by Sarah Curry
Director of Fiscal Policy Studies
This past week I had the pleasure of being invited to speak at Americans for Prosperity’s annual event, the Defending the American Dream Summit. I spoke about Washington’s power grab and how the growth of federal agencies is threatening our laboratories of democracy. Many of us know that Washington bureaucrats are out of control, but what many of us don’t think about are the impacts this has on states.
For example, lets take a look at North Carolina’s budget. The total budget is around $50 billion, yet the General Fund is around $21 billion. The Highway and Highway Trust Funds make up an additional $5 billion, so where does the other money come from? For the fiscal year ending June 30, 2013, North Carolina spent $20.8 billion in federal grants, which was a 47 percent increase in inflation-adjusted dollars over the precious 10 years. In addition to a large portion of the state’s overall budget consisting of federal grants, the federal government also ties the state’s purse strings with unfunded mandates across multiple agencies and departments.
Reliance on federal aid can cause lasting problems for state budgets and lawmakers. Federal funding incentives often cause the state to engage in programs or projects it might otherwise choose to avoid. After years of reliance on federal aid, North Carolina lawmakers find that federal edicts drive up the cost of government services. Even contractors who work with state agencies are vulnerable to these onerous federal requirements, which often increase the cost of their work to the state.
There is a way to push back against Washington, and that is through federalism efforts. Federalism concerns the division of power between states and the federal government. The federal government has outgrown its constitutional authority, and the mandates and regulations that it passes down to states and citizens have shackled our economy and limited North Carolina’s ability to effectively and efficiently serve its citizens.
States, including North Carolina, have become increasingly submissive to an overbearing national government. From light bulbs and ceiling fans, to the state highways you drive on, elementary school students’ educational standards, and your health insurance, the federal government has enacted regulations to keep a firm hand on seemingly every minute detail of our lives. According to the most recent NC Auditor’s report, the state has received an average 42 percent of its total budget from the federal government over the last ten years, with the exception of 2010 and 2011, when the American Recovery and Reinvestment Act (the so-called "stimulus") helped to boost federal funding to over 50 percent of the state’s total budget. This federal overreach increases the cost of goods and puts faceless regulators in charge of spending North Carolina’s tax dollars on their priorities instead of our own.
Every state in the nation relies on the federal government for some portion of its budget, and North Carolina is no exception. North Carolina has become too dependent on federal aid, which leaves the state vulnerable when Washington cuts federal funding to the state in the future. Whether it’s due to sequester, shutdown, or unsustainable spending, North Carolina needs to reduce its dependence and develop a plan to operate when this funding goes away. The question is not if the federal aid will go away, but when.
Many will argue that this is "free" money and if North Carolina doesn’t take it, then it will go somewhere else. Every tax dollar Washington sends to North Carolina is a dollar taken from taxpayers in North Carolina and other states. Economists have found that federal subsidies to the states lead to higher state taxes and spending in the long run, because the federal "seed money" creates a demand for more government with current and future commitments. North Carolina has set a powerful precedent by not accepting federal funding to expand Medicaid as well as rejecting the federal government’s extension of unemployment benefits. The state needs to continue down the path of sovereignty and continue to push back against Washington’s power grab.
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