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NTU writes in support of S. 692, the Returned Exclusively For Unpaid National Debt (REFUND) Act

April 10, 2013

The Honorable Marco Rubio
United States Senate
317 Hart Senate Office Building
Washington, DC 20510

Dear Senator Rubio:

On behalf of the 362,000-member National Taxpayers Union (NTU), I write in support of S. 692, the Returned Exclusively For Unpaid National Debt (REFUND) Act. This legislation gives states an incentive to return more taxpayer dollars to Washington by ensuring that unspent federal grant money will go toward deficit reduction rather than simply be reallocated to other, less frugal, states.

Since President Johnson first introduced “creative federalism” in the 1960s there has been a rapid expansion in the use of “grants-in-aid” to undertake activities traditionally reserved for state and local governments. Although Presidents from Richard Nixon, who called such aid a “terrible triangle” of waste, to Ronald Reagan, who labeled the system a “confusing mess,” have proposed to rectify the problem, the web of federal grants continues to grow. Today there are more than 1,000 grant programs that will distribute over $625 billion in federal expenditures to the states this year alone.

A grant-in-aid system can come to resemble a highly addictive substance, creating a self-reinforcing dependence that states have found difficult to escape. The result has been an inefficient top-down system that destroys states’ ability to create innovative solutions in the face of clear budgetary problems. One of the primary drivers of this dependency is the “use-it-or-lose-it” nature of federal funds. Under current law, any unused grant money must be returned to the appropriate agency, and can then be meted out to other states. This creates a perverse inducement for state officials to spend every penny of federal aid, lest they face criticism for shipping taxpayer money elsewhere. 

Fortunately, some state leaders have expressed a desire to break the cycle of federal dependency by turning down grants-in-aid and the strings attached to them. By allowing these prudent legislators to dedicate any unspent federal money to pay down the national debt, the REFUND Act would assure taxpayers that returned funds were not merely being redistributed elsewhere. This would encourage states to focus on the long-term well being of their citizens rather than the short-term scramble to maximize federal aid. After four years of trillion dollar plus deficits, this bill would motivate states to spend less in order for the federal government to save more.

The federal grant-in-aid has long been recognized as an inefficient way to allocate taxpayer money, but has persisted in large part because the rules have been rigged to incentivize more spending. The REFUND Act represents positive first steps to encourage state legislators to reject debt-financed federal funds and put states, as well as our federal government, back on a fiscally responsible path. NTU is pleased to endorse the REFUND Act, and we urge all Senators to join you by cosponsoring it.

Nan Swift
Federal Affairs Manager