Order Code RL30705
Report for Congress
Received through the CRS Web
Federal Grants to State and Local Governments:
A Brief History
Updated February 19, 2003
Ben Canada
Analyst in American National Government
Government and Finance Division
Congressional Research Service ˜ The Library of Congress

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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, Congress provided for grants of land 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, where
states existing. 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 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.
This report will be updated as circumstances warrant.

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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
Related CRS Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

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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 also
frequently came in the form of land, as well as money. For example, the Land
Ordinance of 1785, enacted by Congress 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 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 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 government borrowing.4 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.5 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.6
1 Journals of the Continental Congress, 2nd Continental Congress, p. 378.
[http://lcweb2.loc.gov/ammem/amlaw/lwjc.html], visited Sept. 18, 2000.
2 Annals of Congress, 3rd Congress, 2nd Session, pp. 1000-1002.
[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 Although not a public argument, Hamilton also believed that federal assumption of state
debts would focus more attention on the national government.
5 Many state debt instruments had been purchased at steep discounts by speculators.
Hamilton’s bill assumed the instruments at full value.
6 Votes on the issue of the permanent seat of government are found in Annals of Congress,
First Congress, Second Session, pp. 1039-1040, 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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As westward settlement accelerated, following the War of 1812, the federal
government gave greater attention to internal improvements, the need for which had
been heavily promoted 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.”7 Calhoun’s plan also called for using
the surveying and planning resources of the Army Corps of Engineers.8
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 having to 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.9
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 1850.10
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
exploration, survey, road-building efforts, and the financing of postal service in the
West, which provided a communication link to the East.11
7 John C. Calhoun, “Report on Roads and Canals, Communicated to the House of
Representatives, Jan. 14, 1819,” The Works of John C. Calhoun (New York: D. Appleton
and Co., 1888).
8 2 Stat. 137, March 16, 1802.
9 Daniel J. Elazar, The American Partnership: Intergovernmental Co-operation in the
Nineteenth-Century United States (Chicago: U. of Chicago Press, 1962), p. 36.
10 2 Stat. 357, March 29, 1806.
11 John D. Unruh, The Plains Across: The Overland Emigrants and the Trans-Mississippi
(continued...)

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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 (1853-
1857) 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.12
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, was 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.13
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 and which set the stage for the development of the
grants-in-aid system many years later.14
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.15 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
11 (...continued)
West, 1840-60 (Urbana, IL: U. of Illinois Press, 1979), pp. 201-243.
12 U.S. President (Pierce), Congressional Globe, 33rd Cong., 1st sess., May 3, 1954, p. 1062.
13 Elazar, The American Partnership, p. 116.
14 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.
15 12 Stat. 489, July 1, 1862.

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systemized this assistance. Some observers of federalism consider it the prototype
for later grants-in-aid because of its uniform application and success.16
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.”17 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 till
the early 20th century.
Notwithstanding these examples, 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 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. Government inactivity of this period
contributed to the development of philosophies of government intervention and
preemption that would later be applied early in the 20th century.18
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.19
16 12 Stat. 503, July 2, 1862. Also see Elazar, The American Partnership, p. 219.
17 20 Stat. 467, March 3, 1879.
18 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.
19 U.S. President (Theodore Roosevelt), speech made at Osawatomie, Kansas, Aug. 31,
(continued...)

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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.”20 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.21
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.22 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.23
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.24
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.25
Also, the Smith-Hughes Act of 1917 authorized grant programs for vocational
19 (...continued)
1910, as quoted in Ibid., p. 64.
20 P.L. 61-435; 37 Stat. 961.
21 Morton Grodzins, The American System (Chicago: Rand McNally and Co., 1966), p. 36.
22 P.L. 63-94; 37 Stat. 372.
23 U.S. ACIR, The Condition of Contemporary Federalism, p. 68.
24 Woodrow Wilson, Constitutional Government in the United States (New York, 1908), p.
173.
25 P.L. 64-156; 39 Stat. 355.

