Order Code RL30705
CRS Report for Congress
Received through the CRS Web
Federal Grants to State and Local Governments:
A Brief History
October 10, 2000
Ben Canada
Analyst in American National Government
Government and Finance Division
Congressional Research Service ˜ The Library of Congress

Federal Grants to State and Local Governments: A Brief
History
Summary
The historical origins of the federal grants-in-aid system predate the Constitution.
In fact, the federal government was making grants of land 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 governnment prevailed. 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 to address natural disasters, civil
disturbances, westward expansion, and the need for internal improvements.
The grants-in-aid system assumed its current form when President Franklin D.
Roosevelt initiated his New Deal programs. Since Roosevelt, the grants-in-aid system
has expanded, especially in the number and dollar amount of categorical grant
programs. The Nixon administration initiated changes in the system, signing block
grants into law, as well as establishing general revenue sharing, a program which
distributed funds to state and local governments with no programmatic strings. The
Reagan Administration also pursued 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. This report will be updated as circumstances warrant.

Contents
Early Beginnings and Slow Development . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Civil War and The Post-War Era . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The New Deal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Gradual Expansion of the Grant System . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Changes in the System: Nixon and Reagan . . . . . . . . . . . . . . . . . . . . . . . . . 5
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

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
came in the form of land, as well as funds. The Land Ordinance of 1785, for instance,
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. Following the Whiskey
Rebellion in late 1794, the federal government compensated individuals who could
prove they suffered losses.2 When the town of Alexandria, Virginia, burned in 1827,
Congress quickly appropriated $20,000 in assistance.3
In 1790, the federal government set a precedent for federal aid by assuming
state Revolutionary War debts. Treasury Secretary Alexander Hamilton proposed the
idea, suggesting that it would focus more attention on the national government and
establish a sound credit rating for the purposes of future government borrowing. The
“anti-federalists,” mostly from southern states, hotly contested the idea, arguing that
it made the new federal government too centralized, superceded states’ rights, and
rewarded speculators.4 Ultimately, the national 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.5
While there were occasional uses of federal grants in the nation’s early years, the
grants-in-aid system developed very little during the antebellum period. Most efforts
to allocate federal funds to state and local governments for internal improvements
were either defeated in Congress or vetoed by the President. An exception was the
1 Journals of the Continental Congress, 2nd Continental Congress, p. 378.
[http://lcweb2.loc.gov/ammem/amlaw/lwjc.html, visited Sept. 18, 2000.]
2 The Annals of Congress, 3rd Congress, 2nd Session, pp. 1000-2.
[http://lcweb2.loc.gov/ammem/amlaw/lwac.html, visited Sept. 18, 2000.]
3 6 Stat. 356 (1827), Act for The Relief of Indigent Sufferers by The Fire at Alexandria.
4 Many state debt instruments had been purchased at steep discounts by speculators.
Hamilton’s bill assumed the instruments at full value.
5 Votes on the issue of the permanent seat of government are found in The Annals of
Congress
, First Congress, Second Session, pp. 1039-40, 1735-38. Votes on the issue of
assumption of debts are found at First Congress, Second Session, pp. 1054-55, 1753.
[http://lcweb2.loc.gov/ammem/amlaw/lwac.html, visited Sept. 18, 2000.]

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National, or Cumberland Road, surveyed and constructed at federal and later, state
expense from Cumberland, MD to Vandalia, IL between 1811 and 1850. During this
period, states provided virtually all government services, such as education,
construction of roads and bridges, and labor regulations. States also had a strong role
in policy areas currently viewed as national concerns, such as banks, currency, and
business regulation. The national government, conversely, performed few functions.
This was largely due to support for states’ rights and a strict constructionist approach
toward the Constitution–the belief that the national government should only conduct
activities expressly granted to it in the Constitution. An example of this philosophy
is President Franklin Pierce’s veto of an 1854 act, sponsored 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.6
Early forms of grants-in-aid can be seen in the American migration westward
during the 19th century. The movement west greatly depended on aid from federal
troops who provided protection from American Indians and constructed a network
of over 70 wilderness forts. The forts also provided medical services, blacksmith
shops for repairing wagons, and fostered (sometimes created) local economies
through supply purchases. Federal assistance also came through its exploration,
survey, and road-building efforts. The government also financed postal service,
providing communication links to the East.7
The Civil War and The Post-War Era
The outcome of the Civil War had a significant impact on the future of the
grants-in-aid system. The war effectively resolved the long dispute between states’
rights advocates, who advocated decentralization, and their opponents, who wanted
to make their vision of a unified American nationality a reality. After the War, states’
rights advocates lost considerable ground to the view of the Constitution and federal
law as supreme law over the states, which set the stage for the development of the
grants-in-aid system many years later.8
During and immediately following the war, an activist 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
6 David B. Walker, The Rebirth of Federalism: Slouching Toward Washington (Chatham,
NJ: Chatham House Publishers Inc., 1995), pp. 70,71.
7 John D. Unruh, The Plains Across: The Overland Emigrants and the Trans-Mississippi
West, 1840-60
(Urbana, IL: Univ. of Illinois Press, 1979), pp. 201-243.
8 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. 326-7.

