Cover: Crisis Federalism

Crisis Federalism: How the Stimulus Reshaped Federal-State Relations

Available September 30, 2014

The recession of 2007–09 was the most severe downturn in U.S. economic performance since the Great Depression. Such a huge problem triggered a huge response. The American Recovery and Reinvestment Act of 2009—a.k.a.the Recovery Act or simply “the stimulus”—injected more than $800 billion into the moribund economy. Not surprisingly it remains hugely controversial, but the law is not well understood.

Crisis Federalism examines ARRA through the lens of fiscal federalism. The question of “who pays for what?” has bedeviled the nation for centuries. Tracy Gordon argues that the Recovery Act can teach us much about a proper balance of responsibilities among different levels of government. Subnational governments provide most of the public goods and services in America, so the federal government could not efficiently disburse funds for education, health, and welfare—areas targeted in the stimulus—without mobilizing lower levels of governments. Thus more than half of ARRA spending flowed through states, counties, cities, and towns.

The Recovery Act provides a possible template for future intergovernmental cooperation. By targeting aid to the most afflicted and requiring extensive oversight and reporting, ARRA may have helped overcome the moral hazard concerns regarding federal aid. Whereas other writers have focused on ARRA’s impact on jobs or economic output, Gordon emphasizes the role of state and local governments in Crisis Federalism, bringing the discussion down to where Americans interact with their governments.