Federalism in Focus

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The relationship between the federal and local levels of government has been in the spotlight after just a few short weeks of the new administration. It is clear from public statements, Tweets and an executive order that President Trump intends to shake up political institutions as we’ve come to know them.

(NLC)
(NLC)

In this new series, Federalism in Focus, we’ll unpack the nature of the city-federal relationship today, how federalism is reflected in urban policy, and what an ideal relationship would look like.

What is federalism?

Federalism is the constitutional relationship between state governments and the federal government. Cities have a role in the federal relationship that can be difficult to decipher. Local governments are not mentioned in the U.S. Constitution, or even the Federalist Papers, because, for much of early American history, cities – even the largest – tended not to be incorporated. Over the years, cities derived their existence and limited powers from their state governments. Only since the 1930s has there been an active and direct federal-city relationship.

The prevailing interpretation of city authority comes from an 1868 Iowa court case. In it, Judge John Dillon offered a narrow interpretation of a local government’s authority, stating that state legislatures give cities life and can take it away. States, therefore, vary tremendously in their treatment of local governments. Some states offer cities home rule, where the cities have been granted broad authority to create new programs or raise taxes without state approval. However, states have increasingly sought to limit the power of cities through by preempting the authority of cities to regulate particular issues. States also broker the relationship between the federal government and their localities, adding their own preferences to those interactions.

Why is federalism important to cities?

The way in which a president and Congress view the relationship between levels of government is important context for the legislation they produce. From affordable housing to immigration, federal policy toward cities is shaped by the interpretation of the U.S. Constitution and the federal system it enshrines. Before approaching any policy argument, it is essential to know the way power is divided. In the case of so-called sanctuary cities, President Donald Trump’s executive order relies on the power of the purse. This is a coercive view of federalism, where state and local governments comply with federal mandates based on grant funding.

Although the federal government does not provide a significant amount of funding to local governments (only about 5 percent of general municipal revenue), it has other ways of increasing local revenue or reducing local costs. This includes establishing federal tax exemptions that reduce municipal borrowing costs. Federal tax exemptions for local property, sales and income taxes encourage homeownership and consumption of goods and services, thereby increasing municipal revenue from local sales, income and property taxes.

In addition, federal aid reaches municipalities in the form of grants. Federal grants come in two forms: block and categorical. Block grants are allocated according to a predetermined formula that dictates how much money a locality can expect to receive, depending on quantifiable factors like population, housing density or health indicators. Cities that apply for block grants must use funds from a preapproved broad functional area such as community development, but generally have few restrictions on how it is spent. Categorical grants, on the other hand, may be spent on more narrowly defined programs.

How has federalism changed over time?

As political climates shift, the way federalism plays out in America also changes. The 1960s saw a very activist federal government that worked directly with cities to implement social policy. Federal aid to cities was a much larger share of the budget than it is today. During the administrations of presidents Nixon and Reagan, the paradigm shifted. Grants became less specific, preferring block grants over categorical, and funding also shrunk.

Today, federal policy tends to prefer transfers of aid to individuals rather than to governments. Money for cities is therefore limited. This is emphasized in the federalism today, which values accountability through results oriented programs and increased incentives to work across jurisdictions. Moving forward, we can likely expect a Trump administration and Republican Congress to look for ways to leverage private investment in cities, rather than direct federal dollars. In the current landscape, we can also expect differences between levels of government to become highly politicized to the point of brinksmanship.

In the rest of this series, we’ll look at what specific federal policies can tell us about the city-federal relationship. To find out more – and make your voice heard at the federal level – come to NLC’s Congressional City Conference!

Trevor Langan 125x150About the author: Trevor Langan is the Research Associate for City Solutions and Applied Research at the National League of Cities.