PODCAST: Dr. Francis Fukuyama on Midterm Election Results, AI's Impact on The Future of Governance, and More Season 3 · Ep 2
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PODCAST: Dr. Francis Fukuyama on Midterm Election Results, AI's Impact on The Future of Governance, and More Season 3 · Ep 2
THE URGENCY OF NOW
Federal law now require states to provide 75% of administrative cost funding for the Supplemental Nutrition Assistance Program (SNAP), compared with 50% prior to October 1, 2026; the federal portion of Medicaid’s funding, a shared federal-state program, will be reduced by $880 billion over ten years, requiring states to augment their share or reduce services; the predictability of federal disaster declarations and approvals has come into question; Executive orders have surged in the post-war era, peaking at 171 per year since 2025, affecting all levels of government, including intergovernmental partnerships; the Federal Highway Trust Fund is nearly broke while transportation infrastructure at all levels of government continues to decay from deferred maintenance; state preemption of local government authority has increased substantially in the last 20 years, especially in states with trifectas; and demographic shifts and insufficient federal tax revenue for federal programs have created a $40 trillion debt; and the projected insolvency of Social Security and Medicare by 2032 and 2033, respectively.
These constitute only a partial list of the innumerable immediate problems and challenges to the intergovernmental system.
Any policy actions to address the federal fiscal crisis will inevitably affect federal aid to—and partnerships with—state and local governments and, more broadly, the intergovernmental system of finance and programmatic operations. Policies designed to address the manifold issues confronting the intergovernmental system are understood to have a non-uniform impact across the fifty 50 states and the 90,000 local governments. The impact of adopting new policies, regulations, and procedures across the intergovernmental landscape, in the absence of uniform federal standards, will vary depending on the resource base and political will of the state or local government. These potential changes can launch a new era in which states and local governments experiment with a diversity of approaches, resource bases, and ideas, underscoring the nation’s federal system as a ‘laboratory of democracy.’
In short, the federal system in the US is nearing a tipping point, requiring all levels of government to reimagine their roles and responsibilities, their resource bases and spending needs, the appropriate or constitutional basis of the provision of goods and services in the intergovernmental framework. This report explores a few of the problems and possibilities of a new federal system, to examine a Reimagined Federalism.
OUTLINE OF REIMAGINING FEDERALISM
The federal government embarked on a ‘sorting out’ process some 40 years ago and appears to be doing something similar today. The disruptions to the US intergovernmental system under the current administration (e.g., grant termination, impounding funding, reducing federal support for Medicaid) require a reexamination of the roles, responsibilities, and collaboration among the partners of the federal system, including federal, state, local, tribal, and regional governments.
The goals of the Reimagining Federalism project are to (a) describe the contemporary federal system; (b) assess the impacts of federal realignment in 2025 and beyond on state, local, regional, and tribal governance; and (c) identify practical policy options and role assignments that improve service delivery and governance at all levels of government and enhance intergovernmental effectiveness and cooperation.
ANALYSIS
Over the last 12 months, more than 50 National Academy of Public Administration (the Academy) Fellows and other experts from across the range of public services have analyzed these issues at all levels of government to diagnose the core problems and reimagine options and pathways for US federalism to tackle these issues over the next 20-30 years. The project has analyzed constitutional and fiscal aspects of federalism and focused attention on a small number of intergovernmental program areas, namely, emergency management, health, and transportation policies, to assess the impact of federalism problems and identify options and pathways that reimagine how federalism could more effectively and efficiently tackle those issues. The assessment and option pathways include immediate problems and issues, and those that will take more time to address.
Constitutional Federalism
In Federalist no. 51, James Madison summarized the American constitutional system and its key objective: “In the compound republic of America, the power surrendered by the people is first divided between two distinct governments, and then the portion allotted to each subdivided among distinct and separate departments. Hence a double security arises to the rights of the people.” Madison was referring here to federalism and the separation of powers, neither of which is explicitly mentioned in the U.S. Constitution because both are embedded in the structure of government created by the U.S. Constitution.