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education, including agricultural skills, industrial skills, and home economics.26 The
Act divided the program into three separate grants, 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 a final grant program with
several eligible activities was distributed based on a state’s overall population.27
Following the Roosevelt and Wilson Administrations, federal activity in the
states remained at a relatively low ebb until the 1930s.28
The New Deal
President Franklin Roosevelt’s Administration, prompted by the conditions of
the Great Depression, 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 it previously had taken little action,
including public housing and employment security.29 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.30 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, 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 it felt it was most needed.31 President Roosevelt’s predilection for
“work” relief led to the first use of federal employment for relief purposes. The
26 P.L. 64-347; 40 Stat. 929.
27 Ibid., 40 Stat. 929-931.
28 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.
29 Kelly, The American Constitution, p. 482.
30 P.L. 73-15; 48 Stat. 55.
31 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,
Massachusetts, North Dakota, and Ohio.

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Emergency Relief Appropriation Act of 193532 authorized the Works Project
Administration, which employed 3 million citizens at its peak in 1936.33
The New Deal expanded the use of categorical grant programs, which are
currently the most common type of grant.34 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.35 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.”36
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.37 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.38
The grants-in-aid system was greatly expanded by President Lyndon Johnson’s
“Great Society” initiative. Relying implicitly on the Fourteenth Amendment and the
commerce clause in the Constitution, Congress and the President enacted legislation
that expanded the federal government’s role in state and local affairs. More grant
programs were enacted during the Johnson Administration (1963-1969) than in all
preceding years in U.S. history combined. Total grant outlays nearly doubled
32 Pub. Res., No. 111, 49 Stat. 115.
33 U.S. ACIR, The Condition of Contemporary Federalism, p. 78-79.
34 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.
35 U.S. ACIR, The Condition of Contemporary Federalism, p. 78-79.
36 U.S. President (Roosevelt),Message to Congress, June 8, 1934, as cited in Ibid., p. 78.
37 Walker, The Rebirth of Federalism, p. 103.
38 P.L. 84-627; 70 Stat. 378.

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between 1964 and 1968, rising from $10.1 billion to $18.6 billion.39 All of the new
programs were categorical grants, with the exception of two block grants in the fields
of health and law enforcement.40 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.41 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 ....42
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.43 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.”44 Observers of federalism have debated the review process’s
39 Advisory Commission on Intergovernmental Relations, Significant Features of Fiscal
Federalism, 1985-1986 (Washington: GPO, 1986), p. 19.
40 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, 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.
41 Walker, The Rebirth of Federalism., pp. 123-126.
42 “Demonstration Cities and Metropolitan Development Act of 1966,” P.L. 89-754, sec.
101; 80 Stat. 1255.
43 Ibid., 80 Stat. 1261. Also see “Intergovernmental Cooperation Act of 1968,” P.L. 90-577;
96 Stat. 1103.
44 Melvin Mogulof, “Metropolitan Councils of Government and the Federal Government,”
Urban Affairs Quarterly, June 1972, p. 492.

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effectiveness, with most observers arguing that A-95 moderately succeeded in
improving intergovernmental coordination, but never achieved its full potential.45
President Johnson’s “Great Society” programs extended federal involvement in
state and local government, 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
governments. New grant programs were enacted throughout the Johnson
Administration, despite changes in party control in Congress. 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.46
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.47 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
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.48 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.49 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
45 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. For
more information, see CRS Report RL31366, The Role of Regional Councils in the Federal
System: Policy Issues and Options, by Ben Canada.
46 U.S. ACIR, The Condition of Contemporary Federalism, p. 122-123.
47 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.
48 Timothy Conlan, From New Federalism to Devolution: Twenty-five Years of
Intergovernmental Reform (Washington: Brookings Institution Press, 1998), pp. 19-21, 65.
49 Michael Reagan, The New Federalism (New York: Oxford U. Press, 1972), pp. 89-90.

