Federal Grants, State Decisions

Abstract:     
The authority to raise and spend money is one of the most expansive and fundamental of all Congress' enumerated powers, particularly when Congress chooses to impose conditions on those who wish to receive its cash. The consensus modern view of this conditional spending is that its unfettered use threatens the diversity and accountability goals of our federalism. As a result, nearly all commentators support either direct or indirect judge-made limits on conditional spending. These claims, I argue, rest on a set of largely unexamined assumptions about the political motivations, budgetary situation, and incentives of the state officials who must decide whether or not to accept federal offers. Thus, this Article attempts to begin a truly in-depth study of the political economy of state decisions to accept federal funds. In particular, I focus on state officials' own incentives to preserve diversity and accountability, albeit for self-interested reasons. For example, I document and model the ways in which opportunities to impose hidden taxes, or to export taxes onto outsiders, may encourage officials to turn down federal grants. I also examine closely the available empirical evidence on the actual fiscal situation of states, concluding that there is no evidence states are in such dire financial straits that they are likely ever obliged to accept federal funds. In sum, I argue that the current consensus is likely mistaken about the need for constraining conditional federal grants.

Keywords: Spending Clause, Dole, fiscal federalism, grants, conscription, flypaper effect

Accepted Paper Series