Today, many Americans are concerned that both structures, which are intended to protect against tyranny, have been eroded by centralization, partisan polarization, and the expansion of presidential authority. When one party controls both houses of Congress and the White House, Congress frequently fails to check the president's expansive exercises of power. The erosion of the checks and balances built into the separation of legislative and executive powers therefore also erodes the powers of the states in our federal system. Under Article I, Section 8, Congress’s principal constitutional duty is to “provide for the common Defence and general Welfare of the United States." Through its other specified powers, Congress also has a constitutional duty to ensure that the president and the Supreme Court act within the bounds of the US Constitution, including the Tenth Amendment, which reserves all undelegated powers to the states or the people.
By necessity, a federal system tolerates a greater degree of inequality than a unitary system, and it may exacerbate inequality as well. This is because the constituent units have, by definition, a significant degree of autonomy to make their own political and policy decisions across a range of functional areas, and citizen preferences and economic and social conditions are unlikely to be distributed identically across diverse geographic areas. Moreover, the constituent units of a federal system are in competition with one another to attract or retain citizens, workers, and capital investment.
The constitutional issues derive from two trends. First, the federal government has steadily accumulated policy authority and power through the power of its purse, funding a spectrum of programs and policies in exchange for determining the operations and outcomes of the programs implemented by local and state governments. At the same time, multiple agencies are often involved in local and state policies and programs, creating conflicting and competing requirements that frustrate local and state governments. Second, the executive branch has steadily claimed authority to act unchecked by Congress. Consequently, the current administration has advanced an aggressive vision of a unitary executive that has largely been upheld by the Supreme Court. A passive congressional majority has rarely objected to the president’s executive orders and guidance letters rejecting appropriations for programs and policies implemented by local and state governments, limiting their ability to deliver the authorized services to citizens.
The states also bear significant responsibility for the erosion of federalism and, to some extent, the separation of powers. In particular, the decline of intrastate party competition and rise of trifecta states have produced a two-edged sword. On the one edge, trifecta states erode federalism by supporting their national party when it is in power in Washington, DC. They do not act to check polarization, centralization, or presidential authority instigated by their own party. On the other edge, the party out of power in Washington, DC, strengthens federalism by challenging the opposition president and Congress in the courts and by hailing the states as laboratories of democracy.
Pathways:
Fiscal Federalism
The federal structure of the United States—and its reliance on fiscal federalism at the state and local level—has allowed the public sector in the United States to achieve greater efficiency by allowing state and local governments to vary the mix of taxes and public services in response to the variations in preferences and conditions. But the nature of intergovernmental systems needs to evolve to respond to different conditions. From time to time, the country’s fiscal federalism must be reimagined in response to evolving realities. This has happened in the past, with U.S. federalism evolving from a layer-cake to a marble cake in response to the evolution of the United States as a primarily localized, agricultural economy at the time of independence to an integrated national, industrialized economy in the late 19th century and early 20th century.
Changes in technology and the structure of the global economy are likely to impact revenues and expenditures of the federal, state, and local governments in different ways. The US is undergoing a major demographic transition (e.g., aging population, immigration trends, and internal population shifts) and appears to be recalibrating its political and economic relationships with the rest of the world. The nature and role of institutions, information dissemination, and collective decision making are evolving, impacting how federal, state, and local budget decisions are made. Climate change is likely to require more frequent disaster responses as well as greater spending on climate adaptation. The structural fiscal imbalance at the federal level is likely to have ramifications across all government levels when the fiscal bubble bursts.
Fiscal federalism operates on the assumption that lower-level governments have the political and fiscal power and discretion to offer their constituents an optimal mix of local revenues and expenditures. However, local governments in many states are limited in their ability to respond to the priorities of their constituents as the political interests and views of higher-level governments supersede their own. Moreover, there is a concerted effort in some states to further limit the ability of local governments to respond to the preferences of their local constituents through preemptions and tax and expenditure limitations (TELs).
