From the Next Right sorry for the longer than normal excerpt, but just in case you don't jump to the article, basically the entire idea is here. 50+ comments on Next Right though worth reviewing.
This is a bold idea from Utah Republicans.
We propose a modest experiment. As Utah state leaders, we are greatly concerned about the unprecedented expansion of the federal government over many years, and the enormous debt levels being left to our children and grandchildren. We believe the federal government is attempting to do far more than it has the capacity to execute well. [...]
We'd like to relieve some of their burden. We don't believe that 535 members of Congress and the president can educate our children, provide health care, pave our roads and protect our environment as well as the nation's 8,000 state legislators and tens of thousands of local officials.
So please, let us help. Let's select a few programs -- say, education, transportation and Medicaid -- that are managed mostly by Utah's government, but with significant federal dollars and a plethora of onerous federal interventions and regulations.
Let Utah take over these programs entirely. But let us keep in our state the portion of federal taxes Utah residents pay for these programs. The amount would not be difficult to determine. Rather than send this money through the federal bureaucracy, we would retain it and would take full responsibility for education, transportation and Medicaid -- minus all federal oversight and regulation. [...] [T]oday the federal government operates like an old-fashioned mainframe computer, pushing one-size-fits-all mandates out to the states. We believe there is value in intelligent decentralization.
This would be a great agenda for the Tea Party activists. It combines limited federal government with increased State, local and personal responsibility. For that matter, it should be a great experiment for the empiricists and policy wonks - both left and right - who want better data on which systems work and which do not.
Let's hope some Republicans will have the courage of their convictions to put political capital behind this idea. This would be a good agenda item for Tea Party activists to demand of Republicans.