Federal Grants to State and Local Governments: A Brief History

Order Code RL30705

Federal Grants to State and

Local Governments: A Brief History

Updated March 13, 2008

Natalie P. Love

Analyst in American National Government

Government and Finance Division

Federal Grants to State and Local Governments:

A Brief History

Summary

The historical origins of the federal grants-in-aid system predate the

Constitution. Grants of land were provided under the Articles of Confederation as

early as 1785. There was, however, little development in the system until the 20th

century. Certain conditions existed during the late 18th and 19th centuries that limited

federal aid to states and localities. During the pre-Civil War era, proponents of

states’ rights and minimalist national government prevailed. During this period, the

trans-Mississippi west consisted largely of federally administered territories; indeed,

more than half of the trans-Mississippi west entered the Union after the Civil War.

The post-Civil War era was one of corporate dominance and weak government.

Despite these conditions, the federal government did provide aid to states and

localities on an ad hoc basis to address natural disasters, civil disturbances, westward

expansion, and the need for internal improvements.

The grants-in-aid system began to take its current form in the early 20th century.

Financial grants created during the 1910s included grant mechanisms such as

matching requirements and conditions, which are now common in grant programs.

In the 1930s, President Franklin Roosevelt’s Administration, prompted by the

conditions of the Great Depression, worked with Congress to accelerate the

development of the grants-in-aid system as part of the New Deal program of social

relief, financial reform, and economic recovery. The grants-in-aid system again grew

significantly during President Lyndon Johnson’s Great Society initiative of the 1960s.

Many of these programs were specifically focused on urban areas and disadvantaged

populations.

The Nixon Administration and Congress initiated changes in the system,

emphasizing block grants, as well as establishing general revenue sharing, a program

that distributed funds to state and local governments virtually without programmatic

requirements. The Reagan Administration also worked with Congress on substantial

change, consolidating dozens of categorical grants into broader block grants and

slowing the growth of the grants-in-aid system. Since the Reagan initiatives, there

have been few significant changes in the grants-in-aid system.

One grant-related issue the 110th Congress has considered was the use of block

grants for disaster recovery (P.L. 110-116). The 110th Congress may also wish to

consider issues such as consolidation of grant programs, methodologies and formulas

used to calculate grant disbursements, and potential re-authorization of existing grant

programs.

This report was originally written by Ben Canada, formerly an Analyst in

American National Government in the Government and Finance Division of CRS.

It will be updated as circumstances warrant.

Contents

Early Beginnings and Slow Development . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Grants-in-Aid During the Late 19th Century . . . . . . . . . . . . . . . . . . . . . . . . . 3

Early 20th Century . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

The New Deal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

The Great Society . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Changes in the System: Nixon and Reagan . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Mid-1980s to the Present . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Federal Grants to State and Local

Governments: A Brief History

Early Beginnings and Slow Development

The origins of the grants-in-aid system predate the Constitution. Early grants

were authorized on an ad hoc basis, awarded not only to states and localities, but in

some cases to private corporations, just as they are today. Early grants frequently

came in the form of land, as well as money. For example, the Land Ordinance of

1785, enacted under the Articles of Confederation, required every new township

incorporated from federal lands to reserve one lot for public schools.1 The need to

help victims of civil disturbance and disasters prompted the federal government to

provide assistance to communities. For example, following the Whiskey Rebellion

in 1794, the federal government compensated individuals who could prove they had

suffered losses.2 When the town of Alexandria, Virginia, burned in 1827, Congress

quickly appropriated $20,000 in assistance,3 which equates to approximately

$362,143 in 2007 dollars after inflation conversion.4

In 1790, the newly established government under the Constitution set a

precedent for federal aid by assuming state Revolutionary War debts. Treasury

Secretary Alexander Hamilton proposed the idea, suggesting that it would establish

a sound credit rating for future governmental borrowing.5 The “anti-federalists,”

mostly from southern states, hotly contested the idea, arguing that it made the new

federal government too centralized, superseded states’ rights, and rewarded

speculators.6 Ultimately, the federal government assumed the debt, but only after

placating the southern states by, among other things, locating the capital city along

the Potomac River in the South.7

1

Journals of the Continental Congress, 2nd Continental Cong., p. 378, at

[http://lcweb2.loc.gov/ammem/amlaw/lwjc.html].

