Why States Matter

Conventional wisdom inside the D.C. Beltway holds that on major issues like health care or energy independence, it's fine for state legislators to play with their legislative toys in local sandboxes, but that it's really up to the "grown-ups" in the federal government to fix big problems. In national policy debates, state governments are usually treated as a tiny sideshow to the top billing of national legislation.

But this conventional wisdom ignores the reality that not only are most domestic programs funded and administered by state governments, federal institutions have historically themselves been resistant to innovation.  This forces states to take the lead in creating the policies to solve the problems facing American working families. The federal government has usually trailed (sometimes decades later) in creating national legislation supporting state governments' policy innovation, but the federal government rarely replaces the states as the dominant player in domestic policy. As this Stateside Dispatch will detail, federal inaction and state innovation is not a historical oddity but part of the institutional DNA of our national constitutional system.  Policymakers at both the state and federal level need to think about all policies in the light of creating a "collaborative federalism" that builds policy on that reality.  

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States: The Check on the Tyranny of Federal Inaction

Civics textbooks often celebrate the "checks and balances" in the federal Constitution, where the House checks the Senate, the President's veto checks the Congress, judges check the elected branches, and Senate filibusters can block most legislation. While presented as a check on government power, what's missing in this happy picture is the way this tyranny of the status quo allows social problems to fester and private corporate interests to benefit as: wages are eroded by inflation year-by-year; health insurers hike health care rates; oil companies benefit from windfall profits even as global warming advances; and people continue to suffer discrimination based on their race, gender, sexual orientation, disability or other characteristics.

The Filibuster as Defender of Status Quo: The Senate filibuster symbolizes this tyranny of inaction. Historically, the filibuster was used by a racist minority of Senators to delay federal civil rights laws for decades, but in recent years it has become the routine weapon of those blocking health care reform, labor reform, energy programs and a range of other needed legislation. 

It's not just that forty-one Senators can block legislation from becoming law, it's that the uneven size of the populations those Senators represent means that Senators elected by incredibly tiny minorities of the American population can use their power to defeat the national democratic will. Here's how crazy the system is:  the forty-one Senate votes needed to block legislation could be elected by just twenty-one states -- with two filibustering Senators from each of those states.  If they came from the smallest states, it would mean that Senators representing just 11% of the American population can defeat legislation supported by Senators representing 89% of the population. See the chart below for a graphic version of the small slice of votes represented by that minority.

Since most of a state's population doesn't vote and the Senators representing a state need only a bare majority to win office, it's actually possible, as Progressive State's co-chair David Sirota wrote in a column this week, Tyranny of the Tiny Minority, for Senators supported by just 7 million voters out of a population of over 300 million Americans, or just 3% of the voting population, to block all substantive federal legislation. In practice, filibusters are put together with a hodgepodge of states representing larger minorities of the population. But when corporate special interests start with such a low threshold of votes needed to preserve the status quo, it's hardly surprising that federal inaction is the norm. 

Enter the States: Luckily, our constitutional system does have a check on federal inaction, namely state governments that can generally take action with just a majority of the vote in their statehouses.  Not only can states deal with crucial problems locally, they can collectively create such a strong wave of action that even Senate filibusters fold under the weight of the trend.  Twenty-nine states passed state civil rights laws preceding passage of the landmark federal 1964 Civil Rights law. In the last decade, states representing two-thirds of the American population enacted increases in the minimum wage, finally spurring the national government to pass a long-needed change. But in many areas, federal laws may remain half-hearted in the face of filibusters, which is why state action will likely remain critical in areas ranging from health care to energy policy.

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States Are Where the Budget Action Is

Despite the myth of federal control over policy, states actually exercise far more direct day-to-day power over domestic policy. 

States Dominate Domestic Spending: Take spending, an obvious measure of such power. While the federal government and states (including local government budgets) collectively spend about the same amount of money each year, federal spending goes overwhelmingly to defense and international relations, interest payments on the federal debt, and transfer payments to the states, who actual administer most programs.  The largest program that the federal government actually runs is social security, which simply collects payroll taxes and cuts checks to retirees, an income transfer system run largely on auto-pilot.  Subtract out those programs and active domestic spending directly administered by the federal government is less than one-third of the federal budget.  (See chart to the right)

If you think about it, critical programs like Medicaid, worker's compensation, public schools, unemployment insurance, most of our criminal justice system, and most aid to the poor are administered not from D.C. but in the states.  When you total it all up, you have states spending over $2 trillion each year on a range of programs. That is almost three times the dollar amount of non-social security domestic programs administered at the federal level. (See chart to the left)


If you think about the face of government, the public employees who help make it work, from school teachers to cops on the beat to program case workers, they are also overwhelmingly employed at the state and local level.  In fact, where the federal civilian workforce is just over two million public employees, state and local governments employ 18.6 million people-- over nine times as many as the federal government. As is often said, people are policy, so just by choosing who administers programs, states are ultimately the key actors in domestic policy.

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States Control Other Key Domestic Policies

Beyond budget decisions, states make critical regulatory decisions over a range of policies, from auto insurance to contract law to corporate liability for consumer fraud and injury.   