The national debt has reached a point where debt service now costs more than the military budget and is likely to increase further without increased revenues and decreased spending. Medicare and Social Security have unsustainable and inadequate revenue streams to meet the demands of an aging population and workforce. An aging population is increasing costs of Medicaid that pays for elderly nursing care and uninsured workforce populations. The congressional appropriations process is dysfunctional and has failed to deliver a normal-order budget since 1994 or a balanced budget since FY 20001.
State budgets are strained by Medicaid claiming an increasing share of revenues, declining quality of healthcare in rural areas, decaying transportation infrastructure, and increased requirements to respond to climate emergencies and disasters. Local governments in most states experience these problems daily while constrained by heavy reliance on property taxes, often limited by TELS or lacking home rule status.
Modernizing US fiscal federalism would clarify which level of government should decide, finance, and deliver public functions while aligning authority, responsibility, revenues, and accountability. It would address fiscal pressures across federal, state, and local governments. It would reform the dysfunctional congressional appropriations process that has failed to deliver a normal order budget since 1994, nor a balanced budget since 1997: an essential element of a predictable federal role that facilitates state and local governments’ adaptations to evolving federal financing.
Pathways:
Fiscal Sustainability: Congress could adopt debt-to-GDP targets with automatic enforcement; incorporate demographic and immigration scenarios into fiscal planning; and improve transparency, civic engagement, and accountability.
Emergency Management
The American emergency management system was designed on the premise that all emergencies are locally executed, state managed, and federally supported. The events that now dominate the workload increasingly do not fit that paradigm. The range of emergencies communities must manage has expanded well beyond natural disasters to mass violence, public health threats, cyberattacks, and cascading infrastructure failures, while the frameworks governing these remain fragmented and disconnected from the apparatus built around the Federal Emergency Management Agency (FEMA).
The National Institute of Building Sciences has estimated that federal grants for resilience return approximately six dollars for every dollar invested.i Current fiscal and management capacities of counties and other local governments to mitigate, respond and recover are wide-ranging across states and across the country. Enhanced local emergency management capacity is essential for more effective response and recovery. Abrupt fiscal and managerial retrenchment by the federal government is exacerbating local limitations. States are beginning to create state-level disaster insurance funds, but the practice is limited to date.
In May 2026, the President’s FEMA Review Council, released its final report, recommending changes that would substantially reallocate disaster responsibility among levels of government: replacing FEMA’s Public Assistance and Individual Assistance programs, shifting from reimbursement toward lump-sum grants, and raising the monetary threshold for a presidential disaster declaration.
Congress is considering a bipartisan FEMA reform bill that takes a different approach. The Fixing Emergency Management for Americans Act of 2025 (H.R. 4669) would reestablish FEMA as an independent, cabinet-level agency; create a block grant that states and tribes could elect in place of Public Assistance for smaller disasters; expedite funding for emergency work and debris removal; and direct that greater weight be given to disasters affecting economically distressed and rural areas.ii
On September 22, 2026, FEMA Administrator Cameron Hamilton issued a memorandum to agency personnel defining emergency management as “the strategic coordination of emergency services to protect life, property, and continuity of operations.” Hazard mitigation appears in the memorandum only once, and only as a planning requirement; the word “local” does not appear at all. iii Because Congress creates federal agencies and sets their missions by statute, a redefinition of this scope raises questions reaching beyond emergency management policy. Each set of proposals contains elements that could strengthen intergovernmental capacity. Block grants, faster reimbursement, and higher declaration thresholds could move decisions and resources toward the level of government best positioned to use them. The critical question is sequence: withdrawing federal resources before state and local capacity has been rebuilt to absorb them risks becoming abandonment rather than devolution. The timing and conditions of any reduction in the federal role matter as much as its direction.
Six themes recur in emergency management research: (1) an intergovernmental paradox, in which statutory responsibility sits at one level of government and fiscal and technical capacity at another; (2) uneven capacity, with the places facing the greatest risk often holding the least of it; (3) a disruption of federal commitments that is pushing costs toward states and localities; (4) the growing importance of horizontal mechanisms, through which the jurisdictions best positioned to act are increasingly the ones that do; (5) the role of pre-existing relationships and practiced routines in making coordination possible under stress; and (6) the persistent under-development of mitigation relative to response in both spending and policy attention.
