Fouling Up 

Summer 2019 Insider

Fouling Up 

How Federal Grant-in-Aid Programs Drive Irrational Policymaking and Undermine Democratic Accountability

Aug 22, 2019 8 min read

Fouling Up 

As part of the successful effort to lure the Democratic National Convention to Milwaukee in the summer of 2020, city leaders have promised free, unlimited rides to convention-goers on their shiny, new, mostly federally funded, $128 million streetcar. 

This is entirely fitting. 

The streetcar, a classic example of political “grantstanding” that has all the makings of a colossal boondoggle, has never been subject to normal economics. It would never have been built if riders or local taxpayers actually had to pay the cost of the thing. And it’s altogether unclear whether anyone will really use it if and when the city starts to charge fares regularly.

The only reason the streetcar exists at all is that 28 years ago, the federal government for some reason gave the Milwaukee area close to $300 million for a bus-only highway between Milwaukee and Waukesha County to the west. Turned out that the governor at the time, Tommy Thompson, wasn’t really up for a bus-only highway, so other Wisconsin politicians spent the next 25 years (yes, 25 years) trying to find a way to avoid losing all that free, federal cash.

One of those ways was the streetcar, now officially known as The Hop. 

The federal government, in the end, financed $69 million of the $128 million Hop; the rest of the initial funding came from local tax incremental financing districts (a different tale of abuse for a different day). 

The Hop has been running since last fall on only about two miles of track in a small portion of downtown Milwaukee. Predictably, it is already plagued by what appears to be low ridership (the city says the system that counts the number of riders is busted, but it’s hard not to notice completely empty cars), tracks that dead-end in the middle of streets and may never lead anywhere, and widespread disinterest among almost anyone who has someplace else to sleep. 

Never mind the fact that Milwaukee tore out its original streetcars in the middle of the last century because even then—way back before Uber or electric scooters or the prospect of driverless vehicles—they were already a nostalgic thing of the past. 

Unfortunately, the waste and lack of common sense on display along the new tracks today isn’t just a problem for Milwaukee. 

Those grants awarded way back in 1991 are known as federal grants-in-aid, and they are even more ubiquitous today. 


There are many types of direct, domestic federal spending, including contracts, direct entitlements, and a wide variety of grants. Researchers and writers in the Badger Institute’s Project for 21st Century Federalism spent the better part of three years investigating just one: grants-in-aid—funds that flow directly from federal coffers to state and local governments.

Grants-in-aid were relatively rare until the 1960s when President Lyndon Johnson made them a focal point of his War on Poverty. Today, they are so prevalent that the government essentially has stopped counting how many such grant programs even exist, but Chris Edwards of the Cato Institute recently put the number of such programs at 1,386. 

The total outlay rose from $7 billion in 1960 to an estimated $728 billion in 2018. The system has grown so quickly that most states today get about one-third of their revenues from the federal government. 

We looked at Wisconsin as a microcosm of what’s happening all across America. In Wisconsin alone, if you include the University of Wisconsin System, more than 10,000 full-time-equivalent “state employees” are actually paid with federal dollars. Multiply that by 50 and you see the extent of the problem.

Some departments of state government, as a result, have become little more than offshoots of Washington, D.C.:

  • Fully 73 percent of the Wisconsin Department of Workforce Development’s 1,603 workers are paid with federal funds.
  • At the Department of Children and Families, 48 percent are paid with federal funds.
  • At the Department of Transportation, it’s 25 percent.

Through grants-in-aid, the federal government inserts itself into everything from environmental issues to research on aging. Wetland management, hunter safety, water quality, nutrition and health issues, crime victim assistance, land acquisition, and gang resistance are just a few of the policy areas that are subject to federal control through grant-in-aid programs. 

Almost nowhere is the intrusion as pronounced, however, as in the education realm. Nearly half (49 percent) of employees in the Wisconsin Department of Public Instruction (DPI), 313 workers, are federally paid and essentially work for the federal government. 

Over the past two decades, federal aid to DPI has grown twice as fast as the agency’s budget—and much of that federal money is spent on administration and bureaucracy rather than bettering the lives and minds of Wisconsin’s children. Almost half of those 313 workers, in fact, appear to be performing purely administrative duties rather than anything directly affecting what happens in the state’s classrooms. That includes accountants, grant specialists, administrators, attorneys, and human resources personnel.

In addition to the federal bureaucracy, in other words, two often duplicative bureaucracies have been constructed at the local and state level. 

Wisconsinites paid over $53 billion in taxes to the federal government in 2017 alone, according to the Internal Revenue Service Data Book. Some of that money stays in Washington, D.C., or is spent outside the country. But these other bureaucracies have been constructed to make sure that much of that money returns to where it came from in the first place. 

“The paperwork—it needs to be checked 52 ways to Sunday. I can’t even imagine how many personnel they have whose sole job is just checking boxes,” said Ted Neitzke, a former school superintendent referring to the bureaucracy in the state Department of Public Instruction. 

