New Federalism differed from previous federalism mainly in direction: instead of pulling authority toward Washington, it pushed authority back toward the states. From the 1970s onward, presidents, Congress, and eventually the Supreme Court used block grants, revenue sharing, executive directives, and constitutional rulings to reverse a decades-long expansion of federal power. Earlier eras had either kept federal and state governments in rigid separate lanes or blended them into a partnership that grew steadily more federal. New Federalism broke that pattern.
What Came Before
Two earlier models set the baseline. The first, often called dual federalism or “layer cake” federalism, ran from the founding through the early twentieth century. Federal and state governments operated in mostly separate lanes. Washington handled foreign policy, national defense, and interstate commerce. States controlled education, public health, local business regulation, and law enforcement. The Tenth Amendment reserved to the states or the people any powers not given to the federal government.1Congress.gov. Constitution of the United States – Tenth Amendment The Supreme Court policed the boundary actively; in Hammer v. Dagenhart (1918), it struck down a federal ban on shipping goods made with child labor as an intrusion into state territory.2Constitution Annotated. Dual Federalism in Late Nineteenth and Early Twentieth Centuries
The Great Depression broke that model. State budgets collapsed, and the federal government moved into areas it had long avoided. Roosevelt’s New Deal created federal programs for unemployment insurance, old-age assistance, and public infrastructure that pulled state governments in as administrators. Scholars call this “marble cake” federalism because the boundaries blurred. The relationship became cooperative in name, but the direction was one-way: each new program expanded federal influence, and once states depended on the money, walking away from the conditions attached to it became nearly impossible. By the late 1960s, Johnson’s Great Society had pushed further, funding local organizations directly and bypassing state governments in many cases.
The Core Difference: Direction of Power
Under cooperative federalism, the presumption was that national problems required national programs with centralized control. Under New Federalism, that presumption flipped. Anyone proposing a new federal program had to answer why states couldn’t handle it themselves. That shift in the burden of proof, more than any single statute, is what set New Federalism apart. The federal government did not shrink dramatically. States still relied on federal money for roughly a quarter of their revenue. What changed was who was expected to justify what.
How the Money Changed
Money was the mechanism. Cooperative federalism ran on categorical grants: Washington offered states funding for narrowly defined purposes, with detailed strings attached. States receiving highway funds had to follow federal construction standards. States accepting welfare funding had to meet federal eligibility rules and submit expenditure audits. Hundreds of these programs accumulated over the decades, each with its own compliance requirements.
New Federalism introduced two alternatives. Revenue sharing gave state and local governments federal money with few restrictions. Block grants gave states broad discretion within a general policy area rather than dictating how every dollar had to be spent. Both tools moved decisions closer to the recipients and stripped away much of the federal oversight that had defined the categorical model.
How Presidents Drove It
President Nixon launched the shift. His signature initiative, General Revenue Sharing, was signed into law in 1972. In Nixon’s words, the program would “place responsibility for local functions under local control and provide local governments with the authority and resources they need to serve their communities effectively.” Over its nearly fifteen-year life, the program transferred more than $83 billion to state and local governments. The 1972 law initially limited local spending to broad categories like public safety, health, and transportation, but even those restrictions were dropped in 1976, making the grants essentially unconditional.3Congress.gov. General Revenue Sharing – Background and Analysis Nixon also pushed to convert categorical grants into block grants. A Democratic Congress resisted parts of the plan but approved several conversions.4Center for the Study of Federalism. New Federalism (Nixon)
President Reagan sharpened the ideology. In 1987, Executive Order 12612 directed every federal agency to evaluate whether its actions respected state sovereignty. The order stated that “federalism is rooted in the knowledge that our political liberties are best assured by limiting the size and scope of the national government” and established a presumption that “in the absence of clear constitutional or statutory authority, the presumption of sovereignty should rest with the individual States.”5The American Presidency Project. Executive Order 12612 – Federalism Reagan also proposed a 1982 swap in which the federal government would take over Medicaid entirely while states would assume full responsibility for welfare and food assistance. Congress balked, and Reagan eventually dropped the proposal from his legislative package.6Reagan Library. Message to the Congress Transmitting Proposed Federalism Legislation Where Nixon wanted to loosen federal strings, Reagan wanted to redraw the map of which level of government owned which responsibilities.
