A Federalist Take on the Federal Budget

From the perspective of someone who focuses on cities and metropolitan areas, there is much to applaud in President Obama’s ambitious FY 2016 budget. It includes major increases in non-defense discretionary spending that would strengthen the U.S. economy and better spread the benefits of growth. In particular, it lays out a six-year, $478 billion program to improve our roads, bridges and railways. It seeks to expand the National Network of Manufacturing Innovation from nine institutes to 45. It boosts spending on research and development by 6 percent and restores the number of housing vouchers to the pre-sequestration level.

Most of the commentary on the president’s budget has been focused on questions of “how much”—how much this program will receive, how much funding that initiative will get, etc. The question is important—the federal government’s capacity to invest far outweighs that of any other single entity. But it is only one half of the policymaking equation. The other question: how to deliver.

The federal government is only one component of our federal republic. States and public, private and civic actors in localities carry out the lion’s share of the programs that the federal government funds. The challenges that cities and metro areas face are complex and intertwined and vary enormously from place to place. All too often, Washington has treated problems as separate symptoms in need of individualized remedies, resulting in piecemeal funding too narrow in scope and too prescriptive in operation.

To improve the efficacy of federal efforts, we need to rethink how power is distributed between Washington and the implementers of its policies in states, cities and metropolitan areas.

Encouragingly, the Obama administration seems to have recognized this. One proposal in this year’s budget—the Upward Mobility Project—is guided by the idea that leaders at the sub-national level are better attuned to the needs of their communities than officials in bureaucratic Washington. It would allow up to 10 metro areas or states to combine funds from a range of block grants from the departments of Health and Human Services and Housing and Urban Development in order to promote strategic growth and development in their communities. Added together, these grants were worth around $6.2 billion in FY 2014. So long as the approach is designed to increase opportunity and reduce poverty, uses evidence-based strategies, tracks performance and evaluates effectiveness, local leaders are free to use these federal resources however they see fit. On top of that, the participating communities would be eligible for $1.5 billion in new funding over five years, also with the same level of flexibility.

The Upward Mobility Project is a very promising start to what could be a broader bipartisan approach to devolving greater flexibility and decision making power to those closer to the ground. Some ideas:

Streamline—the federal government should look to consolidate duplicative programs to reduce administrative costs and increase spending on the mission of key programs. The Government Accountability Office (GAO) has identified billions of dollars of potential savings in overlapping and duplicative federal programs. In FY 2011, for example, the federal government had 15 different agencies enforcing separate food-safety laws, 20 programs aiding the homeless and 80 programs for spurring economic development. This kind of consolidation has been discussed for a long time, but now is the time to do it.

Empower—states, cities and metro areas need the ability to adapt federal resources to local conditions. Federal programs are often extremely prescriptive, allowing for very little flexibility in how resources are applied. Doing away with certain restrictions could allow metro areas to better adapt to tight budgets and more effectively address local conditions and priorities. This is particularly true in public housing, workforce and transportation programs given how housing markets, skills deficiencies and infrastructure needs differ from metro to metro. Beyond the Upward Mobility Project, high-performing cities and metros should generally be allowed to bundle resources from disparate programs and block grants so they can apply innovative, multidisciplinary solutions to particularly tough challenges.

Leverage—with the rise of mandatory spending and the failure of discretionary resources to keep pace with population growth and market dynamics, private and civic investment is playing a larger role in making public projects happen. Very often in infrastructure and housing development, seed money from government is able to spur much larger investments from the private sector. Changing the form of federal subsidies in certain circumstances would help catalyze even more private investment. The Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA) did just this—it allowed metro areas to secure loans, loan guarantees or lines of credit so they can better attract crucial private funding for transportation improvements. What worked for transportation should work in other areas of domestic policy.

The president has submitted an extremely encouraging budget, one that calls for critical investments in infrastructure, R&D and other areas. Most important, we may be witnessing a new way for Washington to engage with the rest of the nation—good news indeed for a diverse nation where local priorities and needs markedly differ.