2

Annals of Congress, 3 r d Cong., 2 n d

[http://lcweb2.loc.gov/ammem/amlaw/lwac.html].

3

sess.,

pp.

1000-1002,

at

6 Stat. 356 (1827), “Act for the Relief of Indigent Sufferers by the Fire at Alexandria.”

4

Utilized Consumer Price Index statistics from Historical Statistics of the United States

(Washington: GPO, 1975) in the inflation conversion formula.

5

Hamilton also believed, although he did not state as a public argument, that federal

assumption of state debts would focus more attention on the national government.

6

Many state debt instruments had been purchased at steep discounts by speculators.

Hamilton’s bill assumed the instruments at full value.

7

Votes on the issue of the permanent seat of government are found in Annals of Congress,

(continued...)

CRS-2

As westward settlement accelerated, following the War of 1812, the federal

government gave greater attention to internal improvements, the need for which had

been emphasized by Thomas Jefferson. John C. Calhoun, then Secretary of War (the

War Department played a leading federal role in frontier development), presented a

plan for national internal improvements in 1819 in which he set forth criteria by

which the national government should evaluate improvement projects. He stated that

federal assistance should be granted for programs “immediately beneficial to more

than half of the states of the Union, and which without the aid of the Federal

Government, would require their cooperation.”8 Calhoun’s plan also called for using

the surveying and planning resources of the Army Corps of Engineers.9

One reason Congress was partial to awarding land grants instead of funds was

that land was plentiful in the antebellum period, whereas money was not. Most early

land grants were for transportation projects. For example, Congress granted land and

surveying services for the intracoastal waterway, which was intended to provide a

means of transporting goods without necessitating travel along the hazardous ocean

areas off the eastern seaboard. The waterway’s original plans called for using canals

to link all major rivers east of the Mississippi, providing year-round travel in the

American East.10

In addition to canals and waterways, land grants were also made for roads and

railroads. In some instances, the federal government awarded land to private

corporations building railroads. In other instances, “right-of-way” grants were used,

in which the federal government retained ownership, but permitted other entities to

undertake internal improvements. For example, the National, or Cumberland, Road

was surveyed and constructed at federal and, later, state expense from Cumberland,

Maryland, to Vandalia, Illinois, between 1811 and 1850.11

The American migration westward during the 19th century provided many

examples of early grants-in-aid, although grants generally applied to individuals,

corporations, and territories, since most of the states of the trans-Mississippi west did

not enter the Union until after the Civil War. The movement west greatly depended

on aid from federal troops, who provided law enforcement protection and constructed

a network of over 70 wilderness forts. The forts provided medical services,

blacksmith shops for repairing wagons, and fostered (sometimes created) local

economies through supply purchases. Federal assistance also came through its

7

(...continued)

1st Cong., 2nd sess., pp. 1039-1040, 1735-1738. Votes on the issue of assumption of debts

are found in 1st Cong., 2nd sess., pp. 1054-1055, 1753, at [http://lcweb2.loc.gov/ammem/

amlaw/lwac.html].

8

John C. Calhoun, “Report on Roads and Canals, Communicated to the House of

Representatives, January 14, 1819,” The Works of John C. Calhoun (New York: D.

Appleton and Co., 1888).

9

2 Stat. 137.

10

Daniel J. Elazar, The American Partnership: Intergovernmental Co-operation in the

Nineteenth-Century United States (Chicago: University of Chicago Press, 1962), p. 36.

11

2 Stat. 357.

CRS-3

exploration, survey, road-building efforts, and the financing of postal service in the

West, which provided a communication link to the East.12

In the area of social services, the national government played almost no role.

