Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL I 

FEDERAL APPROACHES TO FUNDING 

PUBLIC HEALTH PROGRAMS 
OFFICE OF INSPECTOR GENERAL 

The mission of the OffIce of Inspector General (OIG), as mandated by Public Law 95-452, as 

amended, is to protect the integrity of the Departmentof Health and Human Services’(HHS) 

programs as well as the health and welfare of beneficiaries served by those programs. This 

statutory mission is carried out through a nationwidenetwork of audits, investigations, and 

inspectionsconducted by three OIG operating components: the OffIce of Audit Services, the 

OffIce of Investigations, and the Office of Evaluation and Inspections. The OIG also informs the 

Secretary of HHS of program and managementproblems and recommends coursesto correct them. 

OFFICE OF AUDIT SERVICES 

The OIG’SOffice of Audit Services(OAS)provides all auditing services for HHS, either by 

conducting audits with its own audit resources or by overseeing audit work done by others. Audits 

examine the performance of HHS programs and/or its grantees and contractors in carrying out 

their respective responsibilitiesand are intended to provide independentassessmentsof HHS 

programs and operationsin order to reduce waste, abuse, and mismanagementand to promote 

economy and efficiency throughout the Department. 

OFFICE OF INVESTIGATIONS 

The OIG’SOffice of Investigations(01) conducts crimina1, civil, and administrative investigations 

of allegations of wrongdoingin HHS programs or to HHS beneficiaries and of unjust enrichment 

by providers. The investigativeefforts of 01 lead to criminal convictions, administrative ‘ 

sanctions, or civil money penalties. The 01 also oversees State Medicaid fraud control units which 

investigate and prosecute fraud and patient abuse in the Medicaid program. 

OFFICE OF EVALUATION AND INSPECTIONS 

The OIG’SOffice of Evaluationand Inspections(OEI) conductsshort-term management and 

program evaluations (called inspections)that focus on issues of concern to the Department, the 

Congress, and the public. The findings and recommendationscontained in these inspection reports 

generate rapid, accurate, and up-to-date informationon the efficiency, vulnerability, and 

effectivenessof departmentalprograms. 

This report was prepared under the direction of Mark R. Yessian, Ph.D., Regional Inspector 

General, and Martha B. Kvaal, Deputy Regional Inspector General, Boston Region, Office of 

Evaluation and Inspections. Project staff included: 

BOSTON REGION HEADQUARTERS 

Lori B. Rutter, Lead Analyst Tina Fuchs 

Joyce M. Greenleaf 
EXECUTIVE SUMMARY 

PURPOSE 

To review the professional literature to determine the advantages and disadvantages of 

Federal categorical and block grant approaches to funding public health activities. 

BACKGROUND 

In this report we respond to the Public Health Service’s (PHS) request that we: 

(1) identify the advantages and disadvantages of categorical grant approaches to Federal 

funding, (2) determine the effects of block grant funding approaches, and (3) suggest a 

research and demonstration strategy for block grant funding. At the request of PHS staff, 

we did this by reviewing the professional literature addressing Federal grant mechanisms, 

federalism, and intergovernmental relations. 

THE CATEGORICAL GRANT EXPERIENCE 

Categorical grants have been the traditional approach to Federal grant making. 

� They have grown in number and appropriation level, and continue to be the most 

widely used approach for Federal grant making. 

� They maximize recipient accountability to the Federal government. 

� They target Federal money to precisely defined national objectives. 

� They facilitate mtionwide adoption of innovative programs. 

Concerns about categorical grants have become more widespread as the number of 

programs has grown. 

� They add administrative cost and complexity to the Federal grant system. 

. They contribute to fragmented program management and service delivery. 

. They inhibit program responsiveness to particular State and local needs. 

The Federal government has taken initiatives during the past three decades to increase 

State and local government discretion over Federal aid. 

These initiatives include the Partnership for Health Act of 1966, General Revenue Sharing 

in the 1970s, the Omnibus Budget Reconciliation Act (OBRA) Block Grants in 1981, and 

many Federal waivers of categorical grant provisions in the 1990s. 

THE BLOCK GIWNT EXPERIENCE 

Our analysis of the effects of block grants focuses on five questions commonly asked 

about the block grant experience. 

i 
Have block grants promoted administrative improvements and cost-savings? 

� States reported that block grants have improved administrative efficiency. 

� The extent of administrative cost-savings is unclear because data are limited. 

Have block grants facilitated services integration ? 

� Studies on block grants examined services integration at the administrative rather 

than the service delivery level. 

� The Partnership for Health Act improved intergovernmental coordination, but did 

not necessarily promote a system-wide approach to public health problems. 

� The OBRA 1981 block grants enhanced integration at the administrative level. 

Have block grants fostered gretier responsiveness to State and local needs? 

�� States claimed that the Partnership for Health Act allowed them to tailor services to 

their own needs, but evaluators contend that the block grant did not significantly 

reorder State program priorities. 

.	 States reported minor adjustments to programs under the OBRA 1981 block grants, 

but did not substantially alter program priorities. 

Have block grants replaced State and local funding for services? 

s Scant data exist on how the Partnership for Health block grant money was used, 

but studies show that it promoted new spending rather than replaced State money. 

� Under the OBRA 1981 block grants, States replaced lost Federal funds in order to 

maintain service levels. 

� Factors other than block grant status better predict whether States use finds for 

additive or substitutive purposes. 

Have block grants left certain client groups more vulnerable? 

�� Block grants often include special targeting provisions to ensure that Federal 

fimding is allocated to the neediest populations. The effectiveness of such 

provisions is unproven. 

� Limited data suggest no major differences in the client populations served under 

the Partnership for Health Act and the former categorical programs included in it. 

� The OBRA 1981 block grants contained provisions to ensure targeting, but there 

has been little examination of their impact on the poor. 

ii 
RECOMMENDATIONS FOR RESEARCH AND DEMONSTRATION 

17zePublic Health Service should develop a strategy to use performance indicators in 

ways that will allow grantees substantial discretion in using Federal funds and, at the 

same time, hold them sufficiently accountable for their performance. 

The President’s Fiscal Year 1996 budget calls for the Public Health Service to make a 

significant commitment to program simplification by consolidating 108 programs into 16. 

Given the additional interest in block grants in Congress, the Public Health Service must 

give major attention to the development of funding mechanisms that afford grantees 

substantial discretion and yet hold them accountable for performance. The literature and 

the experiences it examines offer little guidance on how to establish such a performance 

based system of block grants. 

