transient majorities in Congress threatens to blow away what few constitutional limits remaining on federal power. 

The entire practice of federal grants to state governments ought to be abolished. As the Supreme Court warned in U.S. v. Butler (1936), the federal taxing and spending power has a great potential to “become the instrument for total subversion of the governmental powers reserved to the individual states.” The Medicaid provisions of Obamacare are a perfect example, as Professor Richard Epstein and I argued in one of our amicus briefs for the Supreme Court. Until the practice is abolished, “donor” states — the victims of rent-seeking by transient majorities in Congress and their control of committee chairmanships — have no choice but to fight for every dollar that their residents are losing to other states. 

— Mario Loyola is director of the Center for Tenth Amendment Studies at the Texas Public Policy Foundation. 

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