The central concern is not whether state and local governments should have greater responsibility, but whether they can also have sufficient fiscal and administrative capacity. Decentralized responsibility without decentralized capacity is not federalism but cost shifting. We know a good deal about who does what; we are actively debating who should do what; the question of who pays for what has barely been engaged. That question is now being answered administratively rather than legislatively. The September memorandum signals a far broader transfer of responsibility to the states than anything yet enacted, while the measures by which state and local capacity would be judged remain undefined. With a bipartisan congressional reform bill still pending, the policy direction is contested rather than settled. Any reform that shifts responsibility without also addressing capacity, mitigation, and the mechanisms by which peer jurisdictions help one another will reproduce the same fragilities in a different distribution.
Pathways:
Healthcare
Healthcare is inherently an intergovernmental issue as public health involves workforce readiness, transjurisdictional epidemics, and fiscal capacity to meet the needs of an aging population. Public health services go back to 1798 with the Act for the Relief of Sick and Disabled Seaman in the Administration of John Adams and affect citizens of every income level or situation. The federal government funds, regulates, provides oversight and technical assistance, and collects public health data. States implement federal programs but also have their own programs and policies geared to their populations. Local governments are heavily engaged in the day-to-day operation of public health programs in areas such as disease control, maternal and child health, environmental health, chronic disease protection, mental health and nutrition programs. In recent years, providers of public health services have come to include nonprofits, for-profits, tribes, and territories.
The federal government guides public health policy primarily through the US Department of Health and Human Services (HHS) although several other agencies such as the Environmental Protection Agency (EPA), the US Department of Agriculture (USDA), and the US Department of Labor, also have defined public health protection and health promotion roles. Like the rest of the federal government, their ability to guide public health is governed by a collection of laws, regulations, and legal funding authority. Importantly, the primary legal authority of public health is at the state and local levels. For example, vaccine policy is set by a series of recommendations by a panel of experts known as the Advisory Committee on Immunization Practices (ACIP). These recommendations are then approved in whole or in part with or without modifications by the Director of the Centers for Disease Control and Prevention (CDC). While they guide an evidence-based set of recommendations to harmonize recommendations nationally across professional societies, actual vaccine policy and enforcement is accomplished at the state level. These national recommendations affect federal and private-sector vaccine reimbursements for many health insurance programs covered under federal law, again demonstrating the interdependency of the federal, state, territorial, local, and tribal partners. Despite the legal authority being at the local level, federal policy and resources have an enormous impact on the overall direction of public health in the United States.
The United States is the only Organisation for Economic Co-operation and Development (OECD) nation without a coherent national health policy and program to manage and fund healthcare. Consequently, many families lack adequate healthcare despite a myriad of local, state, and federal programs that complement or compete with an incomprehensible array of private sector health insurance options. The federal-state partnership for Medicaid, which funds both very low-income households and nursing homes for older adults, faces rising costs as more older adults enter nursing home care and more low-income households lose private health insurance.
Proponents of the One Big Beautiful Bill Act (OBBBA) expect to see some $911 billion in federal savings over a decade, largely from reducing the number of people eligible for the program through new work requirements under which all able-bodied adults aged 19–64 with incomes up to 138 percent of poverty in the Medicaid expansion states must work or be engaged in community service for at least 80 hours each month. The work requirements are expected to cause substantial administrative burden for state officials. The OBBBA requires major adjustments to states’ eligibility determination systems for both initial applications and renewals. In some cases, it will require hiring new staff.
Administrative capacity in health policy is key since states and localities rely heavily on the federal government for funding and guidance, including technical assistance. Administrative capacity varies among states, and poor states will likely suffer more from federal reductions in support than wealthier ones. Local public health operations in states like Alabama simply do not have the expertise or infrastructure to pick up the slack. In more resource-rich states such as California, localities will be hit but are not concerned about their survival.