It is vital, therefore, to conduct an active research and demonstration effort that examines 

how block grants and performance indicators can be uselidly linked. Toward this end, the 

Public Health Service could examine ways in which block grant recipients: 

� identify relevant indicators of performance,


. develop mechanisms for collecting performance data,


. present and disseminate performance data, and


� use such data to improve their performance and/or refine their objectives.


It is also important to focus attention on the Federal government’s oversight role with 

respect to block grants and examine approaches it could use to: 

� ensure adequate performance of grantees. 

The thrust of this research and demonstration strategy should be directed to future efforts 

that could be undertaken along with the provision of block grants. To a limited extent, 

however, it might also encompass a retrospective look at block or categorical grant 

programs to identify insights they offer for the development of performance based block 

grants. The Maternal and Child Health Block Grant Program, which calls for States to 

submit performance data to the Public Health Service, could be a good candidate for such 

inquiry. 

COMMENTS ON THE DRAFT REPORT 

The Assistant Secretary for Planning and Evaluation reviewed the report and concurred 

without elaboration. The Public Health Service (PHS) also reviewed the report. Its 

comments appear in fill in appendix B. 

The PHS concurred with our recommendation. In so doing, it noted two actions it has 

undertaken that move in the direction of our recommendation. One is the “Performance 

Partnership Grants” program that has been proposed to Congress. The other is an 

111 
initiative “to establish and use performance measures whether they are funded through the 

categorical or block grant mechanism. ” 

We recognize the relevance and importance of these actions. In tandem with them, we 

urge PHS to take maximum advantage of current research and demonstration opportunities 

available in order to promote better understandings on just how block grants and 

performance indicators can be usefully linked. In our report, we suggest in some detail 

directions that can be taken in that regard. 

The PHS suggested two technical changes, both of which we made in the final report. 

. 

iv 
TABLE OF CONTENTS 

PAGE


EXECUTIVE SUMMARY


INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1


THE CATEGORICAL GRANT EXPERIENCE . . . . . . . . . . . . . . . . . . . . . . . 5


. categoricalgl-ants are t.raditional approach to grant making . . . . . . . . . . . . . . . 5


. Widespread concerns about categorical grants . . . . . . . . . . . . . . . . . . . . . . . 6


. Federal initiatives to increase discretion ov~r Federal aid . . . . . . . . . . . . . . . . 8


THE BLOCK GRANT EXPERIENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10�

. Have block grants improved administrative efficiency? . . . . . . . . . . . . . . . . . 10�

. Have block grants facilitated services integration? . . . . . . . . . . . . . . . . . . . . 12
 .


. Have block grants fostered greater responsiveness to needs? . . . . . . . . . . . . . 13


. Have block grants replaced State and local funding for services? . . . . . . . . . . . 15


. Have block grants left certain client groups more vulnerable? . . . . . . . . . . . . . 16


RECOMMENDATIONS FOR RESEARCH AND DEMONSTRATION . . . . . . . 19


COMMENTS ON THE DRAFI’ REPORT . . . . . . . . . . . . . . . . . . . . . . ...24


APPENDICES


A:


B. 

c: 

Annotated Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. A-l 

Complete Comments onthe Draft Report . . . . . . . . . . . . . . . . . . . . . . .. B-l 

Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. C-l 
INTRODUCTION�

PURPOSE 

To review the professional literature to determine the advantages and disadvantages of 

Federal categorical and block grant approaches to funding public health activities. 

OBJECTIVES 

To identify the advantages and disadvantages of categorical grant approaches to Federai 

funding. 

To determine the effects ofblock grant funding approaches as identified inthe 

professioml literature. 

To suggest a research and demonstration strategy for block grant finding. 

BACKGROUND 

Rationale for the Repoti 

In May 1994, when natioml healticare refomwas being comidered by Congress, the 

Public Health Service (PHS), through the Office of the Assistant Secretary for Health, 

asked us to conduct a review of the professional literature to identify the comparative 

advantages and disadvantages of categorical and block grant funding approaches to public 

health programs. The PHS expected that this review would facilitate its considerations 

concerning how public health funds could best be distributed under a reformed national 

health care system. 

In August 1994, we prepared a working draft of the report in response to the PHS 

request. By the time we met with PHS officials to review the report, Congress had 

decided not to carry out health care reform in 1994; thus, the initial rationale for our 

report was less compelling. 

Yet, even without health care reform, the issue of reforming the current highly categorical 

approach to Federal finding remains pressing. The Office of the Vice President set the 

tone in this regard when it issued the report of the National Performance Review in 

September 1993. That report, which called for a reassessment of the Federal grant system 

and a reduction in the number of categorical grant programs, contended that “the current 

system of Federal grant making fragments the ability of government at all levels to 

address people’s needs in an integrated manner . . . by establishing often incompatible 

eligibility standards and administrative rules and requirements, the proliferation of 

categorical grants has made government at all levels less effective.”1 

* 

1 
Throughout 1994, many States were making requests for Federal waivers from categorical 

progrms toetince tieircapacity todevelop imovative approaches oftieir own. The 

Fall 1994 political campaign and the November elections reflected considerable popular 

support for reducing the scope of the Federal bureaucracy and giving State governments 

increased discretion in the use of Federal funds. 

In view of these developments, PHS, during a review of our working report in November 

1994, underscored the continued relevance of our review of categorical and block grant 

funding approaches and urged us to expand our report. Specifically, PHS asked us to 

offer recommendations on a research and demonstration strategy that might be undertaken 

in concert with block grants--one that would add to our knowledge base on how block 

grants could serve as an effective complement to categorical grant programs. 

Our inquiry gained relevance in February 1995 when the President issued his budget for 

Fiscal Year 1996. That budget calls for major consolidations of programs in PHS. It 

proposes that 32 programs in the Centers for Disease Control and Prevention be combined 

into 3, that 50 programs in the Health Resources and Services Administration be lumped 

into 9 clusters, and that 26 programs in the Substance Abuse and Mental Health Services 

Administration be consolidated into 4. 

In this report we respond to the PHS requests. We start out by identifying the advantages 

and disadvantages long associated with categorical grants--the most traditional and 

prominent Federal funding approach. We then turn to an examimtion of the central 

questions typically posed about the effects of block grants. We conclude by suggesting 

directions PHS can take that would enable it to respond to the considerable current interest 

in block grants and at the same time examine how best to build in necessary accountability 

safeguards. 

