Federal Block Grants:

Synopsis of Research

Prepared by:
Joe Adams, Ph.D.
Senior Legislative Research Analyst

Office of Research
Comptroller of the Treasury

May 1995
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Table of Contents

Synopsis of Research 1

Federal Outlays for Aid to State and Local Governments 3

Distribution of Local CDBG Funds 1976-1993 .4

Recommended Reading 5

Expert Contacts 7
Synopsis of Research
Block grants constitute an intennediate method offederal assistance between categorical
grants and revenue sharing. They are less restrictive and more flexibile than categorical grants, but
are less flexible and more restrictive than revenue sharing. There are no simple generalizations to
be made about "block grants" because the administrative structures and statutory provisions
governing these programs have varied considerably over time and by program type. Some grants
flow directly from the federal government to local government while others flow through state
government to local governments, agencies, and contractors. Conditions, or "strings," attached to
funding differ significantly from one program to another depending on its national objectives and
provisions for local discretion. For example, a large number of sites might be eligible for block
grant funded water and sewer projects, but local officials decide which projects will be funded and
which will nol Some restrictions safeguard citizen participation and official accountability. Other
restrictions define the range of possible options, but do not mandate particular choices.
Given the complexity of block grant programs, it is essential for policymakers to give
considerable study to how earlier programs have worked. Fortunately, there is a large body of
research on this topic. An annotated list of recornmended reading is attached, as well as a list of
experts with in-depth knowledge of these matters. They have agreed to provide additional details
as needed. A broad summary of the findings in this area of research is reported below:

• According to the U.s. General Accounting Office (GAO), there are over 600 widely varied
federal grant programs. Federal grants account for a total of $211 billion (FY 1993) to state
and local governments, but "block grants" are only a subset of these funds. Between 1960 and
1993, federal grants accounted for over 20 percent of state and local capital spending. In 1980,
grants accounted for 37 percent, but declined to only 22 percent in 1993. Presently, two-thirds
offederal grants to states are allocated through the U.S. Department of Health and Human
Services. The Department of Housing and Urban Development's Community Development
Block Grants (CDBG), accounts for one-third offedera\ assistance to cities.

• Statutes and the administrative interpretation offederal statutes vary from one
presidential administration to another. This may have an effect the distribution of money
among recipients (see page 4). There appears to have been a significant difference between the
Reagan and Carter administrations in the interpretation of the law requiring that at least 51
percent ofjobs created or retained go to low- to moderate-income people. Under the Reagan
administration, HUD Assistant Secretary Stephen Bollinger told a House Subcornmittee that,
"as an administration we look to the Congress, and certainly we see nothing in the statute that
sets any threshold for benefiting low- and moderate-income people on an annual basis."

• Studies evaluating the performance of block grant programs are plagued with inadequate
data and frequent discontinuities in the method of calculating benefits. This complaint is
reiterated countless times in both governmental and academic evaluations of block grant
programs. HUD's criteria for calculating benefits for low-income people and for monitoring
programs have been inconsistent. The GAO (1994) found inconsistent adherence to the CDBG
requirement that 51 percent of the jobs created go to low- to moderate-income people. HUD's

I
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statistics vary from 40 percent to 90 percent, depending on the method used (see Rich
1993:304). Regardless of source, estimates are extremely difficult to verify.

• Contrary to conventional wisdom, there is strong evidence that regulatory "red tape" is as
prevalent, or even more prevalent, at the state and local levels as it is at the federal level.
Many of the regulations on the use of block grants are not federally mandated, but are
promulgated by state and local officials. Examples include additional contract terms, statistical
and financial reporting requirements, state and local environmental regulations, building codes,
and zoning ordinances (see Givel 1991). These obstacles may reduce funding in some areas.

• Federal grants-in-aid to the states are "leaky buckets" with respect to providing
assistance to the poor; funds intended for developing opportunities for the disadvantaged
often subsidize thriving industries and high-income neighborhoods. Studies cited by Rich
(1993), found that 16 percent of CDBG funds went to high-income neighborhoods, while only
15 percent went to low-income neighborhoods. Local priorities, as defined by local political
elites, may not correspond with national objectives and may affect targeting. According to a
report by the GAO (1990), federal aid reduced disparities among communities more than state
aid because it tended to be more targeted than state aid. Geographically, state and local
governments disperse funds more broadly and evenly than federal programs do, which does
little to remedy disparities. The GAO (1994) reports that communities allocated 84 percent of
their economic development funds (FYI993) for assistance to for-profit businesses; states
allocated 70 percent. Assistance to low-income people "trickles down" through government
agencies and private-sector beneficiaries.

