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Job Name:2222145 Date:15-04-16 PDF Page:2222145pbc.p1.pdf Color: Magenta Yellow PANTONE Warm Red C FEDERAL GRANTS=IN=AID: PERSPECTIVES AND ALTERNATIVES By Deil S. Wright June, 1968 PUBLISHED AND DISTRIBUTED BY THE AMERICAN ENTERPRISE INSTITUTE FOR PUBLIC POLICY RESEARCH WASHINGTON, D.C. 20036 Distributed to the Trade by National Book Network, 15200 NBN Way, Blue Ridge Summit, PA 17214. To order call toll free 1-800-462-6420 or 1-717-794-3800. For all other inquiries please contact the AEI Press, 1150 Seventeenth Street, N.W., Washington, D.C. 20036 or call 1-800-862-5801. • Deil S. Wright is Professor of Political Science and Research Professor in the Institute for Research in Social Science at the University of North Carolina. Previously he taught at Wayne State University, the University of Iowa, and the University of California at Berkeley (as visiting professor). He has pub lished several books and numerous articles in the fields of state and local government, public administration, intergovernmental relations, and public finance, and has served as consultant to various state and local governmental units. • © 1968 American Enterprise Institute for Public Policy Research, 1200 17th Street, N.W., Washington, D. C. 20036. All rights reserved under International and Pan-American Copyright Conventions. Library of Congress Catalog No. 68-9148 Price: $2.00 AMERICAN ENTERPRISE INSTITUTE For Puhlic Policy Researcll THE AMERICAN ENTERPRISE INSTITUTE FOR PUBLIC POLICY RESEARCH, established in 1943, is .a nonpartisan research and educational organization which studies national policy problems. Institute publications take two nlajor forms: 1. LEGISLATIVE AND SPECIAL ANALYSES-factual analyses of CUf rent legislative proposals and other public policy issues before the Congress prepared with the help of recognized experts in the academic world and in the fields of law and government. A typical analysis features: (1) pertinent background, (2) a digest of significant elements, and (3) a discussion, pro and con, of the issues. The reports reflect no policy position in favor of or against specific proposals. 2. LONG-RANGE STUDIEs-basic studies of major national prob lems of significance for public policy. The Institute, with the counsel of its Advisory Board, utilizes the services of competent scholars, but the opinions expressed are those of the authors and represent no policy position on the part of the Institute. ADVISORY BOARD PAUL W. MCCRACKEN, Chairnlan Edmund Ezra Day University Professor of Business Administration, University of Michigan KARL BRANDT FELIX MORLEY Professor of Economic Policy (Emeritus) Editor and Author Stanford University MILTON FRIEDMAN Paul S. Russell Distinguished STANLEY PARRY Service Professor of Economics Professor of Political Science University of Chicago Trinity College, D. C. Gf)TTFRIED HABERLER Galen L. Stone Professor of International Trade E. BLYTHE STASON Harvard University Dean Emeritus, Law School University of Michigan c. LOWELL HARRISS Professor of Economics Columbia University Loy W. HENDERSON GEORGE E. TAYLOR Director, Center for Diplomacy Director, Far Eastern & and Foreign Policy Russian Institute American University University of Washington OFFICERS Chairman CARL N. JACOBS Vice Chairmen HENRY T. BODMAN CLYDE T. FOSTER H. C. LUMB President WILLIAM J. BAROODY Treasurer HENRY T. BODMAN TRUSTEES HENRY W. BALGOOYEN FRED F. LOOCK HENRY T. BODMAN H.C.LuMB JOHN M. BRILEY WILLIAM L. MCGRATH FULLER E. CALLAWAY, JR. GEORGE P. MACNICHOL, JR. WALLACE E. CAMPBELL ALLEN D. MARSHALL RICHARD J. FARRELL DON G. MITCHELL CLYDE T. FOSTER CHARLES MOELLER, JR. HARRY C. HAGERTY DILLARD MUNFORD W ALTER HARNISCHFEGER HARVEY PETERS JOHN B. HOLLISTER H. LADD PLUMLEY ROBERT A. HORNBY EDMUND W. PUGH CARL N. JACOBS PHILIP A. RAy JAMES S. KEMPER, JR. HERMAN J. SCHMIDT RAYMOND S. LIVINGSTONE WILLIAM T. TAYLOR R. C. TYSON THOMAS F. JOHNSON JOSEPH G. BUTTS Director of Research Director of Legislative Analysis EARL H. VOSS Director of International Studies CONTENTS I. OVERVIEW: INTRODUCTION AND SUMMARY __ 1 Introdtlction ~______________________________________ 1 Summary ~____ 4 Definition and Legal Basis 4 Historical Developments and Causal Factors 5 Aims, Advantages and Disadvantages, and Consequences 6 Program Scope and Financial Significance 8 Participants' Perspectives: National 9 Participants' Perspectives: State and Local -_______________ 9 State Government: Strengths and Weaknesses 11 Grant Alternatives 11 II. DEFINITION AND LEGAL BASIS 15 Definition of Grants-in-Aid .