Types of Federal Grants 

Historically, Federal grant programs have been classified in three main groups according 

to level of recipient discretion: categorical grants being the most restrictive, block grants 

falling somewhere in the middle, and general revenue sharing (GRS) providing virtually 

unrestricted assistance. Currently, the most important division in the Federal grant system 

is between categorical and block grants. General revenue sharing was termimted in 1986 

due to declining political support amidst concerns about accountability. Sometimes the 

differences in funding mechanisms are clearer in the abstract than in implementation, but 

for the purposes of definition we will use the following continuum: 

2

-------------------------- -------------------- ----------- ------------------------------ --------------------

FIGURE 1 

Continuumof Federal Grants by Recipient Discretion 

Least Restrictive Most Restrictive


I I 1


General Revenue Sharing Block Grants Categorical Grants


Categorical grants are primarily for specifically and narrowly defined purposes andare 

tiemost restictive intemsof howmuch discretion they give torecipients~ Recipients 

of categorical grants may be State or local governments or non-profit institutions. 

Categorical grants typically have mandated Federal application, eligibility, and reporting 

requirements intended to ensure that programs and policies reflect national goals. 

Categorical grants are the most prominent in both numbers of programs and amount of 

dollars. 3 They are intended to support activity in particular areas, such as community 

mental health, hemophilia, and alcoholism. 

Block grants are broader in scope than categorical and have fewer Federal requirements. 

They allow recipients considerable discretion in determining specific activities funded 

within their program areas, but still maintain certain substantive goals and objectives. 

Administrative, fiscal, reporting and other requirements are kept to a minimum. These 

grants are provided chiefly to State governments. Block grants represent a small portion 

of Federal grants, and are designed to support activity in broader areas such as preventive 

health and health services, maternal and child health, and substance abuse. 

It is important to point out that particular programs can fall at different points of the 

continuum and that, as a result, there are many programs that are hybrids of block and 

categorical grant approaches. An example would be the Maternal and Child Health Block 

Grant. When established in 1981 (as Title V of the Social Security Act), the program 

quite clearly belonged at the block grant point of the continuum, as it afforded extensive 

discretion to State grantees. In 1989, however, Congress chose to limit that discretion in 

various ways and to tie finding for the program in more closely with applicable health 

status goals and objectives set forth under the “Year 2000 Objectives” established by the 

Public Health Service. 

It is also important to recognize that the terms “block grant” and “categorical grant” are 

sometimes used in different ways. For example, a program having a narrowly defined 

purpose but affording grantees substantial discretion might be called a block grant by 

some and a categorical grant by others. We have found, however, that over time, the 

degree of discretion afforded the grantee is the central distinguishing feature between the 

two types of grants. For that reason and the sake of clarity, we stress that distinction in 

this report. 

3

This report is based primarily on a review of the policy literature on Federal grants, 

federalism, intergovernmental relations, and public health programs published by journals, 

research institutions, and government oversight agencies. To locate additional studies, we 

contacted academics in public health and intergovemmental relations and spoke with 

representatives from the Natioml Council of State Legislatures, the National Governors 

Association, the Council of State Governments, and the Intergovemmental Health Policy 

Project. 

We conducted this study in accordance with the Quality Standards for Inspections 

issued by the President’s Council on Integrity and Efficiency. 

4

THE CATEGORICAL GRANT 

EXPERIENCE 

The following information is drawn from a review of the literature on the Federal grant 

system. It is meant to confkrn the history and trends in Federal grant making to provide a 

better understanding of the context for grant reform. 

CATEGORICAL GRANTS HAVE BEEN THE TIU4DITIONAL APPROACH TO 

FEDERAL GRANT MAKING. 

� They have grown in number and appropriation level and continue to be the most 

widely used approach for Federal grant making. 

Federal grants have historically been directed at narrow, categorical programs with 

specific purposes and tight Federal spending requirements. Despite experimentation with 

other funding mechanisms, the main vehicle of Federal grant expansion over the past three 

decades has been the categorical grant. The total number of Federal categorical grant 

programs offering funding to State and local governments increased from 422 to 593 

between 1975 and 1993.4 Likewise, this increase was matched by similar growth in 

appropriations. In constant dollars, grant outlays for categorical rose from $77.6 billion 

in 1975 to $147.4 billion in 1993.5 In contrast, there were 5 block grant programs in 

1975 and 15 in 1993; block grant outlays in 1975 totaled $9.3 billion compared to 

$17.6 billion in 1993 in constant dollars.G 

� l%ey maximize recipient accountability to the Federal government. 

Categorical grants, with their extensive eligibility, pltig, spending, and reporting 

requirements, are often viewed as the best way to make programs accountable at the 

Federal level. These requirements are intended to ensure both the proper use of Federal 

funds and effective implementation of Federally-funded programs. 

The widespread perception that categorical are most accountable to the Federal 

government may explain why they have been the most prolific. Congress, the 

Administration, Federal administering agencies, and national interest groups all play roles 

in designing, funding, regulating, and implementing categorical programs. But it is 

Congress that ultimately determines how much money to appropriate for Federal grants, 

and Congress generally believes that it has greater control over Federal money in a 

categorical system. Congress has traditionally preferred categorical because of these 

tighter controls. Other proponents of categorical, like interest groups, also favor 

categorical programs because they can concentrate their efforts on lobbying Congress 

rather than divide their time among 50 different State legislatures.7 

5

� l%ey target Federal money to precisely defined national objectives. 

Categorical grants, with their strict definitions and requirements, may provide the best 

guarantee that Federal funds will be used to advance specific national purposes. An 

Advisory Commission on Intergovernmental Relations (ACIR) study that examined all 

sides of the debate stated that “they [categorical] appear to offer the most efficient, direct 

administrative means for securing any national objective.”8 Historically, “categorical 

grants were established in response to particular needs or problems that were of national 

interest and concern, and Federal funds were authorized primarily to stimulate States and 

localities to take remedial actions.”9 One reason that Congress has preferred categorical 

grants over other approaches is because it views them as effective instruments for 

influencing State and local governments to provide certain services. 10 In addition, 

Congress has preferred categorical because they fund programs directed at specific 

problems, and, therefore, may find it helpful to refer to these programs when seeking 

constituent support. 

� They facilitate nationwide adoption of innovative programs. 

