Diversity across states has always been one of the most important strengths of federalism. States' freedom to innovate new approaches to public problems is a foundation for our highly touted laboratories of democracy. In fact, most federal programs, including welfare reform, health reform and educational testing standards, have their antecedents in state innovations.
Over recent years however, widening differences in state politics, political cultures and priorities have emerged, contributing to increased policy polarization among the states. These differences are readily apparent in the diverging of public policies originated among the states, whether they be legalization of gay marriage and marijuana use or "stand your ground" gun laws and climate-change policies. Recently, however, these yawning ideological gulfs have begun to spill over into the implementation of federal programs as well.
The 2012 elections brought even greater polarization to state governments. In fully half of the states, a single party now controls a supermajority in the legislature, up from only 14 states a decade ago, and 23 states now have unified Republican control of both the governor's office and the legislature. At the same time, the ideological distance between the two parties has continued to widen in the states just as it has in Congress. Both developments give conservative Republican governors greater capacity and incentives to challenge federal mandates and policy prescriptions.
The ideological differences across states have accentuated wide differences in participation by states in some of the major grants under the 2009 stimulus program and the 2010 health-reform law. The map below charts the differences in states' participation in expanded state Medicaid and health exchanges under the Affordable Care Act as well as state participation patterns in new major high-speed rail networks funded under the stimulus program. As the map shows, only 18 states participated in all three of these major federal initiatives, while 14 refused to participate in any of them.
For the most part, states participation in federal programs is broadly reflective of their ideological and partisan composition, and the ideological winds are strong enough to cause these states to act in defiance of fiscal logic and rationality: States opting out of major federal grant programs give up the opportunity for their taxpayers to get a return on their federal taxes, ensuring that their federal tax payments will, in effect, subsidize programs in other states to the neglect of their own.
These state differences have become a source of policy drag on national activism. Consigned to work with the states they have rather than the ones they might want, national officials have adopted flexible strategies that largely enable states to participate in new federal initiatives as much or as little as their politics permit:
• Partial preemptions: These establish a floor but not a ceiling for new regulations, allowing some states to go beyond a federally required level of regulation. This is something that California, for example, has long taken advantage of with the Clean Air Act, which allows states to impose stricter limits on auto emissions than what is federally mandated.
• Waivers: These tools have been used for several decades, first in welfare reform and later in Medicaid. States been able to tailor federal entitlement and grant programs to achieve cost savings, shifts in service-delivery approaches and other innovations.
• Opt-outs: These have allowed conservative states to avoid participating in some federal programs altogether. In the case of regulatory opt-outs, the federal government typically stands by to enforce federal rules in nonparticipating states, thereby ensuring some level of national uniformity. This was most notable with the Affordable Care Act, which allows states to opt out of operating their own insurance exchanges. When states opt out of grants, however, there is typically no federal fallback.
Where is all of this leading? In the European Union there has been much discussion of a "variable-speed" union, currently illustrated by use of the euro. Most EU members have joined the monetary union and utilize the euro, while some countries, including Britain and Denmark, have opted to retain their own currency. In our own system, we are heading toward more of variable-speed federalism as well.
The consequences remain to be seen. On the one hand, states could emerge as newly empowered actors in charge of federal programs. The polarization that gave rise to wide variations among the states could become institutionalized, further segmenting the nation into radically different policy worlds.
However, there could be a cyclical quality to the states' resurgence, coming on the heels of strong national reforms in health, financial regulation and even education. As such, variable-speed federalism may be a temporary speed bump on the way to the adaptation of new national programs to the differences among our states and people.
Should the goals of national programs become more deeply rooted, differences among states could prompt renewed and stronger forms of nationalization of programs, possibly including more centralized federal leadership and mandates. Already there are voices on the progressive side arguing that the refusal by two dozen states to expand Medicaid coverage justifies a nationalized program under federal control. Variable-speed federalism, thus, could be the defining force shaping the next decade of national policy debate.