Now that the conflict between Minnesota and the federal government over immigration enforcement and the loss of federal funds is off the front pages, it is time to discuss the long-term constitutional issues involving state sovereignty and federalism.
James Madison, in Federalist No. 45, argued that the federal government was granted limited, enumerated powers, while the states retained broad authority over the daily lives of citizens. Today, however, federal power has intruded into almost every aspect of American life.
This enhanced federal power and its attempts to mandate state subservience reveal a constitutional conflict that threatens the Republic’s functioning. Federalism functions today because the states depend on federal money rather than a constitutional framework of different responsibilities. Under the current system, States must meet federal demands to continue receiving federal money.
The federal government vs. Minnesota conflict is merely an illustration of what happens when there is disagreement over how to achieve federal mandates.
Presently, 13 Sanctuary states, all governed by Democrats, are at risk of losing federal Medicaid funding for protecting illegal immigrants. Funds for transportation, food, infrastructure, and childcare services are also at risk should they disobey federal commands.
The states may resist unwanted federal intrusion, but the bigger problem facing the nation is what happens when the federal government runs out of money. The federal government possesses no independent wealth. Every dollar sent to states is either taxed from citizens or borrowed against future taxpayers. In 2024, Washington collected $4.9 trillion but spent $6.7 trillion. It has been financing its deficits for forty-five years through debt that now exceeds $38.5 trillion.
What happens to state governments when the federal money runs out? No one is asking, let alone addressing this issue.
How much money do Minnesota and the other states give the federal government?.
Minnesota is a donor state to the federal government. In 2023,Minnesota residents and businesses paid the federal government about $119 billion for its services.
How much does the federal government give Minnesota?
The federal government gives Minnesota about $75 billion to support state and local programs in health care, nutrition, infrastructure, and environmental protection. Under these federal programs, the state receives the money to implement programs that the federal government, many times, does not have the constitutional authority to implement or the resources to carry out. The federal government needs the state for money and resources to carry out its agenda.
What happens to the fifty U.S. states when the federal money is no longer available due to its massive national debt?
About 32% of Minnesota’s budget comes from the federal government. On average, the federal government sends states around $1.1 trillion, which represents 36.1 percent of state budgets.
The loss of federal funds is highly likely at some point, since the national debt is too large to be repaid under normal tax rates and economic growth. Moreover, federal interest payments are estimated to exceed $1 trillion in 2026 and are becoming the largest federal expenditure.
Since the federal government pays states to implement around 2,200 federal assistance programs, it is highly likely that, without federal money, many, if not all, of those programs will be reduced, changed, or simply eliminated. This will radically change the state – federal relationship.
Federal dominance and state subservience will change when the money stops.
When federal funds run out, the fifty states will, on average, need to find the money to replace 36% of their budgets, or the programs administered by state governments will collapse. The states will face a choice: eliminate the federal programs or raise state taxes to pay for the programs that are vital to the states, or some combination.
The more difficult situation, however, will occur if the federal government suddenly eliminates all grants to the states but continues to tax citizens for services they will not receive.
Before this crisis occurs, the states should plan for it. At present, 19 states receive more federal money than they send to Washington, and 31 states send more money to Washington than they receive back.
The 19 states receiving more federal money than their citizens send to Washington will be in a more difficult budget situation than the donor states. Assuming the federal government does not tax states for the eliminated programs, the donor states will have the flexibility to substitute state taxes for the loss of federal funds. If, however, federal funds end suddenly, it might be impossible for any state to unwind decades of programs in a rational manner.
It’s time for the states and the federal government to negotiate the devolution of federal power.
As fiscal pressures intensify, Washington will be forced to scale back or terminate domestic programs in order to preserve funding for essential national functions. One of the earliest casualties will be federal grants to states. The states need to recognize that the federal government is broke and start planning for a different relationship with it. This new relationship may be a huge benefit to states, as it will remove federal leverage over them.
The current federal funding process is structurally inefficient: Washington collects tax revenues from residents of all states, filters those funds through layers of federal bureaucracy, and then returns a portion to the states in the form of grants—typically with many bureaucratic conditions attached.
States would be financially stronger and more accountable if they taxed their own citizens to support programs aligned with local priorities, rather than relying on federal dollars that come with bureaucratic strings.
When this fiscal reckoning arrives, devolving federal power and responsibility back to the states will not only be a practical necessity but an essential restoration of constitutional balance. State governments are closer to the people and can respond more effectively and transparently to local needs.
Ideally, this transition should occur before a crisis forces the federal government to eliminate all federal funding. The federal government and the states should negotiate a clear division of responsibilities, including the costs involved and the programs to be transferred or discontinued. A detailed framework for such a negotiated process appears in Chapter 21 of Devolution of Power: Rolling Back the Federal State to Preserve the Republic.
The core purpose of devolution is twofold: it addresses the federal fiscal mismanagement of taxpayers’ money and strengthens democratic governance by moving services to the level of government best able to administer them efficiently and responsively. States will then decide which federal programs to continue, modify, or abandon entirely. Every unnecessary program and excess layer of bureaucracy eliminated will reduce costs and enhance accountability.
The federal government has created more programs, mandates, and administrative complexity than it can credibly manage. Devolution of federal domestic power is essential for allowing Washington to concentrate on its highest constitutional responsibilities—national defense, foreign affairs, currency, and the regulation of interstate and international commerce—while empowering states to govern more effectively at home.
The debate over state sovereignty is not an academic one; it is a warning sign of the nation’s fiscal mismanagement. The current conflict in Minnesota raises an essential question: Will the United States remain a federal Republic that manages diversity through shared power, or will it evolve into a centralized system strained by conflicts it was never designed to contain?