Sometimes Federal categorical grants are designed to promote widespread adoption of 

innovative methods for combating particular health problems. Program innovations 

pioneered in State or local health departments can be replicated on a national level through 

a Federal categorical grant to encourage States and localities to spend money on particular 

problems. In the past, advocates of categorical grants have credited these specific grants 

with fostering new programs and enlisting support from interested groups--primarily 

because categorical are created to fund new programs rather than expand general health 

grants. 11 

CONCERNS ABOUT CATEGORICAL GRANTS HAVE BECOME MORE 

WIDESPREAD AS THE NUMBER OF PROGRAMS HAS GROWN. 

� They add administr~”ve cost and complexity to the Federal grant system. 

Critics claim that the existence of numerous, specialized categorical grants presents 

excessive administrative reporting and accounting problems for grant recipients, and 

inhibits efficiency and economy in distributing Federal grants. 12 The most outspoken 

critics of categorical grants have been public administrators with broad responsibility, 

academics; State and local government officials and service providers, and policy research 

institutions like the ACIR and the General Accounting Office (GAO). These groups have 

evaluated Federal grant programs and have documented the administrative burdens placed 

on recipients of categorical grants. 

Many studies conducted over several decades report that State and local governments are 

concerned about the high administrative costs and excessive paperwork associated with 

categorical grants. An ACIR survey conducted almost 20 years ago found that State and 

local governments’ chief complaints about categorical were the excessive paperwork and 

administrative complexity that they attributed to Federal involvement with these grants. 13 

6 
In particular, Stiteand local movements have been concerned about thegrowtignuber 

of Federal planning and reporting requirements that drain staff resources. 14 Many of the 

same fundamental difficulties remain today. 

� They conti”bute to fragmented program management and service delivery. 

Another lingering criticism of the categorical grant system is that it is fragmented and 

results in duplication and overlap of programs. According to an ACIR report, “excessive 

categorization and overlapping of grants create administrative problems at all levels and 

handicap the development of a coordinated attack on community problems. “15 Problems 

of planning, coordination, and service delivery can get especially confounded in a multilayered bureaucracy that involves Federal, State, and local governments. lb 

Some critics blame fragmentation on the increase in the number of categorical grant 

programs. *7 However, the fragmentation may also result from excessive program 

specificity, with clusters of several grants for servicing, planning, training, and 

demonstrating in the same narrow program area. 18 This categorical specificity may be a 

reflection of our political system: categorical are at the nexus in the “iron triangle” of 

special interest groups, Congress, and Federal program bureaus. Some contend that the 

prevalence of categorical is testament that the Federal grant system is not a system at all. 

Instead, these programs have developed piecemeal, with little consideration for the overall 

needs of, or the overall impact on, State and local governments. 19 

All levels of government have devoted considerable attention to improving coordination of 

categorical grant programs over the past few decades. The Federal government has 

implemented a wide variety of reforms to achieve this goal, but none has had more than 

limited success. 20 Failed attempts to improve coordination among programs, the ACIR 

concludes, “have demonstrated that Federal agencies have few incentives to standardize, 

simplify, or target their activities. Their primary concern is to be able to account for and 

make effective use of each specific grant program they administer. “2* 

� They inhibit program responsiveness to pati”cular State and local needs. 

Critics claim that the restrictive nature of categorical grants hinders Federal


responsiveness to the rapidly changing and diverse needs of State and local governments.


With more than 50 States and territories, and thousands of jurisdictions, opponents of


categorical contend that the Federal government is unable to respond effectively to local


concerns with categorical grants. Most Federal grants assume that national concerns are


complementary to State and local needs. However, there are instances when these sets of


needs differ. Critics say that categorical grants lack the flexibility State and local officials


need, particularly in fast-changing areas like public health, to adopt new approaches in


disease control and to enact programs that reflect the needs of their populations. Critics


also argue that the ability to be responsive to State and local needs is compromised by the


categorical grant system with its narrow allowable uses and web of Federal


requirements. 22


7

THE FEDERAL GOVERNMENT HAS TAKEN INITIATIVES OVER THE PAST 

THREE DECADES TO INCREASE STATE AND LOCAL GOVERNMENT 

DISCRETION OVER FEDERAL AID. 

Amidst the growing number of categorical programs, the Federal government has 

experimented with several more flexible funding approaches. These experiments, which 

give State and local governments greater discretion over Federal funds, include block 

grants, general revenue sharing (GRS), and Federal waivers. 

. Pa~ership for Health Act of 1966: A Block Grant 

The f~st modern block grant to be enacted was the Partnership for Health Act (PHA) of 

1966. The PHA revised the Federal health grant system by consolidating nine categorical 

health service formula grants into one block grant program. Its purpose was to develop 

comprehensive health planning at all levels of government, to strengthen State health 

agencies, and to support the State and local health services in a more flexible manner.23 

The PHA simplified administrative procedures, which, in turn, resulted in the Department 

of Health, Education and Welfare assuming a “hands-off” attitude toward monitoring and 

implementation of the program. Throughout the 1970s, the PHA lost ground because 

Congress enacted numerous new categorical programs that logically could have been 

folded into it. ThePHA block grant never became a significant vehicle for change in the 

public health arena, as it never accounted for more than 3 percent of State public health 

expenditures .24 The PHA’s limited financial significance coupled with political 

inattention ultimately resulted in its demise. 

� General Revenue Sharing in the 1970s 

General Revenue Sharing (GRS) was an entitlement program enacted by the New


Federalists to increase State discretion over distribution of Federal grant funds. State


officials. not Federal administrators, determined who received Federal grants and in what


amounts. The GRS was intended to consolidate Federal grant programs and eliminate the


expansion of Federal program priorities, mandates, and monitoring and reporting


requirements. 25 It required no application or granting-agency approval to receive Federal


fi.mds.zb The GRS was primarily a mechanism for transferring fimds from the national to


the local level with little Federal decision-making.


However, the GRS never lived up to its stated goals.z’ The scope and number of


Federal categorical programs continued to grow and minimized the impact of GRS. To


compound the problems, persistent inflation throughout the 1970s produced a tax revolt


which resulted in an economic slowdown and a decline in the growth of intergovernmental


aid.28 Bv 1986, these conditions converged with Congressional commitment to


categori~al grants, and general revenue sharing was terminated.29


8

--

--

--

. l%e Omnibus Budget Reconciliation Act (OBRA) 1981 Block Grants 

Block grants reemerged as a funding mechanism in the early 1980s in response to 

continued administrative and political criticisms of categorical grants and the desire to 

curb Federal spending. Congress enacted nine block grants under the OBRA of 1981 

four of which are administered by the Public Health Service. These public health 

block grants consolidated 21 categorical programs and reduced the aggregate Federal 

funding levels up to 25 percent. Of these block grants, three Maternal and Child 

Health (MCH), Preventive Health and Health Services (PHHS), and Alcoholism, Drug 

Abuse and Mental Health Services (ADMHS) were implemented.30 Evidence on early 

implementation of the 1981 block grants showed that States did at least as good a job in 

administration of block grants as the Federal government had done formerly. Even 

interest groups and service providers with a large stake in maintaining a categorical 

system reported that they were by and large neutral toward the 1981 block grants as an 

administrative reform after three years of implementation experience .31 Subsequent 

proposals for the creation of block grants failed, however, because they became identified 

as political instruments of domestic budget-cutting. 

