Budgetary Federalism in the United States of America

Abstract

The United States Constitution creates a federal government with broad powers to tax and spend, but purports to limit that government's regulatory power to a modest series of subjects.l Foremost among those subjects is a power [t]o regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.2 From the New Deal to the nineties, the commerce power was construed by the United States Supreme Court through the prism of an expansive effects enquiry to confer almost plenary regulatory authority upon the United States Government.3 For so long as that interpretation persisted, the potential for indirect regulation via the exercise of federal fiscal powers seemed somewhat superfluous. As one commentator observed: If the front door of the commerce power is open, it may not be worth worrying whether to keep the back door of the spending power tightly closed.4 The world changed in 1995, when the Supreme Court struck down a federal law prohibiting firearm possession near schools as not authorized by the federal power to regulate interstate and foreign commerce.5 Three days after the Court's decision was delivered, President Clinton signaled that the federal government would seek to achieve precisely the same regulatory result via conditional payments to the states.6 Of little interest for more than half a century, the constitutionality of conditions on federal spending was suddenly interesting again. In the meantime, federal payments to state and local governments had risen exponentially. In 1943, such payments totaled $991 million. In 1993, they exceeded $195 billion.7 All federal spending is,