Federalism and Intergovernmental Relations

The nature of regulations across different states and the impacts of federalism on policy

Tenth Amendment
Affordable Care Act (ACA)
Fiscal federalism

What is Federalism?

The concept of federalism refers to the division of power between the national government and state governments, and is protected by the Tenth Amendment of the Constitution. This amendment reserves individual states the right to exercise all powers not explicitly delegated to the federal government in the Constitution.

The Tenth Amendment has been a key part of several landmark Supreme Court cases that have shaped the relationship between the federal government and the states.

For example, in Printz v. United States (1997), the Supreme Court struck down provisions of the Brady Handgun Violence Prevention Act that required local law enforcement officials to perform background checks on prospective gun buyers. The Court held that the Tenth Amendment prohibits the federal government from compelling state officials to carry out federal law enforcement functions.


Variation in State Regulations

The federal separation of powers in America has resulted in great variation in regulations across multiple domains.

For instance, while the federal government sets minimum standards for labor rights such as minimum wage and overtime pay, individual states are free to set higher standards if they choose.

California has taken advantage of this by introducing legislation such as AB 5 which provides additional protections for gig workers like Uber drivers. Similarly, some states have adopted stricter gun control measures than those mandated at the federal level; New York State’s SAFE Act requires background checks on all firearm purchases within its borders.

There is also considerable variety across states in the regulation of education. California, for instance, has introduced legislation such as SB 48 which requires public schools to include LGBT history in social studies classes. On the other hand, science curricula in Texas permits teaching that challenges evolution theory, due to the state’s population of evangelical Christians who believe literally in the biblical account of creation.

Healthcare Policy and Federalism

In the Constitution, healthcare is not specifically mentioned as an area of federal authority. As a result, and in keeping with the Tenth Amendment, the responsibility for healthcare policy has traditionally fallen to the states.
Each state has its own healthcare system, which includes regulations governing insurance, medical practice, and the provision of healthcare services.

States also receive significant funding from the federal government for healthcare programs, such as Medicaid, which provides healthcare coverage to low-income individuals and families.

In recent years, there have been controversial efforts to expand the federal government’s role in healthcare, particularly with the passage of the Affordable Care Act (ACA), also known as Obamacare, enacted in 2010 with the goal of expanding access to healthcare coverage for all Americans.

Some have argued that the federal government’s involvement in healthcare infringes on states’ rights and undermines the principles of federalism.

Supremacy Clause: Federal Law Precedence

The liberties of state governments are held in check by the Supremacy Clause of the United States Constitution, which stipulates that federal law takes precedence over state law.

Specifically, it states that the Constitution, federal laws, and treaties made under its authority are the supreme law of the land, and that state judges are bound to uphold them, even if state law or the state constitution conflicts with them.

The Supremacy Clause upholds the federal government as supreme in matters of national concern, such as interstate commerce, foreign policy, national security, and immigration.


For example, in Arizona v. United States (2012), the Supreme Court struck down several provisions of an Arizona state law intended to increase the powers of local law enforcement to suppress illegal immigration. The Court held that these provisions conflicted with federal immigration law and were therefore preempted by the Supremacy Clause.

Congressional Compacts and Cooperation

The functioning of a federal system relies upon intergovernmental relations and cooperation between states, and several formal mechanisms are in place to facilitate cooperation across multiple jurisdictions.

Notably, Congress can enter into agreements with states known as “compacts”, which allow them to cooperate on matters of mutual interest without infringing upon each other’s sovereignty.

Congressional compacts can cover a wide range of issues, from water rights and environmental protection to economic development and transportation. For example, a congressional compact might be created to coordinate the management and distribution of a shared resource, such as a river or lake, between two or more states.

The Regional Greenhouse Gas Initiative (RGGI) is one example of this type of collaboration between nine Northeastern US states which seeks to reduce carbon dioxide emissions from power plants through a cap-and-trade program.

Fiscal Federalism

Fiscal federalism is a system of government in which the national and state governments share responsibility for providing public services. This is achieved through the use of financial transfers between the federal government and state and local governments.

In this system, the federal government provides funding to state and local governments in the form of grants-in-aid, which are financial transfers that may be earmarked for specific purposes or provided with more flexibility in how they can be used. For example, grants-in-aid are used to fund programs such as education, health care, infrastructure development, and social welfare initiatives. This allows for the provision of public services that are responsive to the needs of local communities while ensuring that there is sufficient oversight and accountability in the use of public funds.

State and local governments may also have their own sources of revenue, such as taxes, fees, and other charges.

Competitive State Policies

Federalism can result in states competing with each other by offering better policies and services than their neighbors, particularly with regards to attractive industry.

For example, in 2018 Arizona passed a law allowing fintech companies to test new products and services without having to obtain a state banking license, (known as fintech “sandboxes” making it easier for these companies to operate in the state.

By offering a more flexible regulatory environment, Arizona is hoping to establish itself as a fintech hub and gain a competitive advantage over other states that have more restrictive regulations for fintech companies. Other states, such as Utah and Wyoming, have also implemented fintech sandbox programs in an effort to attract fintech companies and stimulate economic growth through innovation.


Unfunded Mandates: Strain on State Finances

Divisive among the powers of the federal government are “unfunded mandates”; laws that require states to implement certain policies without providing the necessary funding. This can place financial strain on state governments, as they must find ways to cover the costs of compliance by diverting funds from other programs.

One example is The Americans with Disabilities Act (ADA) of 1990, which requires employers, businesses, and state and local governments to make reasonable accommodations for the needs of individuals with disabilities, ensuring equal access and opportunities.

This is considered an unfunded mandate because it requires state and local governments to make significant changes to their facilities and services without providing the necessary extra funding to do so, at significant cost to smaller states and local governments.

While the federal government has provided some funding to assist with compliance, it is generally not enough to cover the full cost of implementation.

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