� Federal waivers in the 1990s 

Recently, waivers have become an increasingly popular approach for enhancing State 

discretion over Federal funds. The number of State applications for Federal waivers has 

increased for the Medicaid and Aid for Families with Dependent Children (AFDC) 

programs. From April 1993 to August 1994, 17 States filed applications for Section 1115 

Medicaid waivers; in the past, the Medicaid program received on average one to three 

waiver applications per year. During this same period, 52 applications for AFDC waivers 

were submitted compared to a total of 33 applications received during the preceding four 

years. 32 These waivers free States from Federal regulations, while allowing them to 

experiment with unconventional administrative or service delivery approaches. 

9

THE BLOCK GRANT EXPERIENCE 

Most literature on Federal grant funding approaches was published in the 1970s and 1980s 

when political attention was focussed on reforming the Federal grant system. We 

reviewed evaluations of the shift from categorical to block grant funding for public health 

programs conducted by academics, the GAO, the ACIR, and various contractors hired by 

the Department. These evaluations focus primarily on the Partnership for Health Act of 

1966 and the three PHS-administered block grants erected under the Omnibus Budget 

Reconciliation Act (OBRA) of 1981. 

During our search we found that few studies of public health block grants were conducted 

after the mid-1980s. The lack of analysis of these programs may be due to lack of data, 

because most Federal reporting requirements were removed when categorical programs 

were consolidated into block grants. Perhaps the dearth of information, coupled with 

almost a decade of political inattention to reforming the Federal grant system, explain why 

so little has been written on this topic in recent years. 

It is difficult to generalize about State experiences under block grants because these grants 

have varied widely in structure, legislative intent, and objectives. The level of funding, 

the increasing categorization imposed by Congress over time, and previous State 

involvement in the program area have also affected block grant perforrnance.33 

Nevertheless, despite these important differences among the block grants, some common 

lessons have emerged out of the early experiences in implementing block grants. This 

analysis identifies those lessons by focusing on questions commonly asked about the block 

grant experience. 

HAVE BLOCK GRANTS PROMOTED ADMINISTRATIVE IMPROVEMENTS 

AND COST-SAVINGS? 

� States reported that block grants improved administrative efficiency. 

The literature evaluating block grants, particularly the Partnership for Health Act of 1966 

and the three PHS-administered block grants enacted by OBRA 1981, shows that most 

States surveyed altered their administrative systems and made management improvements 

in response to block grants. 34 

A 1977 ACIR study that examined State experiences under the Partnership for Health Act 

and the three other block grants (Comprehensive Employment and Training Act, Crime 

Control and Safe Streets Act, and Community Development Block Grant) implemented in 

the 1960s and 1970s “indicated that significant policy and administrative decentralization 

was achieved, Federal personnel and paperwork costs were reduced. “35 Administrative 

improvements resulted primarily from the requirement that State health agencies submit 

one comprehensive State plan for all public health activities rather than comply with many 

separate reporting requirements. 

10

A series of GAO studies reported on States’ experiences under the PHS-administered 1981 

block grants and found that, of the 13 States surveyed, most reported having implemented 

management improvements as a result of the block grants. The GAO found that almost 

two-thirds of State respondents reported reduced time and effort spent in preparing 

program applications. In addition, almost three-fourths claimed that they spent less time 

and effort reporting to the Federal government under block grants compared to categorical 

programs. One-third of the States surveyed reported improving the use of personnel as a 

direct result of the block grants; two-thirds of the State respondents reported altering their 

administrative procedures in response to block grants.3G 

Almost all of the 13 States included in a GAO survey reported administrative 

improvements under the Alcohol, Drug Abuse, and Mental Health Services (ADMHS) and 

Maternal and Child Health (MCH) block grants. Most of these States reported reducing 

time and effort involved in preparing grant applications and reporting to the Federal 

government under ADMHS.37 In an Urban Institute study of 18 States, many States 

reported that ADMHS enabled them to standardize administrative requirements and to 

improve planning, budgeting, and the use of personnel .38 The GAO found that States 

reported improved administrative efficiency by integrating MCH planning into the overall 

health planning and budgeting processes .39 According to the Urban Institute study, some 

States enhanced administrative efficiency by creating “mini-blocks” that devolved 

responsibility to localities. Others reported improvements and suggested potential savings 

at the local level from grant consolidation and streamlined application procedures.a 

Some States surveyed by the Urban Institute reported that the implementation of the 

Preventive Health and Health Services (PHHS) block grant was time-consuming and 

expensive at first, but agreed that it eventually lightened their paperwork.41 According 

to a GAO survey of 13 States, PHHS implementation was accompanied by “reduced 

Federal administrative requirements in such areas as preparing applications and 

reports. “42 Nine of the 18 States that the Urban Institute surveyed altered their 

administrative practices in response to the PHHS block grant, but many of these States 

reported that they passed on the burden to local grantees .43 While States report benefits 

from administrative simplification, many may well have passed on their administrative 

responsibilities onto local grantees rather than actually reducing the complexity and 

amount of paperwork. 

� l%e extent of administrative cost-savings is unclear because data are limited. 

It is difficult to determine whether block grants reduced administrative costs because so 

little quantitative data have been collected, and existing data are of questionable reliability. 

