The release last week of the Congressional Budget Office (CBO) report on Federal Grants to State and local Governments reveals some interesting trends. In fiscal year 2011, the federal government funded $607 billion in grants to state and local governments. Those funds accounted for 17 percent of federal outlays, 4 percent of gross domestic product (GDP), and more significantly, accounted for a quarter of spending by state and local governments that year. Over the past 30 years, grants have fluctuated as a share of federal outlays, and health programs, primarily Medicaid, have grown rapidly, while grants for other programs and initiatives have increased at a slower rate.
The report reveals that Federal grants to state and local governments have grown as a share of the federal budget and the nation’s GDP since the 1950s. In 1960 grants were 7.6 percent of the federal budget and 1.4 percent of GDP, compared with 16.8 percent and 4.1 percent in 2011. The creation of the Medicaid program in the 1960s and 1970s and the introduction of other grant programs for low-income households during that period accounts for the largest percentage increase in grant funding. Most of the health grants stem from mandatory programs (rather than from discretionary funds), and spending on them is expected to grow in the future.
In the past four years much of the increase in federal grants to State and local governments as a percentage of GDP was a result of the American Recovery and Reinvestment Act of 2009. ARRA was intended to help stem the tide of deep recession as a result of the collapse of the financial markets and the high costs of funding two wars. The increase in ARRA outlays reached its peak in 2010.
The CBO report recognizes the value federal grants as serving as incubators of innovations at the state and local level, and in encouraging state and local governments to adopt federal policy priorities. The report notes that although preparing applications for competitive grants can be costly for state and local governments, the practice of identifying projects that are valuable to the local community could prove useful to state and local policymakers as they consider how to spend their own funds.
For additional information on the CBO Report on federal grant funding to State and local governments please visit this site.
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