Governmental Environment
Where government authority comes from
Governments are creatures of constitutions, not of markets. The U.S. Constitution creates a federal system: enumerated federal powers (to tax, spend, regulate interstate commerce, declare war) and powers reserved to the states under the Tenth Amendment. Police power - authority to protect health, safety, and welfare - resides with the states, which may delegate it to local governments. Local authority flows from state law: Dillon's Rule (a local government has only powers expressly granted, implied, or essential to its purpose) versus home rule (broader local autonomy). Federal agencies have no general police power.
The intergovernmental web
Money moves vertically through grants. Categorical grants fund a narrow purpose with substantial conditions (matching, reporting, maintenance of effort); block grants fund a broad purpose with fewer strings; general revenue sharing is largely unrestricted. Federal mandates impose requirements, sometimes without funding (the Unfunded Mandates Reform Act requires cost analysis and can trigger a point of order). Preemption displaces state law.
Public versus private management
Public managers face no profit test, often a service monopoly, resources from taxation rather than voluntary exchange, and accountability to citizens and elected officials. That drives transparency laws (open meetings, public records), ethics rules, and the budget as the central political instrument.
Traps
- Assuming the federal government has general police power.
- Treating all grants alike - matching and maintenance-of-effort conditions attach mostly to categorical awards.
- Confusing Dillon's Rule with home rule.
- Forgetting that states, not the federal government, create and control local governments.
Rule of thumb
Ask two questions of any intergovernmental program: How narrow is the purpose? and How many conditions attach? Narrow purpose plus many conditions equals a categorical grant and heavy compliance risk.