Data availability is also a major concern. The federal government has long taken the lead in collecting, analyzing, and publicizing health data on its citizens. This is an area that will affect both resource-rich and resource-poor subnational jurisdictions as they attempt to keep their citizens safe from viruses and other health threats.
OBBBA constrains state practices by setting new limits on provider taxes and imposing restrictions on states’ payments to Medicaid managed care organizations. States have often used taxes on health care entities such as hospitals, nursing homes, and managed care organizations to help generate the nonfederal share needed to draw down federal matching dollars. It prohibits all states from adding new versions of provider taxes or increasing the rates on existing ones. It also compels the 40 Medicaid expansion states to reduce their reliance on these taxes, which now make up an estimated 18 percent of the funds states use to subsidize Medicaid. Finally, OBBBA imposes new limits on state-directed payments, which require managed care organizations to increase provider reimbursement rates that help shore up the finances of hospitals and other institutions serving large numbers of Medicaid enrollees. States will have to replace lost revenues from other sources or cut Medicaid benefits.
In response to federal inaction or cuts in programs, some states have come together in regional coalitions, such as the West Coast Health Alliance and the Northeast Public Health Collaborative, to address such issues as changes to vaccine schedules, challenges with the workforce, funding and data. Midwestern and Southern officials are working to develop similar coalitions. There is some evidence that states are working across partisan divides in key public health areas. States are also working with artificial intelligence (AI) companies to apply that technology to public health problems.
Pathways: The Academy can play a significant role in illuminating the challenges of current and future public health and Medicaid policies. Consistent with its charter, the Academy could:
Convene a national panel to recommend a framework to create a stable funding stream for the nation’s public health system, one that addresses the unique nature of federalism and the importance of fiscal support at all levels of government.
Transportation
Transportation is inherently an intergovernmental issue. The national network of roads, rail, air, and waterways functions at all levels of government. Interconnectivity is vital to the economy and security of the nation. While the primary responsibility of the federal government is transjurisdictional services (e.g., interstate highways, air travel, railroads, and interstate waterways), states and local governments have relied on a myriad of categorical grants to support local and state projects. While the decay of transportation infrastructure looms larger each year, the federal grant system perversely supports new construction over maintenance.
Surface transportation in the United States is governed by a fragmented system in which no single level of government has full control. Federal, state, local, tribal, and regional institutions share overlapping but concurrent authority over planning, funding, delivery, and safety; and federal law uses conditional funding and performance requirements to shape the decisions of the other levels. The structure of US transportation policy has evolved through a series of landmark statutes, from the Federal Aid Road Act of 1916 through the Intermodal Surface Transportation Efficiency Act (ISTEA), the Moving Ahead for Progress in the 21st Century Act (MAP-21), the Fixing America’s Surface Transportation (FAST) Act, and the Infrastructure Investment and Jobs Act (IIJA), toward more intermodal, performance-based, and grant-driven governance, even though the Highway Trust Fund's revenue base remains insufficient and administrative capacity remains uneven across jurisdictions.
Changes to federal transportation policy since 2025 (e.g., staffing cuts, centralized political review of grants, rescinded policy guidance, and added scrutiny between award announcement and obligation) have made the federal government an unpredictable transportation partner, although it remains active and engaged. These policy shifts push risk and administrative burden onto state departments of transportation (DOTs), metropolitan planning organizations (MPOs), local and tribal governments, and transit agencies. In turn, this devolution of responsibility requires subnational governments to absorb delays and reinterpret shifting requirements. Reliable transportation delivery depends on a collaborative federal-state-local process rather than on hierarchical federal direction alone, which creates instability, makes policy volatile, and erodes trusted intergovernmental relationships. The federal government’s diminished capacity and credibility undermine efficiency and accountability, as seen in delays in reviewing statewide transportation improvement programs (STIPs) and transportation improvement programs (TIPs).