The difficulties in interpreting these data are documented in evaluations conducted by the 

GAO, the Brookings Institution, the American Enterprise Institute, and the Urban 

Institute. These studies discuss both limitations in the availability of data and 

measurement errors in the existing data. Most pre- and post-consolidation evaluations 

comparing administrative costs between block grants and categorical programs have 

revealed no conclusive evidence to support the claim that block grants led to sizeable 

11

reductions (10 percent or more) in administrative costs, but do not exclude the possibility 

that some cost savings emerged.~ 

Attempts by the GAO and ACIR to compare administrative costs under the Partnership for 

Health to the former categorical have not yielded compelling findings. The existing data 

on administrative costs under the PHA suggest little difference between administrative 

costs for the block grant and the former categorical. Administrative costs averaged 

9.9 percent between FY 1975 and FY 1980, which falls within the range reported for 

categorical programs. 45 In part, this higher than expected administrative cost may have 

been because the newly created Partnership for Health Program funded grantees for a 

wider variety of health services than the previous categorical. Case studies of the 

Partnership for Health programs suggest that the costs of applying for, allocating, and 

monitoring may have been as low as 2 to 3 percent, but because PHA did not restrict 

administrative expenditures to a set of prescribed services, State health departments fimded 

a variety of activities with PHA money.4b These confounding factors may have had 

independent effects on administrative costs. However, the lack of data on the Partnership 

for Health implementation makes it impossible to isolate them.47 

While the OBRA 1981 block grants were enacted “to achieve more service at less cost, ” 

scant information documenting actual dollar savings exists .48 An Urban Institute study, 

conducted 3 years after implementation, showed that even block grant supporters who 

claimed that grant deregulation “would make it possible for States to absorb as much as 

20 to 25 percent of the fimding reductions through administrative savings alone” admitted 

that savings were not that high. 49 Most States surveyed concluded that the block grants 

had substantially reduced paperwork, but had not significantly reduced administrative 

costs 50 A series of GAO studies on the OBRA 1981 block grants corroborated these 

findings and reported that although States claimed reduced administrative costs, they had 

no documentation on the magnitude of dollar savings resulting from block grants. 

HAVE BLOCK GRANTS FACILITATED SERVICES INTEGRATION? 

� Studies on block grants emphasized services integration at the administrab”ve rather 

than the service delivery level. 

Block grants aim to improve coordination across categorical programs, both at the 

administrative and service delivery levels .51 They are intended to have a “system 

building” effect on programs. Yet, system building at the service delivery level has 

received little attention in evaluations of the shift from categorical to block grants. Based 

on the limited information in the studies on State experiences, it seems that more attention 

has been paid to the administrative than the service delivery aspects: focussing on 

economy and efficiency inherent in the consolidation of program planning, budgeting, and 

management operations. 

12

� l%e Partnership for Health Act improved intergovernmental coordination, but did not 

necessarily promote a system-wide approach to public health problems. 

The PHA was intended to create an integrated approach to the planning, financing, and


delivery of public health services involving all levels of government and the private


sector.52 One ACIR analysis of the PHA and the three other early block grants found


that significant policy and administrative decentralization had taken place and


intergovernmental coordination had been facilitated .53 This was most likely the result of


turning over responsibility for the block grant to the State health agencies.


A second ACIR study, which included in-depth State case studies, revealed that none of


the six States had implemented a system-wide approach to public health problems in


response to the Partnership for Health. The PHA was not identified as an inhibitor to


such an approach, but, on the other hand, neither did it generate such an approach.54


� The OBRA 1981 block grants enhanced integration at the administr~”ve level. 

The Alcohol, Drug Abuse, and Mental Health Services block grant prompted some 

improvements in integration at the administrative level. States had been heavily involved 

in ADMHS programs prior to enactment of the block grant, and many of the programs 

funded by Federal grants were quite similar to State programs. The block grant provided 

opportunities for administrative consolidation. 55 All 18 States consolidated these Federal 

programs into their existing State systems. 

According to the GAO, integration was also enhanced under the Preventive Health and the 

Maternal and Child Health block grants by combining their planning components into their 

overall health planning and budgeting processes. 56 After the enactment of these block 

grants, decisions about use of funds were linked to broader policy decisions on State 

health programs, in the context of the availability of funds from Federal, State, and other 

sources. 57 

HAVE BLOCK GRANTS FOSTERED GREATER RESPONSIVENESS TO STATE 

AND LOCAL NEEDS? 

� States claimed that the Partnership for Health Act allowed them to tailor services to 

their own needs, but evaluators contend that the block grant did not signij7cantly reorder 

State program priorities. 

An ACIR survey of officials in all 50 States revealed that the most prized feature of the 

Partnership for Health was “the flexibility to use the funds where the needs are the 

greatest or priorities highest, and to respond to changes in health needs over time. “58 All 

but one of the States praised the flexibility of the PHA for allowing them to better meet 

State and local needs. Some examples of State comments include: 

13

Delaware: The country varies in the priority of needs unmet in the public health 

field, and the block grant potentially provides the flexibility to meet these various 

priorities. 

Kentucky: Weareable to focus ourauention onactial problems ratiertha 

expend resources on low priority areas. 

Texas: Funds can be used comprehensively, with the State agency establishing its 

own priorities with regard to whom, how, and where the funds can be best utilized 

in helping satisfi the public health needs of the State’s citizens .59 

Another study of the Partnership for Health, conducted by a professor at Wichita State 

University, investigated whether the block grant resulted in substantive changes in the 

expenditure of State public health funds compared with expenditures under the former 

categorical grants. This study, based on responses from State health officials in all 50 

States, found “that while there have been changes resulting from the shift to a block grant, 

they have generally been minimal.”~ It contends that increased administrative flexibility 

is not identical to or even related to focussing on major new priorities.Gl 

A 1981 American Enterprise Institute study of the Partnership for Health also reported 

that the block grant did not lead to major shifts in States’ program priorities. It concludes 

that because the Partnership for Health fi.mds never accounted for more than 3 percent of 

State health department expenditures, the grant never exerted much influence over service 

priorities.’2 

� States reported minor adjus~ents to programs under the OBRA 1981 block grants, 

but did not substantially alter program priorities. 

Most program areas that had been funded under the prior categorical programs continued 

to receive support under the OBRA 1981 block grants. Although such continuity was 

evident, minor changes in funding patterns emerged as States sought to assert their own 

priorities while dealing with funding limitations.b3 A GAO study of 13 States found that 

States recognized their greater decision-making authority to set program priorities and 

determine the use of funds than they had under the prior categorical programs, but did not 

exercise it to make substantial changes .w Freed from Federal restrictions and program 

guidelines, some States began to take advantage of increased flexibility and transferred 

small portions of funds across block grants. 