Renters and homebuyer rights are still governed largely by state law and even though federal regulators get much of the media attention, the combined action of states, often through their state Attorneys General, has played a critical role in everything from tobacco litigation to antitrust enforcement to financial securities regulation.  The insurance industry in particular, with its $3.8 trillion in assets, remains almost solely under state regulation.

States control in many ways the key lever of our democratic society, namely how to administer elections, from how people register to vote to the machines used to run them on election day. Federal rules (usually ineffectively) may occasionally put a check on those state rules, but that day-to-day power in the states is crucial.  State courts reported 17 million civil cases in 2003, including contract, tort and real property disputes. In any discussion of "tort reform," it's worth remembering that these lawsuits are governed overwhelmingly by state law.  Add in criminal cases and the 1.9 million prisoners in state and local institutions, most of what we think of as "legal disputes" are a question of state policy. 

Finally, in a world of global capital, states wield significant potential power through their control of public pension funds, with over $2.7 trillion in financial assets under the control of state governments. States are increasingly demanding greater corporate accountability as large stockholders and are using those resources to target investments into underserved communities, a role that writer William Greider cites as creating "far-ranging possibilities for reforming the economic system."

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Innovation in the Statehouses

The bottom-line is that given the tyranny of the status quo in D.C., innovation has and will for the likely future come from the states. The rightwing has long recognized this reality, a point we made last year in our report, Governing the Nation from the Statehouses, which documented the long-term campaign by corporate-backed groups like the American Legislative Exchange Council to drive conservative policy through the statehouses. 

However, with victories last fall, we have seen even greater energy for innovation from progressive state legislators, a phenomena we highlighted in our recent report, Taking the Lead: 2007 State Legislative Successes in Enacting Progressive Policy. States enacted renewable energy standards for public utilities, established paid family leave laws, financed public education, made voting easier through same day registration laws, protected gay rights in the workplace and are continuing to enact innovative legislation that is driving the public agenda.

The Example of Health Care: It has been state policy that has driven health care back into the national debate, as state reforms in Massachusetts, Vermont, Illinois, and California have made universal and affordable health care part of the day-to-day practical policy debate. Since the rightwing filibustered health care reform at the federal level back in the early 90s, states have had to take up the slack. Back in 1991, just 28.3 million people received their primary health care from state-run programs like Medicaid. Then, with expansions in eligibility for Medicaid  and children's health care programs extending to middle class families, 49.8 million people were covered by state-run health programs by 2006, an increase of more 20 million people. Note that more people are now in those state-run programs than in Medicare, despite the far more rapidly growing elderly population. 

States are increasingly moving towards far more comprehensive innovations, including in Wisconsin whose Senate this year approved a bill, Healthy Wisconsin, becoming the first legislative chamber in the nation to approve a plan to provide comprehensive coverage for all and preserve freedom of choice of doctors for all residents who are under age 65 and don't qualify for expanded Medicaid programs. It's this kind of state innovation in health care that will drive reform, not sterile D.C position papers that will rarely even get a Congressional committee vote.

Stopping state innovation is at the heart of the current threat by President Bush to veto SCHIP health coverage legislation, since he is demanding that Congress further restrict state flexibility to extend coverage to more working families as a condition for his signature. Right-wing federal leaders see shutting down such innovative state programs as the key to blocking national health care reform, a testament to the power of states in driving the national debate.

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Towards Collaborative Federalism

The fight over SCHIP is a perfect example that, for progressives, federalism is not an either- or- question (federal OR state policy) but a question of finding the best model for effective collaboration. Progressives can have a far more dynamic view of federalism that understands where they can achieve progressive gains at each level of government, and mutually reinforce success at higher or lower-levels. These include addressing key issues of how to fund programs, build strong national standards on state success, and limit federal preemption.

  • Funding: Given different levels of poverty and need around the country, progressives recognize that we need federal spending to help transfer funds from richer regions to poorer states, especially in times of local economic hardship when increasing social needs often collide with tightening state budgets. Raising a chunk of revenue at the federal level that is then transferred to the states also helps lessen the pressure from corporate interests on state governments to cut spending. The federal government can also spur innovation through matching grants for local programs, exactly how SCHIP encouraged states to keep pushing for new ways to expand coverage for the uninsured in their states.
  • Federal and State Regulatory Standards:  Where states innovate on policy, it's useful when the federal government takes action to establish a floor of regulation nationwide. Such national regulation can discourage a few states from becoming a haven for "low road" companies abusing workers rights and polluting the environment. The minimum wage is a good example: when an overwhelming number of states raised their minimim wage laws, the feds raised their own wage standards, even as some states continued to raise minimum wage levels above the new federal rate, encouraging a virtual cycle of improving standards for workers.
  • Stopping Federal Preemption: However, while national standards are useful, too often federal laws are used by special interests to preempt state laws, a trend we highlighted a few weeks ago. Such federal preemption in a policy area often eliminates the states' ability to address any aspect of that policy area, even if the specific federal law addressed only one tiny part of the problem. What is devastating about such preemption is that it removes the state check on federal inaction and creates an almost permanent tyranny of the status quo.  With such preemption in place, corporate special interests gain the ability to push for filibusters that block reforms at any level of government -- an attack on democratic accountability that betrays any vision of collaborative federalism.

If not hamstrung by federal limits but instead supported by a collaborative federalism, we can expect that states will continue to lead in policy innovation. 

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