This was largely due to support for states’ rights and dominant strict constructionist

views of most national politicians. For example, President Franklin Pierce (18531857) vetoed an 1854 act, supported by reformer Dorothea Dix, to allocate funds to

states to help the indigent insane. Pierce contended that if:

Congress is to make provision for [paupers], the fountains of charity will be dried

up at home, and the several States, instead of bestowing their own means on the

social wants of their people ... [will] become humble suppliants for the bounty

of the Federal Government, reversing their true relation to this Union.13

In rare instances, the national government assisted states and localities with

social service projects that were beyond the resources of single localities. For

example, in 1817, Congress awarded a land grant to the Hartford Deaf and Dumb

Asylum in Connecticut, which was intended to educate deaf persons. The Asylum,

founded by advocate Thomas Hopkins Gallaudet, resulted from a joint effort by six

New England states, as well as several churches. It was eventually renamed the

American School for the Deaf and it remains the nation’s oldest school for the

hearing impaired.14

Grants-in-Aid During the Late 19th Century

The outcome of the Civil War had a significant impact on the future of the

grants-in-aid system. After the war, states’ rights advocates lost considerable ground

to the view that the Constitution and federal law empowered the federal government

to take a wide range of measures deemed “necessary and proper” to attain the goals

of the Constitution’s preamble, measures that set the stage for the development of the

grants-in-aid system many years later.15

During and immediately following the war, Congress passed several acts that

expanded federal involvement in the states. Congress supported westward expansion

with the Pacific Railroad Act of 1862, which enabled the government to charter

railroad corporations that constructed a transcontinental railroad.16 The Morrill Act

of 1862 provided land grants for the establishment of land-grant universities focusing

on agriculture, mechanics, and military science. Congress had been assisting higher

education for decades through ad hoc legislation; the Morrill Act systemized this

12

John D. Unruh, The Plains Across: The Overland Emigrants and the Trans-Mississippi

West, 1840-60 (Urbana, IL: University of Illinois Press, 1979), pp. 201-243.

13

U.S. President (Pierce), Congressional Globe, 33rd Cong., 1st sess., May 3, 1954, p. 1062.

14

Elazar, The American Partnership, p. 116.

15

Alfred H. Kelly, Winfred A. Harbison, and Herman Belz, The American Constitution: Its

Origin and Development, 6th ed. (New York: W.W. Norton, 1983), pp. 326-327.

16

12 Stat. 489.

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assistance. Some observers of federalism consider it the prototype for later grants-inaid because of its uniform application and success.17

In the latter half of the 19th century, Congress also authorized the first financial

grant for states and localities that targeted a specific segment of the population based

on need. In 1879, Congress authorized funds for the distribution of education

materials for blind students in “An act to promote the education of the blind.”18 This

act purchased and distributed reading materials to “public institutions for the

education of the blind” using a formula based on the institution’s number of blind

students. The practice of targeting grants, however, would not become common until

the early 20th century.

Notwithstanding these examples, governmental activity at both the state and

national levels remained at low levels during the years following the Civil War. The

14th Amendment was adopted in 1868 for the purpose of protecting the rights of freed

slaves, but the courts generally interpreted its “due process” clause to be a barrier

against state action in social and economic problems. This reduced the states’

abilities to respond to new and burgeoning problems generated by the rapid

industrialization of the late 19th century. Governmental inactivity in this period

contributed to the development of philosophies of governmental intervention and

preemption that would be applied early in the 20th century.19

Early 20th Century

The Presidents in office during the last three decades of the 19th century were

generally cautious about exercising executive authority. President Theodore

Roosevelt (1901-1909), however, used the powers of the presidency to a greater

extent than any of his immediate predecessors. He believed that a strong executive

branch was necessary to address the problems of the industrial revolution and

overcome the “overdivision of governmental powers” to address state and local

concerns. As he later argued,

The state must be made efficient for the work which concerns only the people of

the state; and the nation for that which concerns all the people. There must

remain no neutral ground to serve as a refuge for lawbreakers, and especially for

lawbreakers of great wealth, who can hire the vulpine legal cunning which will

teach them how to avoid both jurisdictions .... The New Nationalism puts the

national need before sectional or personal advantage. It is impatient of the utter

confusion that results from local legislatures attempting to treat national issues

as local issues ... This New Nationalism regards the executive power as the

steward of the public welfare.20

17

12 Stat. 503, July 2, 1862. Also see Elazar, The American Partnership, p. 219.

18

20 Stat. 467.

19

U.S. Advisory Commission on Intergovernmental Relations, The Condition of

Contemporary Federalism: Conflicting Theories and Collapsing Constraints, Report A-78

(Washington: GPO, 1981), p. 60.