Programs that fared best (financially) under the 1981 block grants appeared to be those 

with statewide application and histories of State as well as Federal funding. Some States 

reduced or eliminated funding for federally supported projects, and others realigned the 

types of services offered.G5 For example, looking at the Maternal and Child Health 

block grant in 18 States, the Urban Institute found that the Crippled Children’s Services 

program, with its long history of State involvement, saw its share of funding grow in 

many States. In contrast, the finding for the Lead-Based Paint program--viewed as a 

narrowly focused, urban program with little State involvement--was cut .fi 

14

Almost all of the 18 States surveyed by the Urban Institute reported minor adjustments in


their program mix in response to the Preventive Health and Health Services block


grant. c’ To some extent, this involved creating new programs or initiatives within


existing programs. However, the majority of the changes involved shifting funding among


the old Federal program categories.c8


The same Urban Institute study concluded that the Alcohol, Drug Abuse, and Mental


Health Services block grant also resulted in limited changes across the program areas. By


and large States maintained the traditional funding patterns. In part, this continuity may


be due to the Federal earmarks dictating how to divide funds between services for


alcoholism and drug abuse and which mental health providers to fund. Nonetheless, most


States did not exercise the little flexibility afforded them.b9


HAVE BLOCK GRANTS REPLACED STATE AND LOCAL FUNDING FOR


SERVICES?


� Scant data exist on how the Partnership for Health block grant money was used, but 

ACIR studies show that it promoted new spending ralher than replaced State money. 

Other than the ACIR study conducted ten years after implementation, there have been no 

national evaluations of the Partnership for Health Act. Little information exists showing 

whether finds were used to replace State funds or to add to State public health budgets. 

In part, the limited accountability requirements may have resulted in little reporting and 

data collection and led to a diminished capacity to evaluate the impact of the shift from 

categorical to block grant funding .70 However, according to the ACIR, the minor fiscal 

magnitude of the Partnership for Health finds renders the issue of replacing State money 

with Federal funds inconsequential. The PHA finding continued to equal or exceed the 

total funding for the former categorical programs, and total State and local public health 

expenditures expanded. Based on this evidence, the ACIR suggests that PHA money was 

used to expand services rather than replace State money with Federal fimds.’l 

. Under the OBRA 1981 block grants, States replaced lost Federal funds in order to 

maintain service levels. 

The OBRA 1981 block grants did not result in replacement of State money with Federal 

funds. In fact, in many instances, the reverse was true. Public health block grants were 

accompanied by significant cuts in Federal finding (as much as 25 percent), so many 

States resorted to replacing lost Federal fi.mds from their own treasuries for programs that 

they deemed important. Programs with a history of State involvement, whose benefits 

were spread throughout the State, or whose recipients were viewed as particularly needy, 

fared best.’z The Alcohol, Drug Abuse, and Mental Health Services and Maternal and 

Child health block grants, both of which had strong State involvement, were extremely 

successful in securing State and local funding to make up the difference in their finding 

levels after Federal cuts .73 

15

� Factors other than block grant status better predict whether States use funds for 

additive or substitutive purposes. 

An ACIR analysis of States’ use of Federal grants concluded that a number of factors may 

influence whether a particular grant program is additive or substitutive. Rather than type 

of grant, it proposed that the principal factor is the recipient’s interest in the aided activity 

in relation to competing uses for funds. Other factors include the size of the recipient 

government, the number and variety of grant programs in which it participates, the timing 

and size of the grant, and the grant’s requirements .74 A Brookings Institution study on 

Federal aid contends that the type of grant is not the best predictor of whether States will 

use Federal funds as replacement money. It argues that “all forms of Federal aid to states 

and localities are fungible, no matter how ingenious the conditions placed on the use of 

grant moneys. “75 

A study published in the Political Science Quarterly points to a State’s fiscal condition as 

a better determinant than type of grant in a State’s decision to use Federal finds as 

additive or substitutive. “The more fiscally hard-pressed a jurisdiction, the more likely it 

is to merge Federal grant funds with its own resources, and use them to pay for the basic 

services it provides ...If they are strong enough, fiscal pressures may cause generalist 

officials to use as much Federal money as they can to do what in their view must be 

done. “76 

A 1985 Brookings Institution study concluded that States and localities prefer to use 

Federal aid for additive purposes--to enlarge their programs--rather than substitute it for 

State money .77 It concludes that recipient governments are aware of the costs associated 

with using Federal grants to support basic services. States choose to avoid risks, which 

include enforcement of requirements prohibiting the maintenance of existing programs 

with Federal funds, demands made by specialists and interest groups that Federal funds 

intended for their particular programs be protected, and fear of becoming reliant on 

Federal grants which are often unstable .78 

HAVE BLOCK GRANTS LEFI’ CERTAIN CLIENT GROUPS VULNERABLE? 

� Block grants often include special targeting provisions to ensure that Federal funding 

was allocated to the neediest popul~”ons. The effectiveness of such provisions is 

unproven. 

Options for ensuring that block grant finds are targeted to the needy include distribution 

formulas, earmarking, and “hold harmless” provisions. Most block grants are allocated 

through distribution formulas keyed to population and financial need. Proponents argue 

that these formulas are more egalitarian than categorical grants because they emphasize 

need rather than “grantsmanship” skills, Yet, critics claim that the political compromises 

necessary for Congressional approval of block grant distribution formulas make targeting 

resources to particular client groups difficult to achieve. 

16

Legislative earmarking is another way to alter block grants so that they channel certain 

amounts of money into particular program areas. A third means of targeting block grants 

is through inclusion of “hold harmless” provisions, which are designed to guarantee 

funding to former grantees over a certain period of time until they are no longer 

dependent on Federal aid.79 Any of these mechanisms may help ensure that block 

grants’ flexibility does not result in overlooking certain program participants and 

population areas .80 

While these mechanisms have been used to ensure that distribution of funds through block 

grants does not leave any client group vulnerable, the debate about the distributional 

impact of block grants has generated significant controversy. Advocacy groups for the 

poor, contending that federally administered categorical programs are better able to target 

program assistance to those most in need, have expressed concerns about block grants .81 

They fear that block grants will prompt the elimination of services targeted to poor and 

minority populations over time. 82 This same concern has been played out in Congress. 

When the 1981 block grants were introduced, the Secretary of Health and Human Services 

maintained that freeing the States from Federal guidelines would permit them to focus 

their efforts more effectively on the truly needy. Some members of Congress challenged 

this argument claiming that, once Federal money was turned over to the State legislatures, 

services to the disadvantaged would be slashed. 83 

. Limited data suggest no major differences in the client populations served under the 

Partnership for Health Act and the former categorical programs included in it. 