Subnational governments provide about 75% of highway and transit funding, and the federal government contributes the other 25%. The IIJA’s surface transportation authorizations expired at the end of FY 2026, immediately reducing federal support and creating uncertainty about a long-term reauthorization. States fund more than half of highway spending through fuel taxes, tolls, bonding, and a growing set of electric vehicle (EV) registration fees. Local governments, meanwhile, bear the heaviest burden for transit—82 percent of transit capital spending— with fares covering only about 13 percent of costs. Regional funding depends on formula programs (e.g., the Tribal Transportation Program and MPO planning funds) that are increasingly strained by frozen discretionary grants and cost inflation. Accountability mechanisms also remain largely reporting-based rather than performance-contingent, especially since federal equity accountability programs were eliminated in 2025.
Transportation planning coordination has long run along a federal-state axis. MPOs serve as regional forums but have limited independent authority, and smaller MPOs (those serving populations under 200,000) remain subject to state control over project selection. Data sharing, performance tracking, and integration with other cross-sectors such as housing and economic development remain fragile.
Four key fiscal risks characterize the current state of transportation funding: Highway Trust Fund insolvency by 2027–2028, the IIJA's expiration and the need for reauthorization, continued erosion of gas tax revenue as vehicles become more fuel-efficient or electric, and the departure from performance-contingent funding or equity mechanisms.
Pathways:
1. Congress can rebalance federal transportation policy around four principles— shifting toward a more balanced multimodal investment; incentivizing maintenance over new construction by restructuring the 80/20 construction match that discourages maintenance; aligning funding with actual system ownership by redirecting formula funding toward local governments, which own 48% of federally eligible roads but receive only 16% of funding; and empowering state/local revenue authority through measures such as elevating MPOs as genuine planning partners.
2.Complementary efforts could include creating asset-condition transparency dashboards, streamlining federal grant and review processes, expanding Safe System safety funding, , improving freight connections, and expanding local revenue authority. Implementation could be sequenced over five years alongside the pending BUILD America 250 Act.
3. Congress can develop a more inclusive governance model that formally elevates regional, local, and tribal governments as key partners rather than peripheral actors. Steps could include building on the Build America 250 Act's grant of planning-fund control to MPOs by further expanding MPO authority and strengthening consultation requirements; creating funding incentives that reward collaborative, transparent project selection; making greater use of regional bodies as data hubs and technical-assistance providers for capacity-constrained localities; and strengthening federal interagency coordination by replicating the IIJA's Joint Office model across US Department of Transportation (USDOT), the Department of Housing and Urban Development (HUD), the Economic Development Administration (EDA), and the EPA; and by aligning funding cycles with the comprehensive economic development strategy process.
SUMMARY
The Ideal Platform:
The National Academy of Public Administration is an ideal platform for facilitating discussions and identifying possible policy options about today’s rapidly changing federal and intergovernmental system. The Academy is well positioned to address these concerns because it:
This report outlines the challenges facing federalism and intergovernmental relations today, identifies key issues to be addressed at each level of government, examines possible outcomes of various policy options, and proposes next steps.
The Academy is uniquely positioned to convene expertise across the array of stakeholders and levels of government to reimagine a federalism structure that more effectively and efficiently delivers the services and results that the public demands and deserves. We have recruited outstanding experts who work within and across policy areas and levels of government. Detailed investigations and analyses of our federalism challenges appear in the chapters of the final report, and each chapter has appendices that explores the analyses and pathways to a reimagined federalism structure in the United States in greater depth.
The US Federalism Reimagined project welcomes contributions and critiques of our work as we prepare to present our findings to Congress; state, local, tribal, and regional leaders; and the public.
Bibliography
Multi-Hazard Mitigation Council. Natural Hazard Mitigation Saves: 2019 Report. Washington, DC: National Institute of Building Sciences, 2019.
Hamilton, Cameron. “FEMA Definition of Emergency Management and Professional Framework.” Memorandum for all FEMA personnel, September 22, 2026. https://content.govdelivery.com/attachments/OROEM/2026/09/30/file_attachments/3800875/2026_09_22_F1_Memo_EM101.pdf.
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