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charter railroad corporations that constructed a transcontinental railroad.9 The Morril
Act of 1862, considered by some observers of federalism as the prototype for future
grants-in-aid, provided for the establishment of land-grant universities focusing on
agriculture, mechanics, and military science.10
Governmental activity at both the state and national level decreased 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 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. Government inactivity
of this period led to the development of philosophies of government intervention and
preemption that would later be applied beginning in the 20th century.11
President Theodore Roosevelt (1901-1909) used the powers of the Presidency
to a greater extent than any of his immediate predecessors. President Roosevelt
believed that a strong executive branch was necessary to overcome the “overdivision
of governmental powers” and address state and local concerns. President Woodrow
Wilson (1913-1921) also opposed governmental inactivity by advocating cooperation
among federal, state, and local governments. Federal inactivity, however, remained
at a relatively low ebb until the 1930s.12
The New Deal
President Franklin D. Roosevelt’s Administration, prompted by the desperate
conditions of the Great Depression, accelerated the development of the grants-in-aid
system as part of his New Deal program of financial reform, social relief, and
economic recovery. It expanded federal involvement in areas where it previously had
taken little action, including public housing, health services, and employment security.
Soon after taking office, Roosevelt proposed measures that were dependent on a
broad constructionist interpretation of the Constitution that would give him flexibility
in designing economic recovery programs.13 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.14 The New Deal also extended the use of
categorical grant programs, which are currently the most common form of grant. The
9 Ibid., p. 319.
10 Ibid., p. 375.
11 U.S. Advisory Commission on Intergovernmental Relations. The Condition of
Contemporary Federalism: Conflicting Theories and Collapsing Constraints.
(A-78)
(Washington: GPO, 1981), p. 60.
12 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.
13 Kelly, The American Constitution, p. 482.
14 Walker, The Rebirth of Federalism, pp. 94-95.

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income tax, authorized by the 16th Amendment in 1913, helped make this expansion
of programs possible by providing a continuing and substantial source of income for
the federal government.15 The Supreme Court decisions that upheld New Deal
programs also influenced the future of grants by permanently expanding the influence
of the federal government into policy areas that had previously been within the states’
domain or were not addressed by government at any level.16
Gradual Expansion of the Grant System
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 urban improvements.17 In 1949,
the Hoover Commission18 made the first recommendation for block grants, stating
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. The number
of grant programs further expanded during the administration of President Dwight
Eisenhower (1953-1961).19 By the time Eisenhower left office, total grant outlays
had nearly tripled, from $2.4 billion to $6.8 billion. The interstate highway system is
one of the programs begun under this administration.20
Use of the grants mechanism vastly increased during the administration of
President Lyndon Johnson (1963-1969). Relying implicitly on the Fourteenth
Amendment and the commerce clause in the Constitution, Congress and the President
enacted legislation that established new approaches to achieving national goals.
Johnson’s “Great Society” programs extended federal involvement in state and local
government, as these sub-national governments began implementing federal programs.
These programs focused on urban and metropolitan areas, as well as the needs of
minority and disadvantaged populations. More grant programs were enacted during
Johnson’s five years than in all preceding years in U.S. history. All of the new
programs were categorical grants, with the exception of two block grants in the fields
15 Ibid., p. 33.
16 Ibid., pp. 94-95.
17 Ibid., p. 103.
18 One of two presidentially-appointed study commissions chaired by former President Herbert
Hoover. The commissions proposed executive branch procedural and administrative reforms.
19 Carl W. Stenberg and David B. Walker. Advisory Commission on Intergovernmental
Relations. The Block Grant: Lessons from Two Early Experiments. Publius v. 7, Spring
1977. p. 31.
20 David B. Walker, The Rebirth of Federalism, p. 103.