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efforts to control mounting deficits.50 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 area.51 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.52 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
government activities.53 The new block grants and revenue sharing gave the federal
government more influence over state and local policymaking 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.54
The Administration of President Ronald Reagan (1981-1989) also pushed for
grant reform. 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 government regulatory power that had developed through
expansion of the grant system. President Reagan 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.55 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 (see Figures 1 and 2). 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.56
50 Advisory Commission on Intergovernmental Relations, Characteristics of Federal Grant-
in-aid Programs (Washington: GPO, 1994), p. iii.
51 Reagan, The New Federalism, p. 60.
52 Congressional Record, vo. 119, 93rd Cong., 1st sess., pp. 39377-39381.
53 Conlan, From New Federalism to Devolution, pp. 85-86.
54 Conlan, From New Federalism to Devolution, pp. 85-87.
55 Ibid., pp. 142-144.
56 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 required states to establish regional
clearinghouses to catalog and coordinate federal grants in that area.57 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
severely weakened the influence of regional councils over the administration of
federal grants by removing the requirement for states to use the regional
clearinghouses.58
Mid-1980s to the Present
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 for 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.’”59
Other recent Supreme Court decisions have, however, limited Congress’s
influence over state policy. An example is the 1992 ruling in New York v. United
States. New York State disputed federal legislation pertaining to the disposal of low-
level radioactive waste, arguing that the legislation went beyond providing monetary
incentives for disposing of low-level radioactive waste, but compelled states either
to follow congressional instructions or accept ownership of the waste. The court
ruled that Congress overstepped its authority to condition federal grants, which is
granted in the commerce and spending clauses of the Constitution. In its ruling, the
court stated, “In this provision, Congress has crossed the line distinguishing
encouragement from coercion.”60
The grants-in-aid system experienced little change under the 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 Bill 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
57 U.S. President (Reagan), “Intergovernmental Review of Federal Programs,” Executive
Order 12372, Federal Register, vol. 47, July 14, 1982, p. 30959.
58 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.
59 U.S. Supreme Court, South Dakota v. Dole, 483 U.S. 203, (1987).
60 U.S. Supreme Court, New York v. United States, 505 U.S. 144, (1992).
61 Walker, The Rebirth of Federalism. pp. 162-165.

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grant programs, but with the understanding that the federal government would closely
monitor the performance of the programs.62
The 104th Congress (1995-96) 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 one of the most
significant reforms 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).63
In the first two years of his administration, President George W. Bush (2001-)
made some proposals that would affect 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 enact related legislation.64
Since the terrorist attacks of September 2001, the Bush Administration has
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.
Shortly after taking office in January 2001, President Bush established an
Interagency Working Group on Federalism, which reportedly considered a new
executive order to address accountability in federal programs and, possibly, regional
approaches to governmental challenges.65 Following the terrorist attacks in
September 2001, however, the working group’s efforts were indefinitely postponed.
Related CRS Products
CRS Report RL30772, American Federalism 1776-2000: Significant Events, by
Eugene Boyd and Michael K. Fauntroy.
CRS Report RL30818, Block Grants: An Overview, by Eugene Boyd and Ben
Canada.
CRS Report 98-79C, Federal Funds: Tracking Their Geographic Distribution, by
James R. Riehl.
62 Conlan, From New Federalism to Devolution, pp. 221-224.
63 P.L.104-193, 110 Stat. 2105.
64 For more information on this issue, see CRS Report RL31099, Faith-Based Organizations
and Their Relationship with State and Local Governments: An Analysis of Recent Initiatives,
by Ben Canada.
65 U.S. President (George W. Bush), “Interagency Working Group on Federalism,”
Memorandum for the Heads of Executive Departments and Agencies,” Feb. 26, 2001.

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CRS Report RS20669, Federal Grants to State and Local Governments: An
Overview and Characteristics, by Ben Canada.
CRS Report RL30778, Federal Grants to State and Local Governments: Concepts
for Legislative Design and Oversight, by Ben Canada.
CRS Report RS20872, Waivers and the Grants-in-Aid System, by Ben Canada.
CRS Web Site for Federal Grants:
[www.crs.gov/reference/general/grantsinfo.shtml]
CRS Web Site for Tracking Distribution of Federal Funds:
[www.crs.gov/reference/general/geotracking.shtml]

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