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3.2: Checks and Balances

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    United States and Texas Flags
    Figure 3.2.1: United States and Texas Flags flying over Texas State Capitol.

    Federalism and Hurricane Katrina - Is This the New Reality of Federalism?

    When Hurricane Katrina hit New Orleans and the surrounding areas on August 29, 2005, it exposed Federalism’s frailties. The state and local governments were overwhelmed, yet there was uncertainty over which level of government should be in charge of rescue attempts. Louisiana governor Kathleen Blanco refused to sign an order turning over the disaster response to federal authorities. She did not want to cede control of the National Guard and did not believe signing the order would hasten the arrival of the troops she had requested. President Bush failed to realize the magnitude of the disaster, so he believed the federal response was effective. In fact, as was obvious to anyone watching television, it was slow and ineffective. New Orleans mayor C. Ray Nagin and state officials accused the Federal Emergency Management Agency (FEMA) of failing to deliver urgently needed help and of thwarting other efforts through red tape. Hurricane Katrina was an exceptional challenge to Federalism. Normally, competition between levels of government does not careen out of control, and federalism works, more or less.


    Read the Washington Post article at and answer the following questions.

    1. What lessons did the federal government claim to learn from Katrina?

    2. Which five elements of preparedness does the article mention? Why are these particularly important?

    3. How can the relationship between the federal government and state/local government agencies impact the "culture of preparedness" for an emergency such as Katrina?

    4. What immediate changes were suggested after evaluating the federal response to Katrina?

    5. Based on the information presented in the article, what critical observations can you make about the way in which federal, state and local government agencies worked together during Katrina?

    6. What recommendations for improvement does the article mention that are directly related to the issue of federalism? Explain.

    7. What additional recommendations for improving a joint response to emergencies such as Katrina would you recommend? Defend your answer and explain how your answer relates to the concept of federalism.

    Why Does Federalism Work?

    First, Federalism establishes a legal hierarchy—in which national law is superior to state law, which in turn dominates local law—dictates who wins in clashes in domains where each may constitutionally act. Second, state and local governments provide crucial assistance to the national government. Third, national, state, and local levels have complementary capacities, which means they provide distinctly different services and resources with states often becoming dependent on the national government for its much larger resource base. Fourth, the fragmentation of the system is made more effective by interest groups, notably intergovernmental lobbies (lobbies that represent the interest of the states and local governments in dealing with members of Congress) whose job it is to act as voices for state and local governments. In this section, we will look at each of these reasons for conflict in Modern Federalism.

    A Clear Hierarchy of Federal and State Laws

    The legal hierarchy devised by the founders with the Constitution and United States laws and treaties superior to state and local laws makes for a system where the state and local governments are given the freedom to establish their own laws and to dedicate their resources based on the ideologies and needs of their citizens while still allowing the national government the ability to implement and manage nationwide policies and programs.

    States and Local Governments Assist the National Government

    State and local governments provide crucial assistance to the national government because they can implement policy and resources at a local level allowing the national government to respond to the needs of the citizens in a more coordinated way without having to duplicate the labor and bureaucratic resources available through the states. Since each state and local region are different, this helps better provide the resources and services necessary in a way that meets the specific needs of the people.

    Complementary Resources

    The national and state governments have complementary capacities. National, state, and local governments specialize in different policy domains. The main focus of local and state government policy is economic development, broadly defined to include all policies that attract or keep businesses and enhance property values. States have traditionally taken the lead with highways, welfare, health, natural resources, and prisons. Local governments dominate in education, fire protection, sewerage, sanitation, airports, and parking.

    The national government is central in policies to serve low-income and other disadvantaged citizens. In these redistributive policies, those paying for a service in taxes are not usually those receiving the service. These programs rarely get positive coverage in the local news because they often show them as “something-for-nothing” benefits that undeserving individuals receive, not as a way to address national problems.

    States cannot effectively provide redistributive benefits. Redistributive benefits are those policies that redistribute tax revenue to citizens on the basis of need or other eligibility requirements. These have often been referred to as “social welfare policies.” It is impossible to stop people from moving because they think they are paying too much in taxes for services. Additionally, states with generous benefits are unable to stop outsiders from relocating there—a key reason why very few states enact broad health care coverage. On a national scale, former President Obama pressed for and obtained a national healthcare program (The Affordable Care Act, AKA: “Obama Care”). Note, however, given the reserved power of the states and the acknowledgment of Federalism, it is the states’ insurance commissioners who are supposed to interpret and enforce many of the provisions of this federal health law. Some states have been much more progressive in this regard, depending upon the political climate and resources available in their particular state.

