To Fix the Economy and Unemployment Rate, First Help the States

Addressing local economies is key to solving the national mess.

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Some people say that because of the federal deficit, Washington can't concern itself with state budget relief. But if policymakers try to address the federal deficit without recognizing the role states play in the national economy, they will achieve not federal fiscal integrity but governmental incapacities that ultimately impose increased federal costs.

The concurrent federal and state crises strongly suggest that it is once again time to give serious thought to adjusting and rationalizing our federal-state relations. We are undergoing extraordinary changes in the long-term economic prospects of the nation and many states, together with exponential growth in the cost to state and federal budgets of healthcare entitlements. It is time to think again about the distinctive competences of the federal and state governments, assign responsibilities to the governments best suited to carry them out, and pay for these functions out of revenues from the levels of government that are able to raise them in the most efficient and most equitable way.

These are not new concerns. As early as 1959, the federal government recognized the need for increased federal-state coordination and created the Advisory Commission on Governmental Relations, which for more than 30 years produced valuable information and brought together national experts to address federal-state problems. The enactment of revenue-sharing legislation in the 1970s reflected the political judgment that the federal government excels in collecting taxes while state and local governments have the skills needed to deliver services.

The states are not looking to the federal government to solve all of their deficit problems. They are making the most painful kinds of cuts in the services they provide to their citizens. But it would be both fair to state governments and prudent for the federal government to tackle unemployment and the federal deficit issues together with the issues of the contribution of the states to national economic health and the threat to this contribution from today's debilitating state budget deficits. 

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