grants is not mandatory. Although grants are widely accepted, in principle at least, state and local governments are free to turn them down and, hence, are able to avoid the restrictions that come with the money.
As to types of grants, categorical grants remain dominant, and their strength has been clearly demonstrated by the short life of General Revenue Sharing and the infrequent use of block grants. For both political and administrative reasons, Congress has been inclined to maintain a rather close link between revenue and spending decisions. Some members emphasize the failures of state and local governments to administer programs adequately in the absence of close federal monitoring, and others point accusing fingers at states and localities for not responding to particular constituents (for example, urban ones). By attaching "strings" to categorical grants, Congress can retain the degree of control it needs to ensure that funds are, from its perspective, both well administered and properly targeted.
This control, though, incorporated into the laws that authorize grants and the agency rules that are used to administer them creates a complex web of procedures that governments at all levels must follow to participate in the grant process. To simplify the grant-in-aid system is a daunting task, one requiring changes in grant programs that have been approved over many decades and involving separate agencies-each with its own constellation of interest groups that lend support to their particular causes-and including a large number of crosscutting requirements that apply to all federal grants. Further consolidating of categorical grants into block grants, providing recipients greater flexibility to determine the uses to which the funds will be put, is often suggested as an appropriate reform. (Despite strong support in the past from both Presidents Richard Nixon and Ronald Reagan, consolidations have been difficult to achieve.)
Both in the United States (between the states and their local governments) and in other national systems, grantsin-aid are used in ways that vary in detail from their application in the U.S. federal system previously presented. Among the U.S. states, "tax sharing" is a common practice, one in which the state collects revenue from a particular tax (for example a motor fuel tax charged on each gallon of gasoline sold) but allocates a portion of it to local governments. Similarly, a portion of the general sales tax, usually collected at the retail level, may be distributed to local entities, based on the locations in which the tax was collected (point of origin) or according to a formula recognizing population, financial resources, or programmatic need of the local government.
In addition to shared revenues, states provide both project and formula categorical grants-in-aid to local governments. Local school districts have particularly benefited from these programs, as states have developed sophisticated and complex formulas for educational aid distribution. Aid to education accounts for more than 60 percent of all state intergovernmental aid to local governments.
International comparisons of grants-in-aid reveal similar wide variety. Tax-sharing and general purpose grants are used much more extensively elsewhere than in the United States. In Canada, the federal government, through a system of tax collection agreements with the provinces, collects the income tax. Participating provinces use the federal tax base and rate structure, applying a single rate "tax on tax." Units at the two levels share in taxes collected, each according to its own rate of tax, with the central government administering the collection. The income tax system in Germany provides for division of the federal income tax with the states and cities. Schemes such as these are taxsharing systems, in various forms.
General purpose grants are used to a much greater extent in Canada and Australia than they are in the United States-a type of grant employed by the United States as General Revenue Sharing from 1972 to 1986. Unlike categorical grants, which are common in the United States, such general purpose grants expand the capacity of regional governments without giving the central government specific, narrow control over spending decisions.
Nations with federal systems of government are not the only ones that have found grants-in-aid useful policy tools. The United Kingdom, Italy, and France, among other systems with unitary governments, also provide grants to subnational units.
F. TED HEBERT
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