    The three levels of government (national, state, and local) also rely on different sources of tax revenue to fund activities and policies. The national government depends most heavily on the national income tax. This tax is based on a sliding scale. The amount of tax increases depend on a person’s ability to pay. This allows a shift in funds from the wealthier states (e.g., Connecticut, New Jersey, and New Hampshire) to poorer states (e.g., New Mexico, North Dakota, and West Virginia).

    Taxes of local and state governments are more closely connected to services provided. The local government depends mainly on property taxes. The more valuable the property, the more tax is paid. Most state governments (Texas isn’t one of them) implement state income taxes. Also, they rely heavily on sales tax collected during presumably necessary or pleasurable consumer activities.

    The language of “no new taxes” or “cutting taxes” is an easy slogan for politicians to feature in campaign ads and news stories. As a result, governments often increase revenues on the sly. Lotteries, cigarette and alcohol taxes, toll roads, and sales taxes fall mostly on nonresidents (in the forrm of hotel taxes or surcharges on car rentals).

    The Role of Intergovernmental Lobbies

    A fourth reason Federalism often works is because interest groups and professional associations focus simultaneously on a variety of governments at the national, state, and local levels. With multiple points of entry, policy changes can occur in many ways.

    In a bottom-up change, a problem is first identified and addressed, but not resolved at a local level. People, and often the media, then pressure state and national governments to become involved. Bottom-up change can also take place through an interest group calling on Congress for help. For example, in 1996, pesticide manufacturers, fed up with different regulations from state to state, successfully pushed Congress to set national standards to make a more uniform, and less rigorous regulation.

    In a top-down change, breaking news events inspire simultaneous policy responses at various levels. Massive publicity centering on the 1991 beating motorist Rodney King received from Los Angeles police officers propelled police brutality onto the nationwide agenda. Thus, many state and local reforms were inspired. We have seen similar responses to events such as the September 11 attacks on New York and Washington, D.C., and laws regarding drunk driving. In these cases (and others like them), policy reforms took place both at the national and the local levels with a great deal of emphasis coming from the national government to the states.

    Policy Diffusion

    Policy diffusion is a horizontal form of change. State and local officials watch what other state and local governments are doing. States can be “laboratories of democracy,” experimenting with innovative programs that spread to other states. They can also make problems worse with ineffective or misdirected policies. Each type of policy change has its benefits and its unintended consequences, so rather than critically evaluating them on which is better, we simply need to understand that these processes are always at work. This is the reason special interest groups, lobbies, and political parties exist at every level of government.

    These processes—bottom-up, top-down, and policy diffusion—are reinforced by the intergovernmental lobby. State and local governments lobby the president and Congress. Their officials band together in organizations, such as the National Governors Association, National Association of Counties, the U.S. Conference of Mayors, and the National Conference of State Legislatures. These associations trade information and pass resolutions to express common concerns to the national government. Such meetings are one-stop-shopping occasions for the news media to gauge nationwide trends in state and local government.

    Democrats, Republicans, and Federalism

    Both the Democratic and Republican parties stand for different principles with regard to Federalism. Democrats prefer for policies to be set by the national government. They opt for national standards for consistency across states and localities, often through attaching stringent conditions to the use of national funds. Republicans decry such centralization and endorse devolution, giving (or, they say, “returning”) powers to the states—and seeking to shrink funds for the national government.

    As often occurs with political parties, when politics come into conflict with the desire of the parties to have their candidates elected, these traditional positions on Federalism can, and often do, change. Both parties have been known to give priority to other principles over Federalism and to pursue policy goals regardless of the impact on boundaries between national, state, and local governments.

    • Prefer policies set at national level
    • Opt for standards of consistency across state and local governments
    • Decry central politics
    • See state and local governments as “laboratories of democracy”
    • Endorse “devolution” – the returning of power, authority and responsibility to state and local levels.
    • See federal grant-in-aid system as containing unnecessary and unfunded mandates.

    Republicans sometimes champion a national policy while Democrats look to the states. In 2004, the Massachusetts Supreme Court ruled that the state could not deny marriage licenses to same-sex couples. This led to officials in cities like San Francisco defying state laws and marrying same-sex couples. Led by President George W. Bush, Republicans drafted an amendment to the US Constitution to define marriage as between a man and a woman. Bush charged that “activist judges and local officials in some parts of the country are not letting up in their efforts to redefine marriage for the rest of America.” Democrats, seeking to defuse the amendment’s appeal, argued that the matter should be left to each of the states. Democrats appeal to Federalism swayed several Republican senators to vote to kill the amendment.

