Federal Aid to the States: Historical Cause of Government Growth and Bureaucracy

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In recent years, members of Congress haveinserted thousands of pork-barrel spending projectsinto bills to reward interests in their homestates. But such parochial pork is only a small partof a broader problem of rising federal spending ontraditionally state and local activities.

Federal spending on aid to the states increasedfrom $286 billion in fiscal 2000 to an estimated$449 billion in fiscal 2007 and is the third-largestitem in the federal budget after Social Securityand national defense. The number of different aidprograms for the states soared from 463 in 1990,to 653 in 2000, to 814 by 2006.

The theory behind aid to the states is that federalpolicymakers can design and operate programsin the national interest to efficiently solvelocal problems. In practice, most federal politiciansare not inclined to pursue broad, nationalgoals; they are consumed by the competitivescramble to secure subsidies for their states. Atthe same time, federal aid stimulates overspendingby the states, requires large bureaucracies toadminister, and comes with a web of complexregulations that limit state flexibility.

At all levels of the aid system, the focus is onspending and regulations, not on deliveringquality services. And by involving all levels ofgovernment in just about every policy area, theaid system creates a lack of accountability. Whenevery government is responsible for an activity,no government is responsible, as was evident inthe aftermath of Hurricane Katrina.

The failings of federal aid have long been recognized,but reforms and cuts have not been pursuedfor years. Aid has spawned a web of interlockinginterests that block reform, includingelected officials at three levels of government,armies of government employees, and thousandsof trade associations representing the recipientsof aid.

Yet the system desperately needs to be scaledback, not least because the rising costs of federalprograms for the elderly are putting a squeeze onthe federal budget. To help spur reform, thisstudy examines the historical growth of the aidsystem and describes its failings. Congressshould reconsider the need for aid and begin terminatingactivities that could be better performedby state and local governments and theprivate sector.