Devolution in Action: Welfare Reform
The clearest working example came under President Clinton. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 ended Aid to Families with Dependent Children, a federal entitlement since the New Deal, and replaced it with the Temporary Assistance for Needy Families block grant.7U.S. Department of Health and Human Services. Personal Responsibility and Work Opportunity Reconciliation Act of 1996 Under the old system, anyone meeting federal criteria was entitled to benefits. Under the new system, states received a fixed block of federal money and could design their own programs within broad federal guidelines.8Office of the Law Revision Counsel. 42 USC Chapter 7 Subchapter IV Part A – Block Grants to States for Temporary Assistance for Needy Families States set their own eligibility rules, benefit levels, and work requirements. Some imposed strict time limits and aggressive work mandates. Others were more generous. A uniform national entitlement became fifty separate programs.
The Courts Draw New Lines
Earlier federalism operated largely as a political arrangement. New Federalism eventually gained a constitutional backbone through a series of Supreme Court decisions starting in the 1990s.
In United States v. Lopez (1995), the Court struck down the Gun-Free School Zones Act, holding that Congress had exceeded its Commerce Clause power because possessing a gun near a school was not economic activity substantially connected to interstate commerce. Accepting the government’s reasoning, the Court warned, “would bid fair to convert congressional authority under the Commerce Clause to a general police power of the sort retained by the States.”9Justia. United States v Lopez, 514 US 549 (1995) It was the first Commerce Clause limit the Court had imposed on Congress in nearly sixty years.
Two decisions established the anti-commandeering doctrine. In New York v. United States (1992), the Court held that “Congress may not commandeer the States’ legislative processes by directly compelling them to enact and enforce a federal regulatory program.”10Constitution Annotated. Anti-Commandeering Doctrine In Printz v. United States (1997), the Court extended the principle to state executive officials, striking down Brady Act provisions that required local law enforcement to conduct federal background checks. The federal government, the Court said, cannot “impress into its service—and at no cost to itself—the police officers of the 50 States.”11Justia. Printz v United States, 521 US 898 (1997)
The Court also limited how aggressively Congress could use funding as a lever. In National Federation of Independent Business v. Sebelius (2012), the Affordable Care Act had threatened to strip all existing Medicaid funding from states that refused to expand coverage. The Court found this crossed from persuasion into coercion, holding that “when ‘pressure turns into compulsion,’ the legislation runs contrary to our system of federalism.”12Justia. National Federation of Independent Business v Sebelius, 567 US 519 (2012) Medicaid expansion became optional, and roughly a dozen states initially declined.
Limits and Trade-offs
Devolution reads clean in theory and messier in practice. When states set eligibility rules and benefit levels, outcomes vary widely depending on where someone lives. Health coverage, cash assistance, and education funding can differ enormously between neighboring states, raising questions about whether a national floor of basic services should exist.
Block grants also lose value over time. Unlike entitlement programs that grow when more people qualify, block grants are fixed. TANF’s block grant has not been adjusted for inflation since 1996, and its purchasing power has declined significantly. The “laboratories of democracy” argument has produced mixed results as well. Research on the welfare reform era found that states focused on work requirements rather than simply cutting benefits, easing the feared race to the bottom, but the same research found little evidence of genuine policy innovation, particularly in health coverage for adults, and wide variation made it “very difficult to achieve such national goals as coverage of all children or all parents.”
New Federalism did not displace cooperative federalism. Categorical grants still number in the hundreds, and states still lean heavily on federal money. The difference lies in the default. Before, expansion was assumed. After, it had to be defended.