As Austin’s hospitals filled with Covid cases over the summer, city council member Greg Casar was outraged: “The state had been sitting on hundreds of millions of federal dollars that should be used to assist us in the Covid 19 crisis.” Instead of helping cities like his own to keep their hospitals running, Texas state legislators instead “spent their time on, you know, attacking abortion and suppressing voting rights.”

The mismanagement of federal Covid relief is just the tip of the iceberg: Many state governments are at war with federal policies—and with their own local governments:

• Twenty-five GOP governors refused $22 billion in federal unemployment dollars this past summer, denying aid to 4 million unemployed workers.
• Twelve states—including Florida and Texas—continue to refuse federal money to expand Medicaid.
• Instead of directing federal recovery funds to communities in need, multiple GOP states have handed money back to the feds or tried to use the funds to slash taxes for the wealthy instead of helping communities.
• The Biden administration is now suing Florida’s Ron DeSantis for denying federal education funds to local governments that tried to implement mask mandates recommended by the federal government itself.

Political scientists once described our system as “cooperative federalism,” a term that emerged during the New Deal to describe the process whereby the federal government distributes much of its funding through states, who in turn distribute it locally to implement federal goals.

Instead, we now have state governments regularly diverting much of the federal funding they receive away from racially diverse cities in favor of largely white suburbs and exurbs, while increasingly blocking any innovative policy by blue cities, from local minimum wages to innovative housing policies through preemption of local laws. It’s not just that state governments like Texas are not helping local regions, complains Austin’s Casar; “they are usually trying to undo anything good we do.”

All of this has been driven by Supreme Court decisions that have undermined the ability of the federal government to place conditions on how the funds it sends to the states are spent, the court’s striking down the Obamacare mandate to expand Medicaid being the most dramatic example.

As the federal infrastructure and Build Back Better bills have been debated in 2021, a lot of attention has been devoted to the total dollar amount to be spent and the policy areas to be funded, but with remarkably little focus on who will be making decisions outside D.C. on implementing those policies.

If the decision-makers are state governments, “they will have priorities focused on rural and less connected areas,” argues Brooks Rainwater, who leads the Center for City Solutions for the National League of Cities (NLC). If local regions don’t have direct control over federal funds, the policies implemented will promote less economic and racial equity, drive sprawl, and largely undermine goals to reduce climate change. And whatever the language of the bills, states getting to redistribute federal funds will mean less support for urban areas, particularly in the increasingly blue urban areas in red states.

Before the New Deal, state governments were largely sleepy backwaters, but federal transfers and control of many federal programs increasingly made state leaders dominant fiscal players within their states. Today, a third of state revenues come from the federal government. For example, states typically pay only a third of Medicaid costs—and as low as 22.2 percent for Mitch McConnell’s Kentucky—and during the pandemic, states picked up only 21 percent of the cost of unemployment benefits. Yet state governments get to determine a broad range of rules on how those programs are run, often punishing diverse, progressive-trending urban areas with that power.

Replacing Cooperative Federalism With Regional Governance

Progressives need a full-on campaign to stop running federal programs through the states.

Instead, programs like Medicaid, unemployment insurance, and transit programs should be fully funded at the national level with progressive income and corporate taxes, then administered directly through regional governments, bypassing the states.

This is not as unprecedented as it sounds. Up until the 1930s, most federal money was spent directly by the federal government itself. Think the Postal Service and its federal employees operating in every community to this day.

And if you think “regional governments” would take massive new social engineering to create, think again. Over the past half-century, the federal government has quietly helped create what are called Metropolitan Planning Organizations (MPOs) covering well over 400 metropolitan regions in the country.

The latter are currently minimally funded by the federal government and mostly bring together local government officials for planning transportation projects in an advisory capacity. But they do already exist—and if significant federal funds were diverted to them directly, instead of to state governments, MPOs would instantly become heavyweight political and economic players.

The reality is that MPOs, which cover specific metropolitan economic regions, reflect the actual social dynamics of how people live, work, and commute. Compare that to state borders, which are largely arbitrary creations of the federal government, originally splitting territories to balance slave and free state interests, adding multiple Dakotas to beef up Republican Party power in the 19th century, or just chopping up acquired territory based on the whims of D.C.-based bureaucrats. The rectangular borders of many states highlight how little they were designed to reflect even the basic geographic features of the country—much less the evolving economic industries that define each current metropolitan region.

States are either too small, with economic activity in places like Delaware spilling over their borders into neighboring states, or too big, with state leaders in Texas having 25 separate metropolitan regions in their jurisdiction, or both, with Tennessee’s 11 MPO regions, five of which are shared with other states.