20

U.S. President (Theodore Roosevelt), speech made at Osawatomie, Kansas, August 31,

(continued...)

CRS-5

President Theodore Roosevelt’s extensive use of power may have inspired

changes in the federal system after he left office. For example, some analysts point

to the Weeks Act of 1911 as the first example of a modern grant-in-aid. In the act,

Congress authorized the Secretary of Agriculture to “cooperate with any state or

group of states, when requested to do so, in the protection from fire of the forested

watersheds of the navigable streams.”21 Despite its appropriation of only $200,000,

observers consider it a landmark in the development of the grants-in-aid system

because it contained several mechanisms that became common in future grants,

including conditioning the receipt of federal funds on approval of state plans,

requiring matching state funds, and specifying the oversight role of federal officials.22

Congress established a pattern of financial grants to states in 1914, by passing the

Smith-Lever Act, which distributed millions of dollars in agricultural assistance to

states.23 Within 10 years of passage of the Weeks Act, the federal government was

awarding grants for highway construction (in response to the automobile), vocational

education, public health, and maternity care.24

President Woodrow Wilson (1913-1921) continued Roosevelt’s active use of

executive power to address social ills. To strengthen the federal system, Wilson

advocated the professionalization of public service and cooperation among federal,

state, and local governments. He countered the arguments of those who believed in

a limited role for national government by arguing that each generation had the right

to interpret the Constitution differently. In his 1908 book, Constitutional

Government in the United States, Wilson wrote:

The question of the relation of the states to the federal government is the cardinal

question of our constitutional system .... It cannot, indeed, be settled by the

opinion of any one generation because it is a question of growth, and every

successive stage of our political and economic development gives it a new

aspect.25

During the Wilson Administration, Congress began to institutionalize the

practice of targeting grants to certain geographic areas or population segments. In

particular, two acts began this trend. The Federal Aid Highway Act of 1916 provided

federal grants to states for the express purpose of constructing roads in rural areas.26

Also, the Smith-Hughes Act of 1917 authorized a grant program for vocational

20

(...continued)

1910, as quoted in ibid., p. 64.

21

P.L. 61-435; 37 Stat. 961.

22

Morton Grodzins, The American System (Chicago: Rand McNally and Co., 1966), p. 36.

23

P.L. 63-94; 37 Stat. 372.

24

U.S. ACIR, The Condition of Contemporary Federalism, p. 68.

25

Woodrow Wilson, Constitutional Government in the United States (New York: Columbia

University Press, 1908), p. 173.

26

P.L. 64-156; 39 Stat. 355.

CRS-6

education, including agricultural skills, industrial skills, and home economics.27 The

act provided for three separate grant categories, which were distributed to states

based on selected variables. Grants for agricultural skills were distributed based on

a state’s rural population; grants for industrial skills and home economics were

distributed based on a state’s urban population; and funds from one grant program

with several eligible activities were distributed based on a state’s overall

population.28

Following the Roosevelt and Wilson Administrations, federal activity in the

states remained at a relatively low ebb until the 1930s.29

The New Deal

Prompted by the conditions of the Great Depression, President Franklin

Roosevelt and his Administration accelerated the development of the grants-in-aid

system as part of his New Deal program of social relief, financial reform, and

economic recovery. Drawing on a broad constructionist interpretation of the

Constitution that gave him flexibility in designing economic recovery programs,

Roosevelt and Congress expanded federal involvement in areas where the

government previously had taken little action, including public housing and

employment security.30 Examples of New Deal programs still in existence are the

Tennessee Valley Authority, which provides electric power and formerly

administered infrastructure projects; and Social Security, which provides income

security to American workers.