    “The American Recovery and Reinvestment Act,” enacted in February 2009, is another example. This was a dramatic response by Congress and the newly installed Obama administration to the country’s dire economic condition. It included many billions of dollars in a fiscal stabilization fund: aid to the states and localities struggling with record budget deficits and layoffs. Most Democratic members of Congress voted for the legislation even though it gave the funds unconditionally. Republicans opposed the legislation, preferring tax cuts over funding the states.

    unemployment and stimulus recovery act
    Figure 3.2.2: Economic recovery programs are designed to reduce unemployment and poverty by providing for jobs and new projects at the state and local level through federal grants.

    Economic Woes

    The national stimulus package implemented by the Obama Administration was a stopgap measure. After spending or allocating most of the federal funds, many states and localities still faced a dire financial situation. The federal government, running a huge budget deficit, was unlikely to give the states significant additional funding. As unemployment went up and people’s incomes went down, states’ tax collections decreased and their expenditures for unemployment benefits and healthcare increased. Many states had huge funding obligations, particularly for pensions they owed and would owe to state workers.

    State governors and legislators, particularly Republicans, promised in their election campaigns not to raise taxes. They relied on cutting costs. They reduced aid to local governments and cities. They fired some state employees, reduced pay and benefits for others, slashed services and programs (including welfare, recreation, and corrections), borrowed funds, and engaged in accounting maneuvers to mask debt.

    For example, the University of California staff were put on furlough, which cut their pay by roughly eight percent. Teaching assistants were laid off, courses cut, library hours reduced, and recruitment of new faculty curtailed. Undergraduate fees (tuition) were increased by over 30 percent, provoking student protests and demonstrations.

    At the local level, school districts’ budgets declined as they received less money from property taxes and from the states (about one-quarter of all state spending goes to public schools). They fired teachers, hired few new ones (resulting in a horrendous job market for recent college graduates wanting to teach), enlarged classes, cut programs, shortened school hours, and closed schools.

    University of California Sign
    Figure 3.2.3: California schools and public universities were forced to reduce services during the economic downturn of 2008.

    Fiscal Federalism

    The issues of Federalism have shifted over time from (1) the question of federal supremacy, (2) the question of states’ rights, (3) the use of cooperative federalism, (4) addressing questions of civil liberties and civil rights, and (5) the return of national powers and responsibilities to the state and local level. However, the mechanisms used to address these changing issues have not changed, including the use of Congressional Legislation, the incorporation of basic liberties guaranteed in the Bill of Rights to the states, and the use of financial resources to influence state law and policy. It is, however, often the power of the purse that has the greatest impact on the behavior of state legislatures.

    Today, the national government exercises the majority of its power and influence over the states by way of Fiscal Federalism. This means using the power of the federal purse (through a system of spending, taxation, and federal assistance) to influence state laws and policies and to achieve a more coordinated system of national public policy. A large indication of this has been the use of federal highway funds to create a coordinated national transportation system while also using federal highway funds as a means of influencing the behavior of the states in areas such as seat belt laws, national speed limits (until recently), and standardized drunk driving laws and penalties.

    While the use of federal funding dates back to the Articles of Confederation and the Land Ordinance of 1785, which set aside federal money to build schools in new western territories, it was not until the early 1900s that the use of federal spending to influence state behavior became clearly seen.

    During the 20th Century, particularly after the passage of the 16th Amendment in 1913 allowing for a federal income tax, the national government began an expanded use of federal grants-in-aid, which included money and other national resources in order to influence state and local activities. This money has been used to fund a range of services and policy areas from low-income housing, local programs in the arts and sciences, and a variety of social and economic welfare programs.

    Figure 3.2.4: Government funding that attempts to influence the actions of state and local governments by offering incentives or penalizing states if mandates are not met is often referred to as "carrot and stick" funding.