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of health and law enforcement.21 Total grant outlays nearly doubled between 1964
and 1968, from $10.1 billion to $18.6 billion.22
Changes in the System: Nixon and Reagan
The expansion of grants-in-aid under Johnson led to a call for reform under
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.23 His primary goals were to improve program efficiency, decentralize
decision-making to states and localities, and restrain program growth.
Nixon advocated the use of general revenue sharing and special revenue sharing
to achieve these goals.24 General revenue sharing sent funds to states 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.25 Representative Melvin Laird (R-
WI), was a pioneer in the field, introduced 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.26 The program distributed funds to states from 1972-81 and to local
governments from 1972-86, but was not re-authorized in 1986 as part of efforts to
control mounting deficits.27 Nixon also proposed special revenue sharing, which
merged the funding of functionally related categorical programs into large allocations
distributed to states. He intended to give the states broad discretion in addressing the
functional area.28 Special revenue sharing functioned similarly 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
21 Ibid., pp. 132-133.
22 Advisory Commission on Intergovernmental Relations, Significant Features of Fiscal
Federalism, 1985-1986
(Washington: GPO, 1986), p. 19.
23 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, Jan. 20, 1973. p. 76.
24 Timothy Conlan, From New Federalism to Devolution: Twenty-five Years of
Intergovernmental Reform
(Washington: Brookings Institution Press, 1998), p. 19-21.
25 Ibid., p. 65.
26 Michael Reagan, The New Federalism (New York: Oxford Univ. Press, 1972), pp. 89-90.
27 Advisory Commission on Intergovernmental Relations, Characteristics of Federal Grant-
in-aid Programs
(Washington: GPO, 1994), p. iii.
28 Reagan, The New Federalism, p. 60.

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special revenue sharing proposals to block grant programs. One such Nixon proposal
was adopted as the Community Development Block Grant program (CDBG).29
Although Nixon intended to devolve a greater degree of decision-making to
states and localities, the changes that occurred during his administration ultimately
expanded federal intervention into state and local governments. The new block grants
and revenue sharing gave the federal government more influence over state and local
policy-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 these
conditions. 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.30
The administration of President Ronald Reagan (1981-1989) also pushed for
grant reform. Reagan’s efforts differed from those of Nixon in that Reagan not only
wanted to decentralize grant administration to state and local governments, but also
reduce funding and alter priorities in the grants-in-aid system. Reagan wanted to
reduce federal government regulatory power that had developed through expansion
of the grant system. He supported the block grant as a means of both disengaging the
national government from policy areas he viewed as state and local concerns and of
reducing spending.31 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 halt.32
Recent Developments
The Supreme Court upheld the practice of conditioning grants in its 1987 ruling
on South Dakota v. Dole. South Dakota challenged the ability of the federal
government to withhold federal highway funds from states with drinking ages below
21 years of age. The court ruled that Congress could use its spending power to
encourage uniformity in the states’ drinking ages. Further, it ruled that “Congress
may attach conditions on the receipt of federal funds. However, exercise of the
power is subject to certain restrictions, including that it must be in pursuit of ‘the
general welfare.’”33
29 Congressional Record, vol. 119. 93rd Congress, 1st Session. p. 39377-81.
30 Conlan, From New Federalism to Devolution, 85-87.
31 Ibid., pp. 142-144.
32 Ibid., p. 114.
33 U.S. Supreme Court. South Dakota v. Dole, 483 U.S. 203 (1987).
[http://caselaw.findlaw.com/scripts/getcase.pl?court=us&vol=483&invol=203, Visited
Aug. 14, 2000.]

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Not all Supreme Court decisions have upheld federal grant practices. In fact,
during the 1990s, many court rulings have limited federal power over the states. An
example is the 1995 ruling in United States v. Lopez. Here, the court ruled
unconstitutional the Gun-Free School Zones Act, which made it a federal offense to
possess a firearm within 1000 feet of a school. The court deemed the Act exceeded
Congress’ commerce clause authority, since possession of a gun in a school zone is
not an activity that substantially affects interstate commerce.34
The grants-in-aid system has seen little change under the Bush and Clinton
administrations. President George Bush attempted to consolidate several categorical
programs into larger, lower-funded block programs; but Congress failed to act on his
proposals.35 President Bill Clinton’s National Performance Review (NPR) focused
on improving governmental management and performance. 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. Some
observers have rated the NPR as having a minor impact on the grants-in-aid system.36
The 104th Congress (1995-97) proposed many reforms that would have
consolidated categorical programs into block grant programs, but most of these
reforms were never passed. Seventy-three small grant programs were eliminated, but
these comprised only $2.3 billion in funding cuts. Arguably among the most
significant reform passed by the 104th Congress was the conversion of the open-ended
entitlement grant, Aid to Families with Dependent Children (AFDC), to a capped
block grant called Temporary Assistance to Needy Families (TANF). While the
accomplishments of TANF continue to be debated, the program represents the most
recent major reform of the grants-in-aid system.37
While there have been few major reform attempts since the early 1980s, future
Congresses and Presidents may modify the grants-in-aid system to respond to the
ever-changing needs of society generally, and state and local governments in
particular.
34 U. S. Supreme Court, United States v. Lopez, No. 93-1260.
35 Walker, The Rebirth of Federalism. pp. 162-165.
36 Conlan, From New Federalism to Devolution. pp. 221-224.
37 Ibid., pp. 243-251.