Federal Funds – Cut the Strings

Uncle Sam likes to play puppet master with state governments, dangling federal money as an incentive to enact their policy priorities. Roughly half of Iowa’s expenditures are made with federal dollars. While it may seem like a great idea to accept all tax dollars Washington, D.C., will send us, this money often comes with strings attached that can drive up costs for our state. The creation or expansion of state programs with federal money always comes with some risk. With a federal debt exceeding $31 trillion, it is reasonable to think this flow of federal money to the states may not last forever. When the federal government cuts back, the state is left holding the bag and required to pick up more funding or end programs.

Lawmakers need more information about these federal funds. A lack of transparency about maintenance of effort requirements takes power away from legislators and gives it to bureaucrats. During the budgeting process, legislators are frequently informed that there is a maintenance of effort agreement for a program, but it is not always clear exactly what that agreement is, leading legislators to mistakenly believe that state funding can never be reduced when this may not be the case. Additional clarity is needed on potential end dates for federal funds as well, so legislators can anticipate the ending of a federal program and aren’t surprised when federal money is eliminated. These improvements would help ensure that legislators have the best tools to use our tax dollars as efficiently and effectively as possible.