60 PART ONE • THE AMERICAN SYSTEM
Block Grant
A federal grant that
provides funds to a state
or local government for a
general functional area,
such as criminal justice or
mental-health programs.
Fiscal
Having to do with
government revenues and
expenditures.
Fiscal Federalism
A process by which funds
raised through taxation
or borrowing by one level
of government (usually
the national government)
are spent by another level
(typically, state or local
governments).highway construction, unemployment benefits, housing assistance, and welfare pro
grams to assist mothers with dependent children and people with disabilities. For fiscal
year 2013, the national government gave about $636 billion to the states. This sum was
actually somewhat less than some recent figures, due to the winding down of President
Obama’s February 2009 stimulus program. The stimulus had included special funding to
counteract some of the devastating effects of the Great Recession on state budgets.
Over the decades, federal grants to the states have increased significantly. One reason
is that Congress has decided to offload some programs to the states and provide a major
part of the funding for them. Also, Congress continues to use grants to persuade states
and cities to operate programs devised by the federal government. Finally, states often are
happy to apply for grants because they are relatively “free,” requiring only that the state
match a small portion of each grant.Block grants. Block grants lessen the restrictions on federal grants given to state and
local governments by grouping a number of categorical grants under one broad head
ing. Governors and mayors generally prefer block grants because such grants give state
and local governments more flexibility in how the funds are spent. In contrast, Congress
generally favors categorical grants because the expenditures can be targeted according to
congressional priorities.
One major set of block grants provides aid to state welfare programs. The Personal
Responsibility and Work Opportunity Reconciliation Act of 1996 ended the previously exist
ing welfare program and substituted for it a block grant to each state. Each grant has an
annual cap. According to some, this is one of the more successful block grant programs.Fiscal Federalism and State Budgets. In discussions of government policy, you may
have heard the word fiscal. This word simply means “having to do with government rev
enues and expenditures.” Fiscal policy, therefore, is policy concerning taxing or borrowing—
and then spending the revenues. When the federal government makes grants to state and
local governments, funds raised through taxation or borrowing by one level of government
(the national government) are spent by another level (state and local governments). We can
speak of this process as fiscal federalism. With more than 20 percent of state and local
revenues supplied by the federal government, fiscal federalism is clearly important.
The Great Recession had a devastating impact on state budgets, and in response the
federal government substantially increased the amount of funding available to the states.
From 2011 on, however, these extra funds were no longer available. State governments
cut spending and employment substantially—so much so that total government spending
as a share of the economy actually fell in 2011 and 2012.
In 2011, new conservative governors in many states argued that excessively generous
pension benefits for state workers were a major part of state budget problems. Many of
them sponsored new laws to reduce pension benefits. Several governors also campaigned
against state employee labor unions, a step that led to controversy in states such as Ohio
and Wisconsin.Feeling the Pressure—The Strings Attached to Federal grants. No dollars sent
to the states are completely free of “strings.” All funds come with requirements that
must be met by the states. Often, through the use of grants, the national government
has been able to exercise substantial control over matters that traditionally have been
under the purview of state governments. When the federal government gives federal
funds for highway improvements, for example, it may condition the funds on the state’s
cooperation with a federal policy. This is exactly what the federal government did in theCopyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
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