An Even Bigger Problem

Overspending and bureaucratic bloat are enormous concerns. The Congressional Budget Office now projects that federal debt held by the public will reach 96 percent of gross domestic product (or $29 trillion) by 2028—the largest percentage since 1946.

But the grants also incentivize poor policy decisions, decrease local accountability and innovation, transfer authority to unelected bureaucrats, and generally foster a culture of unrealistic and illogical expectations. Everything is expected to be free—and not just streetcar rides for the DNC. 

The Badger Institute’s recent book, Federal Grant$tanding, demonstrates how Americans are bridling at the intrusiveness of the federal government in their lives and simultaneously shaking their heads at the absurdity.

There is, admittedly, plenty to laugh about. 

In 2011, for instance, Oostburg School District officials in Sheboygan County spent nearly $60,000 to build an elevator in its middle school.

The school had no students or staff using wheelchairs, and there is handicapped access elsewhere in the building—so nobody really needs or uses the elevator except occasionally when a grandparent enters the school through a nearby entrance after hours to watch a basketball or volleyball game. 

Local school officials built it to satisfy federal “maintenance of effort” requirements that demand they spend at least the same amount of local tax dollars year after year or face a loss of federal funding. In other words, even if school districts find ways to save money, they still are compelled to spend it.

State governments today are more distant, more detached, more like the federal government because in so many ways that is exactly what they are. States have become beggars and sycophants and have abdicated their own responsibilities.

“We would not have put (the elevator) in without the required use of the money, as it is only used for after-school activities, and the cost would not have allowed us to do it otherwise,” district business manager Kristin DeBruine said. “That simply just doesn’t make sense at all.”

In Waupaca County, meanwhile, federal rules prohibit special education students from riding on buses with non-special education students, requiring districts to operate duplicative bus routes, said Drew Niehans, business manager of the Weyauwega-Fremont School District.

“This not only limits our routes but will also not always be in the best interest of the (special education) students as it will isolate them,” he said.

Niehans was one of hundreds of school officials—teachers, administrators, and school board members—who responded to a series of Badger Institute surveys in 2017 and 2018 asking them about how federal involvement in their schools affects them and their students.

The predominant opinion: Giving more flexibility to local educators and parents would help schools operate more efficiently and effectively—and it would be better for the students. 

Why It Continues

Sometimes, local leaders take the federal money to protect legitimate programs. Sometimes, politicians take the money for purely political reasons. There is still some political currency, particularly among redistributionists, in showing that you can bring back as much federal loot as possible. Politicians love these grants. Those in the nation’s capital get to claim they are helping constituents (i.e., voters) back home; and politicians back home get to brag about securing federal money to build the latest road or streetcar.

To the extent the loot flows to special interests back home, maybe it is a winning voter-turnout strategy. But we have our doubts. Americans, exposed time and again to such absurdities, have lost faith in the people who govern them. 

Asked how much trust and confidence they have in the executive and legislative branches, almost 60 percent of respondents to a 2018 Gallup poll said that they have either “not very much” or “none at all.” 

There is a troubling disconnect between the people and the leaders, a sure sign of an unhealthy republic. 

Sadly, this distrust of the federal government now has infected America’s views of state and local governments as well. Only 20 percent of Americans currently have a great deal of trust and confidence in their state government, and the percentage who have a great deal of trust and confidence in their local government is only slightly higher at 23 percent.

Americans are starting to see local and state government the same way that they see the federal leviathan—and no wonder; they are often one and the same. 

Our fundamental finding is simple: There is tremendous disquietude and repugnance, to borrow terms used in the Federalist Papers, among the people. And one of the primary reasons is the flow of federal money that for so long has increased politicians’ popularity is also undermining their credibility and ultimately the great experiment that is America.

At the same time, that money is in essence buying a very tenuous and brittle obedience that can last only as long as the grants do and is, in the meantime, costing the states and their residents dearly.

State governments today are too often no longer these “visible guardians of life and property” written of in the Federalist Papers. Nor are their activities regularly and plainly before the public eye. They are more distant, more detached, more like the federal government because in so many ways that is exactly what they are. 

States have become beggars and sycophants and have abdicated their own responsibilities. 

It is clear that the eventual costs of continuing apace, the incessant growth of federal debt, the loss of time and money and American ingenuity, the cost in dollars at the state and local level, the greatly diminished trust and confidence, the loss of liberty—which is really just the ability to live a purposeful life in whatever way one chooses without government interference—is threatening the dual system of governance that the Founding Fathers envisioned. 

The system has to be disentangled. But how exactly?

Increase transparency. Demand metrics. Try to limit the amount of money the federal government has to offer, and illustrate how accepting that money is self-defeating to the states and the people who live in them. Most importantly, devolve power and responsibility back to the states. Reassert the basic principles of federalism that the Founders so brilliantly conceived. 

After all, merely making local taxpayers pay for the things that their local political leaders propose surely would result in better decisions—or, at the very least, limit the number of “free” rides on the $128 million Hop.    

Mr. Nichols is president of the Badger Institute. The institute’s book Federal Grant$tanding is available at