Politics & Policy

Do it Yourself, Washington

How the states can defend themselves against federal overreach.

Obamacare required that each state set up an insurance exchange by October 1, or the federal government would do it for them. In the 14 states that proved eager little deputies of Washington, state-created exchanges have mostly launched smoothly. In the 36 states where the feds had to come in and do it themselves, the result has been an unmitigated disaster.

There is a crucial lesson here: No matter how badly it wants to, the federal government simply can’t regulate every aspect of everything in a country of 50 states and 317 million people. The country is just too big and the burden of administering everything is just too great. That’s why the states were right in refusing to facilitate the Obamacare exchanges. If the Supreme Court won’t enforce the framework of limited and enumerated federal powers, perhaps Congress can be taught — the hard way — that trying to exercise unlimited power has its downsides.

One easy way to accomplish this is to recognize that even with insane levels of federal spending and with a federal bureaucracy larger than any organization in the known universe, Washington still needs the states to be eager little deputies and field administrators of many federal programs. For example, behind the federal “match” for state Medicaid spending is really a state match for what is in every sense a federal program: States pay about half the program’s costs and do virtually all of the administration — determining eligibility, enforcing cost controls, and doling out payments — while the federal government defines all the essential elements of the program itself. States have little flexibility to innovate or cut costs. As is always the case with “cooperative federalism,” the states are merely deputies in a scheme of total federal control.

These arrangements should be unconstitutional. The Supreme Court has repeatedly said that Congress can’t require state governments or state officials to do anything. It has repeatedly insisted that the people must be able to know whom to hold accountable for the laws and regulations imposed on them. But the Court has turned a blind eye to the clever schemes that Congress uses to get around this prohibition, schemes through which it coerces the states into doing its bidding while it escapes accountability for the results.

One of the main ways that Congress coerces the states is by saying to them: “Look, here’s the deal. We could regulate every aspect of this new program. But we’re going to let you do it, as long as you do it exactly how we tell you. Otherwise, we’ll preempt your regulations and do the whole thing ourselves.” Constitutional lawyers refer to this scheme as “conditional preemption.”

It’s nothing but a shakedown, but states almost always fall for it. On the environmental front, the last thing anyone in the state wants is for the Environmental Protection Agency to get involved in issuing licenses and other determinations under the Clean Air Act. They know that the EPA just wants to “crucify” the state’s businesses to make examples of them, as one senior EPA official explained in the first months of the Obama presidency. Businesses especially would far rather that their own state agencies implement the law (which is the way it was supposed to function) than have the EPA come in and do it punitively. So the more scared a state is of federal regulators’ coming in and doing things themselves, the more likely it is to serve as a willing deputy of the federal government.

What these states don’t understand is that Washington dramatically increases its reach and power when it can rely on the states to serve as its assistants in this way — while escaping accountability for the results. Just imagine if all the states had created insurance exchanges under Obamacare and then the scheme had turned into a disaster. States would be on the hook for the results — even though they only followed Washington’s absurdly precise instructions.

The federal government can’t effectively implement its regulatory Tower of Babel by itself. When Washington decides that it wants to control every aspect of something, it usually needs the states to help. And when the states refuse to help, the feds realize they will need more bureaucrats to do it themselves. So they go back to Congress for more money. But then, if the House of Representatives (or Senate) is willing to stare the federal leviathan in the face and say “No more money,” the federal leviathan may just find that it has no choice but to back down and let people in the states sort things out themselves, as the Constitution intended.

What happened with the federal exchanges is that the federal government went too far in humiliating the states. To gain federal approval, state exchanges have to meet so many conditions that not even the law’s defenders could seriously claim that the states were left with any flexibility. The federal government was so blatant in treating the states as servants that it left the states with no incentive to do its bidding. That’s why barely a quarter of the states decided to go along, even though almost half the states are controlled by supporters of the law.

Every state should pass a law making it illegal for any state or local official to cooperate with a federal program unless specifically authorized in state statute. This way, the people would know when their state officials were merely serving as deputies of the federal government instead of doing their jobs as officials of the state. Such “noncompliance” bills would go far in restoring the crucial separation of state and federal functions that the Constitution intended.

The problem is even worse when it comes to conditional federal funding for state governments in programs such as Medicaid. States depend on federal help for about 35 percent of their budgets, and the biggest chunk of that is the federal “match” in Medicaid.

Now ask yourself this: If states have their own taxing authority, and can tax virtually everything the federal government can tax, why do they need federal help? The answer is that they don’t. It’s Washington that needs the states’ help, because Washington wants to control every aspect of everything and can’t do it alone. So Washington is more than happy to run up huge deficits in order to purchase control of state governments: That’s the real reason Congress runs deficits. Don’t believe me? Consider this: According to the White House budget tables, the federal deficit for the past 30 years has averaged 3.4 percent of GDP. During the same period, the money transferred from the feds to the states has averaged 3.0 percent of GDP.

If your state wants to receive federal money for health care, education, and transportation, it has to follow so many federal specifications that state autonomy in those areas is nothing more than an illusion. If state officials want federal money, they have to kowtow to the federal government, period. If not, other states will get those billions of dollars in federal money, and state officials will still be on the hook for providing services that residents will now have to pay for twice.

Given the penalty, states think they have no choice but to accept the money — along with its humiliating conditions. I say “humiliating” because your state officials swear an oath to faithfully serve you and your neighbors. But when they give in to federal coercion, they ditch that oath and instead bow down to federal policy. They wind up serving the wishes of people in other states, instead of yours, in violation of their oath of office. And that is shameful.

So when the federal government comes round to your state offering “free” gifts in exchange for your state’s help implementing some federal scheme, the answer should always be the same: “No thanks. Do it yourself.”

— Mario Loyola is chief counsel to the Texas Public Policy Foundation and a visiting fellow at the Classical Liberal Institute of New York University School of Law.                                                     

Mario Loyola — Mr. Loyola is a research associate professor and the director of the Environmental Finance and Risk Management Program at Florida International University and a senior fellow at the Competitive Enterprise Institute. From 2017 to 2019 he was the associate director for regulatory reform at the White House Council on Environmental Quality.


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