In an era of mounting federal debt and widespread inefficiencies in government spending, it’s time to rethink how the United States funds major public projects. Drawing inspiration from a model I observed years ago at Humana, where hospitals borrowed capital from the parent corporation and repaid it with interest, we should consider a similar shift in how states interact with the federal government.
Currently, states routinely receive federal grants—essentially free money—for infrastructure, education, healthcare and other major initiatives. This encourages dependence, reduces fiscal discipline, and often fuels wasteful or politically motivated spending. Instead, imagine a system where states borrow federal funds for capital projects and repay them with interest, just as a hospital would do when renovating its facilities.
This model would:
Encourage states to evaluate the long-term value and return on investment of every project.
Drive innovation and cost-effectiveness through greater accountability.
Reduce the federal deficit by transforming open-ended grants into interest-bearing loans.
Encourage fair taxation at the state level, potentially pushing states without income taxes to rethink how they raise revenue.
Of course, this reform would face political resistance—especially from states accustomed to low taxes and high federal support. That’s why the initiative must begin at the federal level, ideally with bipartisan backing and a phased implementation.
We could start with new discretionary projects, applying the loan-based model only to those. Over time, as states adjust, the system could gradually be expanded to include long-standing federal support programs. Equity safeguards would be essential to prevent disproportionate harm to low-income states or vulnerable populations.
The goal isn’t to punish states, but to foster a new era of responsible, cooperative federalism—one where states have skin in the game and the federal government reclaims its role as a steward, not a sponsor, of long-term national prosperity.
Dennis Wallace