By Karim Elsayed | State Budget Solutions
Like every other state, New Jersey receives handouts from the federal government to fund state agencies. Federal aid may seem like a free lunch, but there are many hidden strings attached. The aid is always conditional upon the whims of the federal government, which ultimately strips away state sovereignty, and increases dependence on federal funds.
With the current state of dependence on the federal government, there is very little room for political diversity. As the saying goes, don’t bite the hand that feeds you. But given the federal government’s irregular fiscal behavior, just how reliable is federal funding?
Due to gridlock between the Democrats and Republicans on budget planning, Congress passed the sequestration which cut funding to several programs nationwide in an effort to reduce the debt by $1.2 trillion over the course of 10 years, starting with an $85 billion cut in 2013.
In the event of reduced federal funding, the impact would be devastating for state agencies reliant on federal funds. Day-to-day operations that New Jersey citizens depend on would likely slow down or come to a grinding halt.
According to the White House, examples of cuts that took effect in New Jersey alone were environmental agencies, the Head Start program, public health agencies, and law enforcement to name a few.
According to State Budget Solutions’ latest Federal Aid to States Report, New Jersey receives almost $14 billion from the federal government, which amounts to roughly 25.5% of state revenue.
The Garden State should not expect current levels of federal aid to last forever, for reasons the Sutherland Institute’s Stan Rasmussen explains very clearly:
The federal government cannot meet its current financial obligations, as of 2011, the federal government’s total financial liabilities of 61 trillion dollars were more than the household net worth of all Americans combined, 58.5 trillion dollars. In other words, If the federal government used tax policy to take every dollar in net worth from all Americans, it would still need another 2.5 trillion dollars, in other words, more than 8,000 dollars from every person in the United States to pay its obligations.
In response, a suite of commonsense reforms, often referred to as “Financial Ready,” would require state agencies to fully account for every dollar they receive from Uncle Sam – and draw up contingency plans for continuity of operations in the face of expected cuts.
While Financial Ready primarily focuses on state agencies, it also requires the state to establish a commission which reviews federal funding and assesses the financial stability of the federal government.
With the federal government now over $18 trillion in debt, Financial Ready is an idea whose time has come. Utah, Mississippi, and Idaho have successfully enacted Financial Ready; and Montana and Oklahoma have more recently passed financial preparedness measures.
Financial Ready is the answer to the Garden State’s troubling reliance on federal aid. If used correctly, Financial Ready will ameliorate the impact of future reductions in aid to states. Meanwhile, Financial Ready would heighten awareness of Uncle Sam’s reckless spending, while forcing state agencies to more carefully monitor their funding sources. As other states are learning, financial preparedness can pay off in more ways than one.
New Jersey native Karim Elsayed is currently a policy intern for State Budget Solutions, where his research is focused on American federalism.