• State and local governments do not fully replace funds provided by federal block grants
when federal funding declines ---tlnd federal grants-in-aid to state and local governments
are more vulnerable to reductions than many other kinds offederal spending. Givel
(1991) found that replacement spending in the states did not depend on their tax capacity or
assessments of need, but on state politics. Many studies have found that grant funding is
particularly "soft" money, relative to "entitlement" spending or defense spending. Among
grants, economic development funds have been relatively more stable than grants to states for
payments to individuals, which have been climbing as a percentage of federal outlays. At the
federal level, discretionary domestic spending fluctuates according to shifts in congressional
politics and is sensitive to cross-pressures for other kinds of spending when budgets are tight.

• Research findings indicate that, at their best, block grants have provided state and local
government with the resources and discretion for improving economic opportunities
among poorer citizens. At their worst, block grants provide a federally subsidized pork-
barrel fund for wealthy, well-organized, local elites. Statutory details matter. Most studies
focusing on the local allocation of block grants have found that local officials are more likely to
pursue funding for projects favored by politically active constituents, not necessarily the poor
themselves. The realities of state and local politics may help explain many of the holes in the
"leaky bucket" offederal assistance programs originally designed to reduce poverty.

2
... .. '

Federal Outlays to State and Local Governments

Federal Outlays to State and Local Government

$250.000 ------------
;~-iobi"I----- ------. . •
I! $200.000
--;. For Paymants to Individuals i~ ---------'~ •
.!!
'0
-
C
0
to
c
$150.000

$100.000
___-.;" capital nveSlITI!nt
!x Remainder
--=~----
::
,
_....a
••i rJ'
......~Ii~---:
--'

~
:iii
$50.000
$0 ----:--;~.;~u1
194
..0 --·1950
...- - · 1..
96·0. . . . '1·97~0·1I!II 1980 1990 2000

Year

Note: Total "utlays include otT-budget ouiiays: how';v';i'-all grant outiays are
from-nn-budget iioc()u;;is~-­
Grants that .....both payments for individuals and capital investment are shown under capital investment
Source: Department of Commerce. On-line Budget Infomation. STAT-USA.

Federal Outlays to State and Local Governments

(in percentages)
100 . - .. ,----------,--- _
90 J. ' _ _ Total as -Pereent of - ,--- ---- ------. - - --
eo ~ j
...
C ~~ b __
Federal Outlays , - .-- - .-
Total as Percent of ,__ "_____ _
-- ------
------_____ .
ell

~
~ ~30 U- -::=::=-~~~=_.::::.:-_ :;::=:=::=-~==~..::.==
~j__ _ . + •
---~_=-:_
.___ •
~~o ;"------. -~:~::~:~~;~::::::::::::--
_ ....UIII.UII.I...... .- . - .. -
1940 1950 1960 1970 1980 1990 2000
Year

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Distribution of Local CDSG Funds

Percentage of CDBG Funds Allocated to Local Jurisdictions
by Urban Conditions Index Quintiles
1975-1989*
QuintUes Calculated Each Year QuintUes Based on 1989
Funding Distributions"
Year Places 1st 2nd 3rd 4th 5th Top 1st 2nd 3rd 4th 5th Top
Funded (Low) (High) 50'}:;t (Low) (High) 500A,t
1975 651 45.0 23.9 14.0 10.9 6.1 24.0 55.5 18.6 12.8 8.8 4.4 19.6
1976 655 43.5 20.2 14.8 12.8 8.8 29.0 50.5 18.2 13.8 11.2 6.3 24.4
1977 669 40.6 18.2 15.7 14.8 10.6 33.3 45.4 18.2 14.6 13.8 8.0 29.1
1978 682 45.2 16.6 14.3 14.3 9.5 31.0 49.1 16.8 13.5 13.0 7.6 27.4
1979 688 45.4 15.9 14.2 14.7 9.8 31.6 48.8 16.6 13.4 13.4 7.8 27.9
1980 654 45.5 16.6 14.6 14.1 9.2 30.6 48.7 16.4 13.3 13.7 7.9 28.3
1981 665 45.4 16.6 14.7 14.2 9.1 30.7 48.5 16.3 13.4 13.9 7.9 28.5
1982 726 44.7 16.2 14.9 14.6 9.6 31.7 47.5 16.4 13.5 14.3 8.3 29.4
1982· 734 46.0 16.2 12.0 14.4 11.4 31.8 46.9 16.1 13.2 14.7 9.1 30.4
1984 795 44.9 16.4 12.3 14.5 11.8 32.5 45.3 16.5 13.6 15.1 9.5 31.4
1985 814 '44.8 16.3 12.4 14.7 11.8 32.7 45.0 16.6 13.7 15.0 9.6 31.5
1986 827 44.5 16.4 12.9 14.2 12.1 32.8 44.6 16.5 13.8 15.0 10.1 32.0
1987 827 44.5 16.4 12.9 14.1 12.1 32.7 44.6 16.5 13.8 14.9 10.1 31.9
1988 857 44.6 16.5 13.6 14.7 10.7 32.2 44.0 16.6 14.1 15.1 10.3 32.5
1989 858 44.5 16.5 13.6 14.7 10.6 32.1 43.9 16.6 14.2 15.1 10.2 32.4
Avg. 740 44.6 17.2 13.8 14.1 10.2 31.2 47.2 16.9 13.6 13.8 8.5 29.1
• Adapted from RIch ( 1993.354). ..
The urban condItIons mdex IS a composite measure based on the percentage of population
change. percentage ofpoveny. and percentage of pre-I 940 housing units (see Rich 1993:356-58).
•• Includes three communities that received funding in previous years. but not in 1989 (N=861). See Rich (1993: 354) for
details concerning the use of··1989 funding:' which controls for migrations ofjurisdictions into other quintiles over time.
t Approximation based on 1/2 of third quartile.

