It’s Happy Hour, and Uncle Sam Is Pouring

It’s Happy Hour, and Uncle Sam Is Pouring

State budgets are dangerously dependent on Washington. Look out if the cash flow stops.

By Wayne Hoffman in the Wall Street Journal

Boise, Idaho

Like someone who has spent too long in a tavern and can’t recall how many beers he downed, many state leaders seem oblivious to how thoroughly their budgets have become soaked with federal dollars. Convinced that the federal largess will continue always and forever, they aren’t terribly worried about a reversal of fortunes. They should be.

Dependence on federal money leaves millions of Americans at risk of losing services if the pipeline from Washington runs dry. Consider my home state: Idaho professes rugged Western independence and fearless rejection of federal edicts, but its reliance on federal dollars has nearly doubled in 10 years.

Today, about $2.4 billion—more than a third of the state’s budget—comes from the federal government. Federal dollars support programs for the elderly and health care such as Medicaid. Federal dollars are used to run transportation and environmental-protection programs. Federal money is used to hunt down child predators on the Internet and subsidize elementary and high-school breakfast and lunch programs. But what if the feds cut or suspend the flow of cash?

Take the Idaho Education Network, a broadband system that connects the state’s rural schoolchildren to the Internet and online classes. Three-quarters of the cost of the network had been funded by the Federal Communications Commission, but because of litigation over Idaho’s contract with the broadband provider, the FCC decided to withhold money for the system beginning March 2013.

State lawmakers didn’t find this out until January 2014, when they were told they had a choice: come up with millions of dollars to replace the FCC’s money or the broadband system would go dark, and the students using it to take courses necessary for graduation would simply be out of luck. The legislature kicked in the cash, an $11.4 million bailout for the first year.

The drama continues, since a judge threw out the state’s contract with the network in November, and its future is up in the air. The point is simply that state legislators went nearly a year without knowing that the federal money had stopped flowing. Until the future of the broadband system was called into question, few had given real thought to what might happen. The bill creating the network stated that it would have no impact on the state’s general-fund budget, and federal dollars didn’t appear in a single budget document or work sheet voted on by lawmakers.

The fiasco prompted Idaho Gov. C.L. “Butch” Otter to sign an executive order demanding that state agencies delineate federal funds—whether appropriated by the state legislature or not—and services that would be in jeopardy if the money were cut. Agencies were also directed to create contingency plans should federal funding for such programs be reduced by 10% or more.

In March, the Idaho House and Senate voted unanimously for a bill that puts the executive order into statute, ensuring that the governor’s order will have a lasting effect. The bill won bipartisan accolades.

Maxine Bell, the Republican chairwoman of the House Appropriations Committee, said during debate that the federal government is often “not a reliable partner” for the state, necessitating greater transparency. Mat Erpelding, a Democratic state representative from Boise, said during floor debate that “part of state sovereignty is funding your own government fully and not relying on the federal government for budgetary needs.”

Idaho is hardly alone in its reliance on federal cash. According to the nonpartisan research organization State Budget Solutions, Mississippi is the country’s most federally dependent state, receiving almost 43% of its budget from the national treasury.

Louisiana, Tennessee, South Dakota, Missouri, Montana, Georgia, New Mexico, Alabama and Maine round out the top 10. The states least dependent on the feds are North Dakota—with 19% of its budget coming from Washington—Hawaii, Alaska, Virginia, Connecticut, Delaware, Kansas, Nevada, California and New Jersey.

In recent times, federal funds have been threatened by the spending sequester, congressional standoffs over debt limitations and a government shutdown. As the population ages and as bills for overburdened social programs come due, further belt-tightening seems inevitable. Yet many governors and state legislatures are unprepared for the next federal financial emergency.

A few other states in addition to Idaho are taking steps to ensure they’re not caught flat-footed. Oklahoma, Mississippi, North Carolina, South Carolina, Montana and Alaska are among a handful of states worried about a sudden cutting of the federal umbilical cord, and are taking action. They’re working on legislation that requires agencies to delineate where federal dollars are going and what strings are attached to acceptance of them.

Other state legislatures might want to consider following suit—or be ready to explain to constituents why they were left to the mercy of politicians on the Potomac.

Mr. Hoffman is the president of the Idaho Freedom Foundation in Boise, Idaho.