___________________________ 15 The Legal Basis of Grants 19 III. HISTORICAL DEVELOPMENT AND CAUSAL FACTORS ,________________________ 25 Historical Development -_____________________________________________ 25 Causal Factors: The Politics and Economics of Grant Creation 27 IV. AIMS, ADVANTAGES AND DISADVANTAGES, AND CONSEQUENCES 35 The Aims of Federal Grants ~--------------------------------__ 35 Advantages and Disadvantages of Grants 38 The Consequences of Grants ~________ 43 V. PROGRAM SCOPE AND FINANCIAL SIGNIFICANCE --__________________________________________________________ 51 Number of Federal Grant Programs 51 Financial Trends and Patterns in Federal Grants 61 Federal Grants Relative to Other Financial Trends 69 VI. PARTICIPANTS' PERSPECTIVES: THE NATIONAL LEVEL . __ . ._________________ 73 Congress and Grants . 73 Federal Administrators and Grants . 80 Summary . .. _. 87 VII. PARTICIPANTS' PERSPECTIVES: STATE AND LOCAL LEVELS .________ 91 Governors and Grants .___ _. .____________ 91 State Administrative Officials and Grants _.____ . 100 Local Officials and Grants _. .______ 106 VIII. STATE GOVERNMENT: SlRENGTHS AND WEAKNESSES _. .___ _ 113 IX. GRANT ALTERNATIVES . _ 129 Improvement of Existing Grant Pro~rams _ 130 Congressional Policy . _ 131 Executive Branch Structure .. ... _ 135 Administrative Procedure 136 Grant Alternatives _ 138 Direct Federal Expenditures _ 139 Federal Tax Reduction _ 139 Tax Credits _ . _ 140 Tax Sharing _ 142 The Plan 142 Pros and Cons of the Plan _ 147 Concluding Observations . ._ 150 OTHER AEI PUBLICATIONS 155 To my parents who gave many unrestricted "grants" I. OVERVIEW: INTRODUCTION AND SUMMARY Introduction HE STUDY OF FEDERAL grants, like many other aspects of our T political system, is overlaid with much conventional wisdom. It is a topic that has generated more heat than light, more political rhetoric than political insight. The purpose of this monograph is to review the several systematic studies that exist in the field, to assess the overall effects of grant programs on what today is called intergovernmental relations, and to offer some thoughts about possible reforms. In recent years, the problem of intergovernmental relations has become a major domestic issue. Indeed federal grant activity has reached such proportions, particularly since 1964, that the terms "new federalism" and "coop erative federalism," all coined in the 19308, are deemed insufficiently descriptive. Instead, the phrase "creative federalism" has attained prominence in the political arena, and scholarly literature has iden tified several new streams of federalism, "direct" and "private" serving as two illustrations. In this context, it seems appropriate to ask several questions that should concern the public official and private citizen alike. These questions, listed below, form the basis of this monograph. What are federal grants-in-aid? What is their legal or con stitutional basis? Why have they grown? 1 2 What are the objectives, as well as the advantages and disadvan tages of federal grants? What are their consequences? What trends and patterns have prevailed in the number, type, and fiscal significance of federal grants? What are the prevailing attitudes toward grants among officials responsible for their enactment and administration, Le., con gressmen, federal administrators, governors, state administrators, and local officials? Ho\v have the states functioned in the context of expanded fed eral activity through grants-in-aid? What are the weaknesses and strengths of the states? Given the problems associated with federal grants, what modifi cations and alternatives have been proposed and which one(s) appears most feasible and most conducive to a viable federal systenl? It is appropriate at the Ot;tset to state the general value orientation underlying this study. The author is concerned about the impact of proliferated federal programs on our federal system. This concern springs from no fundamental animus against federal action, but rather from regard for the vitality of state and local governments. These governmental units have existed in a state of tension through out our political history, subjected variously to direct assault or quiet erosion depending on the social, economic, or political challenge of the moment. The outcome of successive encounters between centralizing and decentralizing forces is not easy to measure. Most political observers agree that some centralization has occurred in the century since the Civil War. Beyond this general agreement, there are two difficult, open questions: (1) how much centralization has occurred? and (2) has it been appropriate and desirable or inappropriate and undesirable? The difficulty with the first question is that we have no objective or universally accepted criteria for measuring the locus of power. Despite some progress in conceptual clarity, as well as much debate with sociologists on measurement, an understanding of pow(;r remains one of the elusive aims of political scientists.