    Federal income tax is the primary source of the nation’s income. The use of federal tax revenues to fund grants-in-aid has been called a redistributive system, meaning taxes are collected at the national level and redistributed to states, local governments, and individual citizens through a variety of grant-based programs. With the flow of money to the states and local governments comes a set of “strings” that are attached to the money. States must often perform certain tasks or meet the demands of mandates in order to receive funding. In some cases, states receive money if they perform a certain task, such as instituting traffic safety checks to look for seatbelt violators or drunk drivers. These are often referred to as the “carrot” of Fiscal Federalism. In other cases, federal funding is withheld from states or local governments that do not meet those mandates that have been attached to the grants. For example, drunk driving laws have been standardized at a .08 level throughout the country. If a state did not change its drunk driving limit to .08 by a specific target date, it was subject to having federal highway funds withheld. This is an example of the “stick” of Federalism with financial punishment for any state that does not comply with the mandated standards attached to the grant. Another name for “carrot and stick” fiscal funding systems is Coercive Federalism. In other words, federal funding is used to coerce or influence the behavior of the state and local governments.

    Types of Federal Grant

    Categorical Grants

    Most federal aid is provided to the states through the use of categorical grants which can only be used for a specific purpose. For instance, national highway funds must be used to fund Interstate Highway projects and cannot be used to build a rural farm road without some sort of justification as to why that road would be necessary under the highway funding category.

    As in the case of Hurricane Katrina and Hurricane Sandy, the national government can also use categorical grants to fund local governments in times of national emergency. The amount of money a state receives as part of a categorical grant often varies depending on a state’s population. States may be asked to contribute a portion of the cost of a project in the form of matching funds.

    Block Grants

    Unlike categorical grants, block grants are provided as chunks of money for states to use for more general purposes and there are fewer restrictions on their use. Since there are fewer restrictions, states prefer the use of block grants over categorical grants and may turn down a categorical grant rather than accept the offer of federal funding because of fear or concern over the mandates and regulations that are attached. This is generally not the case in block grants.

    The sacrifice on the federal government side in using block grants is that the national government is giving up a degree of control and influence, but it is recognizing the sovereignty of the states to make decisions on the allocation of resources that best fit the needs of their citizens.

    In the 1980s, Ronald Reagan began using block grants as a primary source of federal assistance because it aligned with his belief that the states could better determine and manage the allocation of financial resources to the people rather than a larger central government. During this period, Congress combined a number of previously categorical grants into large chunks of block grants and also implemented a system of revenue sharing where a small portion of federal taxes was returned to the states without any restrictions or conditions on the basis of the state population.

    Federal Mandates

    As we have previously discussed, federal mandates are demands or restrictions placed on the states in exchange for accepting federal grant money. In some cases, Congress has even imposed such restrictions and requirements without allocating any additional money to the states. These are called unfunded mandates because they lack the financial resources necessary for the state to carry them out with the assumption that the state will need to pay for any financial costs associated with meeting the requirements attached to the mandate.

    Federal mandates have served as a vital tool in enacting civil rights and environmental policies, but often these mandates are followed with a great deal of complaining and objection from the states. For example, governmental actions such as school bussing, desegregation, and affirmative action have all resulted from the use of federal mandates attached to a number of federal grants that states have come to rely on. The justification of the federal courts in applying mandates (either funded or unfunded) to such civil rights legislation has been the use of the 14thAmendment of the Constitution and its equal protection clause.

    Issues in Federalism Today

    Besides the continuous debate over the division of power and the use of federal funding, American Federalism faces ongoing challenges in a variety of policy areas including (1) poverty and economic equality, (2) Homeland Security, (3) environmental regulation, (4) immigration, and (5) healthcare. Whenever you read the paper, watch television news, or see an article on the Internet, you will soon come to realize that the majority of the issues facing us as a nation are related to modern American Federalism.


    In 1996, President William Clinton (a Democrat) supported and signed legislation that provided sweeping changes in welfare programs. Prior to this, a number of welfare programs provided money directly to the states or the citizens themselves in the form of direct payments (“welfare”) or vouchers (such as “food stamps”). Taxpayers across the nation became incensed that they were paying national income taxes for others who would stay on these forms of aid for years or decades. This led to a change from “welfare” to “workfare” which limited the number of weeks someone could receive such assistance, refocused the funding to link with children and dependent families, and allowed states to establish new regulations and funding formulas that would differ from state to state. Most importantly, a requirement for a recipient to work or attend a job training program was also attached to the new funding. This led to its nickname “workfare.” Since instituting this new form of poverty assistance, the number of recipients has decreased. Some people credit this decrease to the ability of the states to approach the problem of poverty within their communities in a more flexible manner. Others argue that this drop in public assistance is only because of a relatively strong economy and add that many states will be unable to meet the needs of their poorest citizens under the current system.

