Federal Grants: The Need for Reform

December 1, 1972

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Research Publication No. 29

Foreword The Federal grant-in-aid structure, sometimes described as the principal tool of fiscal federalism, has expanded dramatically over the last decade. The latest official listing identifies more than 1,000 Federal domestic assistance programs, of which over 650 provide aid to state and local governments.

These aids currently amount to some $40 billion annually, accounting for almost one-third of Federal domestic outlays and more than one-fifth of state-local revenues. The rapid proliferation of Federal grant programs has been accompanied by growing criticism of the complexity of the grant structure, its many restrictions and controls, and the heavy administrative and other burdens which it imposes on state-local governments.

The problem recently has taken on a new dimension with the enactment of Federal revenue sharing; the brightening in the financial outlook for state and local government; and the deficit position of the Federal government.

These developments suggest that the time is ripe for reevaluation of the categorical grant-in-aid structure. Moreover, efforts to improve the grant structure seem especially appropriate in view of the current emphasis in Washington on the need for controlling Federal expenditures and establishing spending priorities. Reevaluation of the grant structure could contribute to these objectives, identify areas for possible reductions in Federal outlays, and help to insure more effective use of the tax dollars currently allocated to aid programs.

This study is intended to provide background information and some perspectives, not only on the need for reform in this area, but also on some possible alternative approaches.

Maynard H. Waterfield, Manager of the Foundation’s Washington office, had primary responsibility for research and preparation of this study. He was assisted by Howard P. McGoogan, also of the Washington staff.


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