Huge segments of state budgets are driven by federal spending. Few roads are built without federal matching funds. Large shares of states' budgets are spent on social programs initiated by the federal government such as Medicaid, KidsCare, and Aid to Families with Dependent Children.
It's rare that states are required to establish these programs. Instead they are tempted and cajoled with money--money for which they must spend to receive. Arizona was the last state to establish a Medicaid program, but the temptation to receive $2 from the feds for every state dollar spent proved irresistible. Today, 28 percent of Arizona's General Fund goes to health and welfare departments and these are the fastest-growing areas of General Fund spending.
Now, Congress stands ready to ensnare the states with more federal largesse. The federal share of Medicaid spending would increase. More money would flow to public and higher education. Grant programs will provide funding for alternative energy, transportation, rural development, law enforcement, and more. Of course, this money will not come with no strings attached.
The consequence is that states like Arizona that let spending get out of control during the real estate bubble will fail to rein in as much as they should and will get all the more entangled in the federal web. Thus far, Arizona's legislature has only proposed to close about half of the state's deficit with cuts. They're literally banking on a federal bailout and the strings that will come along with it.
Byron Schlomach, Ph.D, is director of economic policy at the Goldwater Institute.
Goldwater Institute: Arizona's Struggle for Sovereignty: The Consequences of Federal Mandates
Joint Legislative Budget Committee: Potential Federal Aid for Arizona
Joint Legislative Budget Committee: Appropriations Chairmen FY 2009 and FY 2010 Budget Options
U.S. House of Representatives: American Recovery and Reinvestment Act of 2009