The Federal Emergency Relief Act of 1933 (FERA) had a long-lasting impact

on the grants-in-aid system.31 It was the first grant to the states for the express

purpose of providing public relief. The act provided $3 billion in federal aid over

three years (approximately $45.1 billion in 2007 dollars after inflation conversion32),

which the states could provide in the form of direct relief or “work” relief, which

was the President’s preference. States were required to match half of the FERA

funds with state funds, and could distribute the rest on a discretionary basis where

they felt it was most needed.33 President Roosevelt’s predilection for “work” relief

27

P.L. 64-347; 40 Stat. 929.

28

Ibid., 40 Stat. 929-931.

29

Daniel J. Elazar, “The Evolving Federal System,” in The Power to Govern: Assessing

Reform in the United States, Richard Pious ed., Proceedings of the Academy of Political

Science, vol. 34, 1981, p. 5.

30

Kelly, et al., The American Constitution, p. 482.

31

P.L. 73-15; 48 Stat. 55.

32

Utilized Consumer Price Index statistics from Historical Statistics of the United States

(Washington: GPO, 1975) in the inflation conversion formula.

33

Legislation also granted the Federal Emergency Relief Administration authority to directly

administer assistance in states it deemed incapable of efficiently distributing assistance. The

Administration eventually federalized all relief programs in Oklahoma, Louisiana, Georgia,

(continued...)

CRS-7

led to the first use of federal employment for relief purposes. The Emergency Relief

Appropriation Act of 193534 authorized the Works Project Administration, which

employed 3 million citizens at its peak in 1936.35

The New Deal expanded the use of categorical grant programs, currently the

most common type of grant.36 Some observers believe this increase in financial

assistance to states and localities, as well direct financial assistance to individuals,

concentrated more authority and responsibility at the federal level. Supreme Court

decisions that upheld New Deal programs cemented this concentrating effect by

permanently expanding the federal government’s role in policy areas that had

previously been within the states’ domain or were not addressed by government at

any level.37 President Roosevelt summarized his approach to federal assistance in a

speech before Congress: “If, as our Constitution tells us, our federal government was

established among other things ‘to promote the general welfare,’ it is our plain duty

to provide for the security upon which welfare depends.”38

The Great Society

The grants-in-aid system expanded gradually during the two decades following

the Roosevelt Administration. During the Administration of President Harry Truman

(1945-1953), the federal government adopted grant programs in several areas,

including agricultural research, health initiatives, and housing. The number of grant

programs further expanded during the Administration of President Dwight

Eisenhower (1953-1961). By the time President Eisenhower left office, total grant

outlays had nearly tripled, from $2.4 billion to $6.8 billion.39 Arguably, the most

significant grant program enacted during the Eisenhower Administration was the

interstate highway program, which remains the primary funding source for interstate

highway construction and maintenance.40

The grants-in-aid system expanded under President Lyndon Johnson’s “Great

Society” initiative. Relying implicitly on the 14th Amendment and the commerce

clause in the Constitution, Congress and the President enacted legislation that

broadened the federal government’s role in state and local affairs. More grant

33

(...continued)

Massachusetts, North Dakota, and Ohio.

34

49 Stat. 115.

35

U.S. ACIR, The Condition of Contemporary Federalism, pp. 78-79.

36

The personal income tax, authorized by the 16th Amendment in 1913, helped make this

expansion of programs possible by providing a continuing and substantial source of revenue

for the federal government. See David B.Walker, The Rebirth of Federalism: Slouching

Toward Washington, 2nd ed. (New York: Chatham House Publishers, 2000), p. 33.

37

U.S. ACIR, The Condition of Contemporary Federalism, pp. 78-79.

38

U.S. President (Roosevelt),Message to Congress, June 8, 1934, as cited in ibid., p. 78.

39

Walker, The Rebirth of Federalism, p. 103.

40

P.L. 84-627; 70 Stat. 378.

