Government Growth, Institutional Erosion, and the Fiscal Squeeze

This chapter offers a case study of the state of Nebraska and of the institutional and ideological changes underpinning increasing budgets and fiscal pressures at the state level over the last century. The case study substantiates the phenomenon of the fiscal squeeze of state budgets between increasing fiscal responsibilities for local public goods production and ever greater levels of federal influence over policy priorities in the state. We identify the erosion of the institutions that define fiscal federalism as a major factor creating this squeeze. Empirically, paying for local public goods like school funding, health-care funding, and pension funds, to name a few, has strained the ability of the state to keep balanced budgets. At the same time, federal mandates make it impossible for states to focus on local priorities to manage expenditures, but they come with limited guarantees for federal funding and therefore create additional budgetary pressures. Although in the past federal government grants have been a reliable and increasingly important source of funding, there is rising uncertainty over whether the federal government will be able to continue to aid the various programs that were shaped by federal government policy to the same degree.