Distribution ofCDBG Funds 1975 -1989

Based on Urban Conditions Index
5th Quartile 1st Quartile
MOBt WeIl·Off Least Well-off
10% 45%
4th Quartile
14%

Top Half 2nd OuBrtiJe Bottom Ha If i

17%
31% 69%

4
Recommended Reading
General Accounting Office. Community Development Block Grant Economic Development
Activities Reflect Local Priorities: Report to Congressional Committees. Washington,
D.C.: Government Printing Office, 1994.

Findings indicate that local communities did not consistently follow the statutory requirement that 51
percent of the jobs created or retained in CDBG grant projects go to low to moderate-income people. The
report provides an analysis ofCDBG requirements and the present status of local compliance. It calls for
better performance reporting from HUD.

General Accounting Office. Community Development HUD Oversight o/the Dallas Block Grant
Program Needs Improvement: Report to Congressional Requesters. Washington, D.C.:
Government Printing Office, 1991.

This is a classic GAO report. Poor monitoring on the part of HUD's regional office resulted in the
misappropriation of grant funds to pay the entire salary for some building inspectors for the City of Dallas,
even though they did not work full-time on HUD inspections. The report cites lax monitoring on the part
of HUD. but also notes that local officials failed to meet generally accepted standards of accounting and
.documentation. Another report documents HUD's effort to enforce standards of accountability in its
monitoring. (See also, General Accounting Office. Community Development: HUD's Decision to Restrict
Philadelphia's Block Grant Funds: Fact Sheet for the Honorable John Heinz and the Honorable Arlen
Specter. United States Senate. Washington, D.C.: Government Printing Office, 1986.) Attempts to enforce
basic standards of accountability often produce complaints of too much "red tape." Together, these
publications illustrate the fine line between accountability and local discretion.

General Accounting Office, Federal Aid: Programs Available to State and Local Governments.
Washington, D.C.: Government Printing Office, 1991.

This report lists each of the 606 federal aid programs available, FYI 990 funding level, eligibility, and
federal bUdget codes. Analytical tables provide departmental and functional details.

General Accounting Office. Federal-State-Local Relations: Trends o/the Past Decade and
Emerging Issues. Washington, D.C.: Government Printing Office, 1990; and
Communities in Fiscal Distress: State Grant Targeting Provides Limited Help.
Washington, D.C. Government Printing Office, 1990.

These reports provide an excellent overview of the fiscal relationships among levels of government
Highlights include an analysis of the impact of federal budget trends on state and local fiscal disparities.
One of the GAO's major findings of both reports is that federal aid is more effective at reducing disparities
among communities than state aid.

Gilbert, Neil and Barbara Gilbert. The Enabling State: Modern Welfare Capitalism in America.
Oxford: Oxford University Press, 1989.

This is a good place to start reading about the overall structure of federal assistance. A myriad of federal
programs are described including many block grant programs as well as categorical grants and revenue
sharing schemes. It is not restricted to subsidies to the poor, but includes "asset maintenance" programs
such as farm subsidies and other subsidies to people who are not in poverty.

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Givel, Michael. The War on Poverty Revisited: The Community Services Block Grant Program
in the Reagan Years, New York: University Press of America, 1991.