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programs were enacted during the Johnson Administration (1963-1969) than in all

preceding years in U.S. history combined. Total grant outlays nearly doubled

between 1964 and 1968, rising from $10.1 billion to $18.6 billion.41 All of the new

programs were categorical grants, with the exception of two block grants in the fields

of health and law enforcement.42 Some new categorical grants also addressed

environmental concerns, such as water and air pollution. A significant number of

these programs, such as the Model Cities and Demonstration Cities program,

concentrated federal assistance on urban and metropolitan areas, as well as minority

and disadvantaged populations.43 In legislation, Congress emphasized the need to

assist urban areas:

The Congress hereby finds and declares that improving the quality of urban life

is the most critical domestic problem facing the United States .... The Congress

further finds and declares that cities, of all sizes, do not have adequate resources

to deal effectively with the critical problems facing them, and that Federal

assistance in addition to that now authorized by the urban renewal program and

other existing Federal grant-in-aid programs is essential to enable cities to plan,

develop, and conduct programs to improve their physical environment ....44

Although categorical grants to state and local governments were the dominant

form of assistance enacted during the 1960s, Congress and the President also

established other approaches to achieving national goals. In 1966, for example,

Congress encouraged regional approaches to governmental challenges by requiring

all recipient governments to coordinate federal programs with regional

“clearinghouses,” which often took the form of regional planning councils.45 This

requirement led to the creation of OMB Circular A-95, which was the primary

instrument of intergovernmental coordination until 1983. Congress directed regional

clearinghouses, which received federal planning grants, to prevent duplication of

services and improve development planning. One observer of regional councils

stated, “the use of A-95 procedures represents the single, most potentially powerful

device to affect the distribution of resources in a region according to some regional

point of view.”46 Observers of federalism have debated the review process’s

41

U.S. ACIR, Significant Features of Fiscal Federalism, 1985-1986 (Washington: GPO,

1986), p. 19.

42

In 1949, the Hoover Commission (one of two presidentially appointed commissions

chaired by former president Herbert Hoover and charged with proposing administrative

reforms) made the first recommendation for block grants, proposing that “a system of grants

be established based upon broad categories — such as highways, education, public

assistance, and public health — as contrasted with the present system of extensive

fragmentation.” Despite this recommendation, Congress did not create a block grant until

1966 — the Partnership for Public Health.

43

Walker, The Rebirth of Federalism, pp. 123-126.

44

P.L. 89-754, Sec. 101; 80 Stat. 1255, “Demonstration Cities and Metropolitan

Development Act of 1966.”

45

Ibid., 80 Stat. 1261. Also see “Intergovernmental Cooperation Act of 1968,” P.L. 90-577;

96 Stat. 1103.

46

Melvin Mogulof, “Metropolitan Councils of Government and the Federal Government,”

(continued...)

CRS-9

effectiveness, with most observers arguing that A-95 moderately succeeded in

improving intergovernmental coordination, but never achieved its full potential.47

President Johnson’s “Great Society” programs extended federal involvement in

state and local governments, as these sub-national governments began implementing

a vast array of federal programs. Some observers of federalism point to the “Great

Society” as a permanent shift in the federal approach to assisting state and local

government. New grant programs were enacted throughout the Johnson

Administration. The trend of creating new programs continued into the Nixon

Administration, leading some observers of federalism to call the Great Society a

permanent change in the federal approach to assisting state and local governments.48

Changes in the System: Nixon and Reagan

The expansion of grants-in-aid under President Johnson led to a call for reform

under his successor, President Richard Nixon (1969-1974). Nixon characterized the

system as a “terrible tangle” of categorical grants plagued by overlapping programs,

inefficiency, excessive administrative requirements, and imposition of federal

priorities on state and local governments.49 His primary goals were to improve

program efficiency, decentralize decision making to states and localities, and restrain

program growth.