Partly because they are disconnected from these shared regional economic goals, state politics seem to inevitably exacerbate racial and social divisions. David Warm is executive director of the Mid-America Regional Council, which coordinates planning for 119 city and county jurisdictions in both Kansas and Missouri, with Kansas City as the major hub city of the region. “In 50 state capitols, they will not focus on these regional dynamics, they won’t pay attention to achieve strong economic outcomes,” he argues from experience. “State elected leaders tend to drive divisions between their suburban and urban populaces.”

Overcoming Legacies of Redlining and Local Division

In the postwar period, federal highway funding was used by states to promote suburbanization and exurban sprawl, even as redlining and exclusionary zoning reproduced segregation town by newly created town incorporated by those state governments.

Austin’s Casar highlights municipalities like Rollingwood—wealthy and 96 percent white—that were literally carved out of the middle of the city’s downtown. “Our urban governance is fragmented across multiple cities and requires cooperation,” says Casar, but these enclaves undermine collective planning and shared contributions for things like mass transit and worker training programs.

At this point, the average metropolitan area has 114 local governments, spread between municipalities, counties, and special districts like school systems. This translates to 18 local governments for every 100,000 people. “For a country that doesn’t like government,” Warn wryly observes, “we sure have a lot of them.” And the problem is that those local governments, including traditional central cities, lack the scale to really address the long-term economic needs of populations commuting across jurisdictions.

Simply switching federal support to local governments alone would therefore just balkanize funding between often uncooperative urban and suburban jurisdictions. Notably, while local leaders do want direct financial support from the federal government—and those I’ve talked with have been effusive about the lifeline Biden’s American Rescue Plan has given them—they also recognize that they can’t individually pay for the collective goods they need in their regions. “Metropolitan regions are where economic activity happens and drives the bulk of economic growth in the country,” argues the NLC’s Rainwater. “Creating that regional funnel from the federal government is going to lead to better outcomes for the country as a whole.”

Congress began mandating the creation of Metropolitan Planning Organizations in a belated recognition that state transportation agencies were shortchanging urban regions, beginning with the 1962 Highway Act. The passage of the Intermodal Surface Transportation Efficiency Act of 1991 gave MPOs new authority to actually allocate some federal transportation funds. While their power was still limited, their increased clout encouraged better participation by local elected leaders, who are the main actors governing their operations.

Nowhere is such regional coordination needed more than in addressing climate change mitigation. More money for infrastructure by itself won’t solve the climate change crisis. It can actually make the problem worse if spent poorly, since, in the absence of strong regional cooperation, the easiest programs to implement—building more roads—will drive exurban sprawl. And any viable mass transit system needs more than train lines built; we need regional institutions directing housing and jobs to new transit nodes to make the transit system connecting them economically viable.

Models for Moving Regional Governance Forward

There are successful models to replicate around the country. The Twin Cities Metropolitan Council continues to expand light rail and bus rapid transit systems throughout its region. Greater Chicago has launched a single regional economic development agency, while the Washington Council of Governments in the D.C. region is concentrating on expanding housing near its Metro stations.

And everyone points to the success of Metro Portland, which is led by the only directly elected regional government in the nation. Metro President Lynn Peterson describes recently launched programs to buy up affordable housing before transit is expanded so people aren’t priced out of their homes. With a regional growth plan, “it leads to better discussions on what to do,” argues Peterson. “We have proven we can do high-quality infill development” to reduce energy use in the region and expand housing options.

In order for the federal government to encourage the best aspects of regional coordination of economic development, housing, and transit, it also needs to better coordinate its own policies between different cabinet departments. Multiple local leaders talk fondly of a short-lived Obama program, the Sustainable Communities Initiative, where the Transportation Department, Housing and Urban Development, and the EPA promoted exactly that kind of coordination. While that program did not survive the Trump years, many hope Biden will revive it in an expanded form given the dollars involved in new programs being enacted.

In the short term, the goal should be to ensure that we funnel new federal funds as much as possible not through the states but through existing regional governance structures. In the longer term, we can imagine these beefed-up regional governments overseeing regional single-payer health care operations, raising regional minimum wages, or coordinating Green New Deal job guarantee programs. Ideally, federal policy should make clear that such MPOs are recognized federal entities not subject to state preemption for their operations.

Over time, shorn of federal money, the states who now largely exist to take credit for spending federal dollars will either have to justify their existence with useful programs adding value to federally funded regional programs—or fade away as unimportant fiscal actors. Which would be fine. Before the New Deal, most states were largely skeletal operations, and having many of them return to that status would be a net political gain for the country.

Instead, we can see a new federalism in which the federal government supports regional institutions that bring suburbs and central cities together to promote equity, growth, and sustainability. A future where, as Austin’s Greg Casar hopes, the federal government “challenges all of us to make sure we’re doing regional and collaborative projects.”