This book details the changes during the Reagan administration and the role of state governments in block
grant programs. Givel argues that the Green amendment (P.L. 90-222: 1967) to the Community Services
Block Grant (CSBG) program effectively gives state and local officials a "veto power over local agencies'
policies and activities." The amendment gives one-third of the membership on local agency boards oflow-
income representatives: local officials were given one-third representation and the balance of local board
representation is given to local appointed representatives of business, labor, civic and charitable groups.
According to Givel. no CSBG program can survive that challenges the distribution of local political power,
regardless of its level of effectiveness.

Levy, Seymour and' Charles A. Linster. The Federal Block Grant Experience. Rehabilitation
Services Administration, U.S. Department of Education, Chicago, Illinois, 1981.

Although dated, this publication provides a good analysis of block grant programs in the areas of Law
-Enforcement Assistance Administration-(LEAA), Comprehensive Employment and Training
Administration (CETA), Community Development Block Grants (CDBG), and Title XX (1974 Social
Security Amendments). This report is consistent with the body of research that followed. Among the
problems (p. 47) cited in the block grant experience are: (I) malaportionment oflegislatnres, (2) debt
management conflicts, (3) restrictive laws governing cities, (4) state failure to give attention to urban
problems. Technical and programmatic issues are also discussed.

Office of Management and Budget. Budget 0/ the United States Government: Analytical
Perspectives, Fiscal Year 1995. Washington, D.C.: Government Printing Office, 1994.

Tables in Chapter 11 (pp. 167-175) provide an overview of all federal grants to state and local government.
For a more detailed analysis see U.S. Department of Commerce, Federal Expenditures by State for Fiscal
Year 1993, (52 pages of tables).

Pressman, Jeffrey and Aaron Wildavsky. Implementation. Berkeley: University of California

Press, 1984.

NO'study of federal economic assistance to local areas would be complete without acknowledging this
famous case study detailing the Economic Development Agency programs in Oakland, California.

Rich, Michael J. Federal Policymaking and the Poor: National Goals, Local Choices, and
Distributional Outcomes. Princeton: Princeton University Press, 1993.

This book is the most comprehensive analysis of federal block grants to date. It analyzes the history of the
CDBG program at the federal, state and local levels. It also addresses variations across state and local
jurisdictions. From a technical standpoint. this is arguab(v the best book on the subject ofblock grants in
existence (350 pages oftext, but well worth the effort) and ils bibliography is one ofthe most extensive
avaiiable on the subject ofblock grants.

Watson, Douglas J., John Heilman and Robert S. Montjoy. The Politics o/Redistributing Urban
Aid Westport, Conn.: Praeger, 1994.

This book is an in-depth analysis of the Urban Develpment Action Grant (UDAG) program focusing on
the official standards of eligibility and targeting. It reviews HUD and GAO studies and finds persistent
pressure to distribute funds broadly.

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Expert Contacts
The contents of this report are the sole responsibility of the author. A variety of sources have
been consulted to produce this report and its findings do not necessarily reflect the opinions of
the people listed below. However, the following people have graciously offered their experience
and depth of knowledge to provide additional details as needed.

Donald F. Ketti, Professor, Department of Political Science, University of Wisconsin, Madison,

WI, 215 Glenn Hollow Road, Madison, WI (608) 263-2414 (on sabbatical, spring 1995:
home phone (608) 233-3128, FAX (608) 233-1109). Dr. Ketti has published extensively
in the areas of federalism, fiscal policy, and community development. He is available to
discuss more detailed managerial issues relating to block grant programs.

Paula Lovett, Grant Program Manager, Department of Economic and Community Development,
Rachel Jackson Building, 6th Floor, 320 Sixth Avenue North, Nashville, 1N 37243, (615)
741-6201. Ms. Lovett works with the Department of Economic and Community
Development, one of the agencies involved in administering CDBG, TIIP and ARC grants.

Lynn McCaleb-Jones, Director of Economic and Community Development, Northwest

Tennessee Development District, 124 Weldon Drive, P.O. Box 63, Martin 1N 38237
(901) 587-4213, FAX (901) 587-4587. Ms. McCaleb-Jones has worked in the field of
community development block grants for about 15 years. She has also worked with the
local planning division of the state's Department of Economic and Community
Development.

Richard P. Nathan, Director, Rockefeller Institute of Government, State University ofNew York
-Albany, Albany, New York (518) 442-5289, Dr. Nathan has done numerous studies of
federal grant programs. On April 27, 1995, Dr. Nathan testified before the U.S. Senate
Committee on Finance conceroing block grants.

Michael J. Rich, Assistant Professor, Department of Political Science, 1555 Pierce Drive, Emory
University, Atlanta, GA 30322, (404) 727-6572. Dr. Rich has done an intensive study
ofCDBG programs and extensive field research in the Chicago area.