Federalism always has been one of the most significant features of the American constitutional system. The division of authority between the states and federal government is a constantly evolving system of dynamic tension. With the recent changes in our nation's capital, the state-federal relationship is once again at the center of policy debates. The future will likely see both cooperation and conflict. That's nothing new.
Before the Civil War, states generally dominated American federalism. But a stronger national government emerged after the war and grew with the advent of the income tax, World Wars I and II, and the Great Depression.
With the modernization of state legislatures in the 1960s and '70s, a new balance in our federal system developed. The 1960s saw the creation of Medicaid, a shared state-federal program. And in the '70s, general revenue sharing provided unrestricted federal financial assistance to states and localities. This experiment with "no-strings" and noncategorical sharing of federal revenues did not have a long life, however.
The last 40 years have been a period of more balanced federalism. State governments, generally, have been fiscally healthy and active as the country's creative laboratories and public policy innovators. Creative environmental and energy legislation, novel education reform and inventive health policy all flowed from the states.
But the Great Recession, which hit at the end of 2007, was an enormous challenge to healthy federalism and the ability of states to carry out their role as partners in the federal system. Nearly all major domestic policy programs- Medicaid, family assistance, transportation and education- are managed by states or localities. During the recession, fiscal shortfalls and constitutional requirements for balanced budgets limited states' ability to maintain these traditional funding priorities.
At the same time, the ability of the federal government to deficit spend, particularly as a counter to recession, allowed it to expand...