    Homeland Security

    After the attacks on New York and Washington D.C. in 2001, President George W. Bush asked Congress to create a new federal department as we faced ever-increasing foreign threats from new types of enemies. The Department of Homeland Security was constructed to oversee a number of redundant or disconnected programs that were unable to communicate or cooperate with each other. Even after the creation of the Department of Homeland Security, it became clear that agencies were still disconnected and unable to respond appropriately. An example of this is the response of FEMA (the Federal Emergency Management Agency) following Hurricane Katrina.

    Environmental Regulation

    Many see any effort to address the area of environmental protection as being squarely in the hands of the national government. There are, of course, a number of practical reasons for a national approach to an environmental policy including the need to coordinate the actions and policies of the states into a unified policy as well as access to resources and regulatory powers. Some leaders believe that environmental regulation and protection is better left to the individual states. For instance, the environmental needs of a petroleum and chemical-based economy such as Texas should not be determined by a more industrial based state such as Michigan. Each state has its own set of natural resources and different industries that operate within them. In light of this view, many members of Congress have asked that the regulatory “reach” of the Environmental Protection Agency be curtailed. An immediate issue at the time of this writing is the opening of the Keystone Pipeline that will pump large quantities of crude oil from fields in Western Canada to refineries in Illinois, Oklahoma, and Texas. While this action will keep the price of oil lower, the concern is the environmental cost of any leak in this pipeline that may occur in the future. Another similar issue is the use of “fracking” in order to better access oil reserves in other parts of the United States such as Montana and the Dakotas.


    Immigration has also come under a great deal of debate recently as border states like Arizona and Texas have sought to implement their own immigration-based policies in order to address what they perceive as a rising threat from illegal immigration. While the Constitution clearly states that immigration and naturalization are an expressed power given to the federal government, these border states (and an increasing number of others) have expressed frustration with the federal government’s inability or lack of concern over the issue of immigration. It has become an increasingly contentious issue regarding federal and state powers.

    Health Care

    One of the biggest and most feverish debates concerning Federalism has been the issue of national healthcare policy. While Americans have been turning to more creative solutions to offset the rising cost of medical healthcare, we are also faced with a large number of uninsured or underinsured citizens. For instance, in 2003 as many as 45 million Americans were uninsured. While this number has decreased to around 36-40 million under the new Affordable Care Act (Obama Care), it is still approximately one out of every six people in the country, and a large number of these are children and young adults. “Obama Care” is criticized for its requirement that individuals MUST carry insurance and will be penalized on their income tax if they do not. To raise the number of insured individuals, many states have established exchanges, which function as free marketplaces for individuals to find and purchase insurance. The federal implementation of this new law has met a number of “false starts” and “snags” including the crashing of the entire “” site at the beginning of 2014. Also, many states have refused to provide the necessary health insurance exchanges and have also not accepted federal funds aimed at expanding Medicaid. In turn, this has left many without access to healthcare insurance.

    The basic question with healthcare policy is under which governmental domain does it fall? This is certainly not an enumerated power in the Constitution, and most would argue that since it isn’t forbidden from the states and it isn’t expressly given to the federal government, it should fall under the 10th Amendment to the Constitution as a reserved power. This argument has several flaws as the courts have repeatedly acknowledged the power of the national government to extend itself into the provision of “general welfare” related services throughout our nation’s history. The question of whether a national healthcare system such as the Affordable Care Act is a right and just national policy or an attempt to limit the power of the states and institute “socialized medicine” into the United States will continue for a long time to come.

    Figure 3.2.5

    Study/Discussion Questions

    For each of the following terms, write a sentence which uses or describes the term in your own words.


    fiscal federalism

    “carrot and stick”


    1. Discuss the factors that have contributed to the success of Federalism in the United States system of government.

    2. How has Federalism contributed to conflict between the states and the national government? Give examples.

    3. What are "intergovernmental lobbies?" How do they impact our federal system?

    4. How do political parties differ in their perspectives on Federalism? Would you consider these differences a positive or negative element of Federalism? Explain.

    5. Why is Fiscal Federalism often compared to a "carrot and a stick"?

    6. How do federal grants-in-aid give the national government power in the federal system?

    7. How would the Founding Fathers feel about the use of federal grants-in-aid and Fiscal Federalism? Explain

    8. Choose one of the issues of Modern Federalism described in this chapter and/or the additional readings below. Explain how this issue relates to Federalism, and how it is impacted by the actions of the national government and the states.

    9. Why do you think Republicans like to use block grants while democrats like to use categorical grants? Explain your answer.

    10. What are mandates? Why are they such a controversial part of the American system of Federalism? Explain your answer.

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