The evolution of American federalism

Refresh my memory, are we expanding or contracting Medicaid?  Why is it that I can't seem to remember!?

The Obama administration would permit a controversial plan by Arizona's governor to cut an estimated 250,000 impoverished adults from Medicaid, despite a provision in the new health-care law barring states from tightening their eligibility standards for the program, federal officials said Wednesday.

Here is more.  In a not totally unrelated development, Florida's governor rejects $2 billion in federal aid for a high-speed rail line linking Tampa and Orlando.  What's the implicit MRS on federal funds vs. unrestricted funds here?

What will "the new federalism" look like?  I see rapid evolution.