Federalism at a crossroads: states must do their part to define federalism and shape the future.

• Author: Pound, William T.

The U.S. federal system is the most vibrant and effective federal system in the world. It is always dynamic, always evolving.

In large part, the success of federalism is a result of the creativity and innovation of the states. Yet the federal balance today is placing enormous strain on state budgets as the national government enacts initiatives and tells the states to pay for them. From the No Child Left Behind Act, to Medicaid reform, clean air and water, the federal government is asking states to do more--and come up with the money to do it.

PHASES OF FEDERALISM

It wasn't always that way.

America began with a state-based federalism where the states wielded most of the power and initiated nearly all domestic policy. That began to change with the Civil War. It shifted even more with World War I, the Great Depression and World War II, and evolved into its second phase--a clearly Washington-dominated federalism where Congress and the administration became the principal players. Relative to the federal government, the states became weaker. In fact, an observer of federalism commented that by the late 1950s, the states had become mere administrative arms of the national government.

Washington, D.C.-dominated federalism began changing around 1980, however, when President Ronald Reagan took office. Responsibilities and authority became much more balanced between the states and the national government, with both playing significant roles. State governments, and particularly state legislatures, had modernized in the 1960s and 1970s--from professionalizing their staffs to enhancing their research, bill drafting and budget capabilities. It wasn't very long before every legislature had its own fiscal staff to strengthen its role in the state budget process. Legislatures also created the National Conference of State Legislatures in the mid 1970s to make the states more active players on the national scene.

FISCAL FEDERALISM

One of the distinctive features of U.S. federalism is that it is the only major federal system in the world in which the national government doesn't systematically share revenues with state government. In the past, the federal government shared revenues with the states to overcome regional disparities. But that doesn't happen in a single program today. Revenue sharing occurs to some extent through Medicaid and in a few formula programs, but the funds are tied to a specific outcome. It's not general purpose aid.

Just as general purpose aid has all but disappeared, there also has been a decline in...