President Nixon advocated a “New Federalism,” implemented through general

revenue sharing and special revenue sharing. General revenue sharing sent funds to

state and local governments with virtually no programmatic requirements. The goal

of general revenue sharing was to combine the advantages of national revenue

collection with the advantages of local discretion over spending.50 Representative

Melvin Laird of Wisconsin was a pioneer in the field, introducing a revenue sharing

bill as early as 1958. Walter Heller, Chairman of the Council of Economic Advisers

in the Kennedy and Johnson Administrations, proposed general revenue sharing in

1960 as a potential use of federal surpluses, but his plan received little attention until

the Nixon Administration.51 The program distributed funds to states from 1972-1981

and to local governments from 1972-1986, but was not re-authorized in 1986 as part

46

(...continued)

Urban Affairs Quarterly, June 1972, p. 492.

47

Irene Fraser Rothenberg, “Regional Coordination of Federal Programs: Has the Difficult

Grown Impossible?” Journal of Policy Analysis and Management, vol. 4, 1984, pp. 3-4.

48

U.S. ACIR, The Condition of Contemporary Federalism, pp. 122-123.

49

William Lilley III, Timothy B. Clark, and John K. Iglehart, “New Federalism

Report/Nixon Attack on Grant Programs Aims to Simplify Structure, Give Greater Local

Control,” National Journal, vol. 5, January 20, 1973. p. 76.

50

Timothy Conlan, From New Federalism to Devolution: Twenty-five Years of

Intergovernmental Reform (Washington: Brookings Institution Press, 1998), pp. 19-21, 65.

51

Michael Reagan, The New Federalism (New York: Oxford University Press, 1972), pp.

89-90.

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of efforts to control mounting deficits.52 Nixon also proposed special revenue

sharing, which merged the funding of functionally related categorical programs into

large allocations distributed to states. These programs were intended to give the

states broad discretion in addressing the functional areas.53 Special revenue sharing

was similar to block grants, but required no application and had fewer programmatic

strings. Congress, however, favored block grants over special revenue sharing and

modified most of Nixon’s special revenue sharing proposals to block grant

programs.54 One such Nixon proposal was adopted as the Community Development

Block Grant program (CDBG), which remains one of the federal government’s

primary development programs.

Although President Nixon intended to devolve a greater degree of decision

making to states and localities, the changes that occurred during his Administration

have been credited with ultimately expanding federal intervention in state and local

governmental activities.55 The new block grants and revenue sharing gave the federal

government more influence over state and local decision making because the federal

government placed conditions on the use of funds. Funds could be reduced or

withheld if the recipient government failed to meet certain specified conditions.

Some observers believe that since block grants and general revenue sharing brought

federal aid into many communities for the first time, “new federalism” enabled the

federal government to have more influence over American society than ever before.56

The Administration of President Ronald Reagan (1981-1989) also pushed for

grant changes. These efforts differed from those of the Nixon Administration in that

they sought not only to decentralize grant administration to state and local

governments, but also to reduce funding, alter priorities in the grants-in-aid system,

and reduce federal governmental regulatory power that had developed through

expansion of the grant system. President Reagan supported the block grant as a

means both of disengaging the national government from policy areas he viewed as

state and local concerns and of reducing spending.57 President Reagan was initially

successful in his efforts. The Omnibus Budget Reconciliation Act (OBRA) of 1981

consolidated 77 categorical programs into nine block grants. OBRA reduced total

grant outlays to state and local governments by $6 billion below the previous fiscal

year. Most of the budget cuts came in the areas of education, job training, and

welfare. There was, however, little change after the first two years of his

Administration. The growth rate of the grants-in-aid system slowed during the

Reagan years, but did not stop.58

52

U.S. ACIR, Characteristics of Federal Grant-in-aid Programs (Washington: GPO, 1994),

p. iii.

53

Reagan, The New Federalism, p. 60.

54

Congressional Record, vol. 119, 93rd Cong., 1st sess., pp. 39377-39381.

55

Conlan, From New Federalism to Devolution, pp. 85-86.

56

Ibid., pp. 85-87.

57

Ibid., pp. 142-144.

58

Ibid., p. 114.

