Empowering State and Local Governance

Understanding State and Local Government Finances

Using variation in federal pandemic-era fiscal aid to states driven by the strength of political representation, fellows Jeffrey Clemens, Oliver Giesecke, and Joshua D. Rauh publish in a Hoover State and Local Governance Initiative working paper that incremental pandemic-era fiscal aid to states was most likely to end up as general administrative service spending and employee pension benefit funding. The authors concluded that “pension contribution increases are driven by the states where public employees have above-median representation on state pension fund boards, where over 14 cents of each marginal dollar went to pension funding.”

In June, Joshua Rauh wrote in the Los Angeles Times about the trajectory of California’s budgets and spending. With the state facing a massive budget deficit for the coming fiscal year, Gov. Gavin Newsom’s revised state budget for 2024–25 addresses the $45-billion gap. Even as the state legislature debates the governor’s proposals, which include significant cuts to such priority areas as homelessness spending, the question remains whether California can reset itself on a sustainable fiscal path.

Strengthening Federalism

In a publication released in September, renowned experts from a range of disciplines, including economics, political science, history, and law, joined practitioners in policymaking to lay out the key priorities in evaluating and reinvigorating America’s federal system of governance. In American Federalism Today, the volume’s editor, Senior Fellow Michael J. Boskin, and its contributors examine the Founders’ intent for the federalist system and its ramifications for current issues, including infrastructure, education and healthcare financing, and public opinion on trust in government.

Michael Boskin discussed American Federalism Today with Distinguished Policy Fellow in Journalism Bill Whalen on his podcast Matters of Policy & Politics. Boskin explained the urgent need for policy reforms to address government waste, plus what makes for effective government commissions. Boskin, former chair of the White House’s Council of Economic Advisers, chaired a federal commission on the Consumer Price Index in the mid-1990s and has advised several prominent officials, including presidential candidate Ronald Reagan, on tax policy. Boskin and Whalen also discussed how federalism affects spending and investment in important policy areas like the construction of infrastructure.

Looking at the reasons why Washington habitually spends more than it takes in, Senior Fellow John F. Cogan wrote in the Wall Street Journal in November that since the 1950s, the cause is largely federal spending on things that should be primarily the responsibility of state and local governments. “My analysis of federal budget data shows that the chronic federal budget deficits since the 1950s are due to the federal government’s failure to raise tax revenues required to finance its spending on state and local activities,” he wrote. He argued that the federal government needs to get out of the practice of funding a large share of certain state and local activities and focus its efforts on what it is responsible for, such as issues affecting multiple states and national defense.

Addressing Regulation to Promote Economic Freedom and Growth

Wisconsin Public Radio cited a recently published study by Dominic Parker and colleagues, which found that despite American Indian tribes’ being deprived of rich natural resources by the US government, they have been left with lands favorable for wind and solar development. In an interview about the study, Parker explained that “tribes and their members would forgo a lot of money that could be earned from renewable energy development” if they continue to miss out on the opportunities to host solar and wind projects that privately held neighboring lands enjoy. This loss could translate to a range of $7 billion to $19 billion. Parker maintained that tribes should be empowered to pursue clean energy projects, free from federal government intervention, including regulatory permitting processes imposed by the Bureau of Indian Affairs.