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To further strengthen the role of states in the federal system, the Reagan

Administration enacted regulatory changes. In 1982, Executive Order 12372

replaced OMB Circular A-95, which had required states to establish regional

clearinghouses to catalog and coordinate federal grants.59 The order, which is still

in effect, permits, but does not require, the states to establish a procedure for

reviewing federal grant programs within their jurisdiction. E.O. 12372 greatly

weakened the influence of regional councils over the administration of federal grants

by removing the requirement for states to use the regional clearinghouses.60

Mid-1980s to the Present

The grants-in-aid system experienced little change under the George H. W. Bush

and Clinton Administrations. President George H.W. Bush (1989-1993) attempted

to consolidate several categorical programs into larger, lower-funded block programs,

but Congress did not act on his proposals.61 President William Clinton (1993-2001)

focused on improving governmental management and performance with the National

Performance Review (NPR). The NPR implied greater state and local flexibility over

grant programs, but with the understanding that the federal government would closely

monitor the performance of the programs.62

The 104th Congress (1995-1996) proposed many initiatives that would have

consolidated categorical programs into block grant programs, but most of these

proposals were not enacted. Seventy-three small grant programs were eliminated, but

these accounted for only $2.3 billion in funding cuts. Arguably, one of the most

significant proposals passed by the 104th Congress was the conversion of the openended entitlement grant, Aid to Families with Dependent Children (AFDC), to a

capped block grant called Temporary Assistance to Needy Families (TANF).63

In the first two years of his Administration, President George W. Bush (2001-)

made some proposals that would have affected the grants-in-aid system. The Bush

Administration proposed making “faith-based organizations” eligible for more grant

programs. The House of Representatives passed a “charitable choice” bill, but the

Senate did not pass related legislation. In the FY2006 budget request, the Bush

Administration proposed a consolidation of at least 18 existing community and

economic development programs into a single, two-part program called the

“Strengthening America’s Communities Initiative” (SACI).64 The 109th Congress did

59

U.S. President (Reagan), “Intergovernmental Review of Federal Programs,” Executive

Order 12372, Federal Register, vol. 47, July 14, 1982, p. 30959.

60

Rothenberg, “Regional Coordination of Federal Programs,” pp. 3-4.

61

Walker, The Rebirth of Federalism, pp. 162-165.

62

Conlan, From New Federalism to Devolution, pp. 221-224.

63

P.L.104-193; 110 Stat. 2105.

64

The SACI proposal would have reduced the total funding for the existing programs from

$5.6 billion to $3.7 billion. See CRS Report RL32823, An Overview of the Administration’s

Strengthening America’s Communities Initiative, by Eugene Boyd, et al.

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not pass the initiative and a similar proposal was not made in the FY2007 budget

request.

External events can influence the development and implementation of grant

programs. After the terrorist attacks of September 2001, the Bush Administration

proposed a number of changes in grant programs for state and local emergency

preparedness. The proposals have included transfers of agency responsibilities, new

grant programs, and significant funding increases for some existing emergency

preparedness programs.

In the fall of 2005, Hurricanes Katrina and Rita resulted in complete devastation

in some parts of the Gulf Coast. The CDBG program, along with other grant

programs, has been increasingly used to respond to natural disasters. For example,

the 109th Congress provided $11.5 billion in CDBG funding to assist the states

affected by the 2005 hurricanes.65 The 110th Congress has provided additional CDBG

funding to the states affected by Hurricanes Katrina and Rita.66 In addition to CDBG

funding, other grant programs continue to be used for emergency management and

preparedness.67

As recent events and history have shown, the increasing levels of funding

approved by Congress for grant-in-aid programs respond to the changing needs of the

communities at all levels of government. Grant-related issues Congress may wish

to consider include consolidation of grant programs, methodologies and formulas

used to calculate grant disbursements, and potential re-authorization of existing grant

programs.

65

See CRS Report RL33330, Community Development Block Grant Funds in Disaster

Relief and Recovery, by Eugene Boyd.

66

67

P.L. 110-116, 121 Stat. 1343.

See CRS Report RL33583, Homeland Security Grants: FY2003-FY2006 Evolution of

Program Guidance and Grant Allocation Methods, by Shawn Reese; CRS Report RL33859,

Fiscal Year 2007 Homeland Security Grant Program, H.R. 1, and S. 4: Description and

Analysis, by Shawn Reese and Steven Maguire.