Because there have been no national pre-post block grant evaluations of the Partnership 

for Health, it is difficult to determine what impact the shift from categorical to the block 

grant had on particular client groups. The only protected population were those using 

mental health services, for which there was a 15 percent earmark; otherwise there were 

essentially no restrictions on the programmatic use of funds. The little information 

available suggests that there was no significant change in the distribution of resources 

under the PHA. 84 

. The OBRA 1981 block grants contained provisions to ensure targeting, but there has 

been little examin~”on of their impact on the poor. 

It is difficult to assess the impact of OBRA 1981 block grants on targeting the poor.


First, there has been a general lack of evaluation on the distributional impact of these


block grants. Second, for programs in which income eligibility was maintained, the


standards were tightened in response to Federal funding cuts. On the one hand, this move


was intended to focus the reduced program benefits more narrowly on the poor, but on the


other hand, it can be viewed as an attempt to limit the number of people receiving


services. 85


Finally, some of the OBRA 1981 block grants contained low-income targeting provisions.


For example, the Maternal and Child Health block grant mandated that certain services be


provided to clients with incomes below the official poverty line. However, other services


17 
authorized under MCH were not limited to clients who met these eligibility 

requirements. ‘G The Alcohol, Drug Abuse, and Mental Health Services, the Preventive 

Health, and the Maternal and Child Health block grants all included changes in their 

distribution formulas to facilitate targeting. These changes instructed the Secretary of 

Health and Human Services to consider States’ financial resources and the size of their 

low-income populations when determining appropriate distribution.87 

The PHHS and ADMHS block grants included provisions that required grantees to 

fund previously supported projects in order to ensure that low-income clients served by 

former categorical would continue to be served under the block grants .88 However, as 

States began to establish their own criteria for targeting, efforts to study the impact of 

targeting on a nationwide basis became more difficult. 89 

18

RECOMMENDATIONS FOR 

RESEARCH AND DEMONSTRATION 

The literature on the effects of block grants leaves many important questions umnswered. 

It tells us that in various settings at various times they have contributed to greater 

administrative efficiency, more integrated management systems, and even increased State 

and local spending. But the evidence in these areas is limited. It is even more limited on 

questions concerning the effect of block grants on administrative costs, service delivery, 

responsiveness to State and local spending, and targeting services to the needy. 

In part, these limitations are attributable to the limited research conducted on block grants, 

especially in recent years. In larger part, however, they are due to other more basic 

factors. These include the (1) inherent difficulty in documenting the effects of a granting 

mechanism which aims to minimize data reporting requirements and (2) limitations of 

experimental design research techniques in governmental settings often experiencing rapid 

political, fiscal, and/or demographic change. 

Yet, given the forces generating greater support for block grant approaches and given 

PHS’ interest in responding constructively to those forces,x it is timely to delineate a 

research and demonstration strategy for block grants that is consistent with their inherent 

nature of offering grantees substantial discretion. In this concluding section, we 

recommend that PHS develop such a strategy. 

The central question around which this strategy should revolve is the following: 

How can the Federal government enhance the discretion of grantees 

and at the same time hold them sufficiently accountable for their 

performance? 

Indeed, if block grants (whether through formally established programs or through waiver 

mechanisms) begin to shift from a relatively minor portion of Federal grant-making to a 

more significant share, finding workable answers to this question will become increasingly 

important. It will be vital that block grants become performance based: a direction for 

which experience and the professional literature provide little guidance. 

Thus, we offer the following recommendation. It is directed to PHS, which requested this 

report. But the directions we lay out are generic enough to apply to the Department of 

Health and Human Services and even more broadly to the Federal government. 

The Public Health Service should develop a strategy to use performance indicators in 

ways that will allow grantees substantial discretion in using Federal funds and, at the 

same time, hold them sufficiently accountable for their performance. 

19

This strategy should recognize the considerable diversity across the country’s political 

jurisdictions and should view each recipient of a block grant or Federal waiver as having 

both an opportunity and responsibility for contributing to the knowledge base on the 

central question identified above. It should focus on measuring the performance of 

grantees more than on reviewing their detailed plans. It should aim for continuous 

improvement through experiential learning and through the identification and 

dissemination of effective practices. 

Toward this end, the Public Health Service’ could examine ways in which block grant 

recipients could do the following: 

IdentiJj Relevant Indicators of Performance 

Broad statements of goals and objectives and benchmarks of expected accomplishments at 

particular target times are usefhl starting points, but in themselves are insufficient bases 

for assessing performance. They must be supplemented by explicit indicators of 

performance, expressed to the maximum extent feasible in terms of outcomes--that is, 

actual changes in the conditions of program recipients. The process of identifying and 

achieving consensus on such indicators is, in itself, an extremely important and difficult 

one. It can contribute, however, not only to a better understanding of program results but 

also to more refined expressions of program intent. 

The PHS has already begun moving in this direction. The Maternal and Child Health 

Block Grant, administered by the Maternal and Child Health Bureau, calls for grantees to 

develop measurable indicators of performance related to the “Year 2000 Objectives” 

developed by PHS. The ACCESS demonstration program, funded by the Center for 

Mental Health Services, seeks to identi~ ways in which programs serving mentally ill 

homeless adults can assess their performance in improving the lives of such individuals. 

The self-assessment instrument developed by the Federation of State Medical Boards, 

through funding by the Bureau of Health Professions, facilitates efforts by State medical 

licensure boards to compare and assess their performance. 

Among the research and demonstration questions that could be posed are these: 

What processes are most effective in facilitating consensus on pertinent 

indicators? 

Given resource and data limitations, what kind of indicators are feasible? 

What ones facilitate comparisons over time and across jurisdictions? 

What is a good mix of process, output, and outcome indicators? 

Develop Mechanisms for Collecting Performance Data 

The successful application of performance indicators will depend heavily on the feasibility 

of the operational mechanisms to be used once they are established. A major challenge 

20 
for architects of these systems is to develop data collection approaches that are as 

minimally intrusive as possible to those actually delivering services. Particularly in 

environments where the demand for services exceeds the supply, service deliverers are 

unlikely to show much enthusiasm for new accountability mechanisms that call for them to 

devote additional time to efforts to document their activities. 

Among the research and demonstration questions ~hat could be posed are these: 

What kind of software programs show the most promise in allowing data 

to be captured with maximum efficiency? 

How are data collection responsibilities best divided between service 

deliverers and central staff? 

What kind of oversight most effectively contributes to accurate and 

consistent data collection? 

Present and Disseminate Performance Data 

How performance data are displayed and disseminated affects how they will be used. The 

challenge is to present and distribute them in ways that facilitate understanding, not just 

by statisticians and program experts, but also by general managers, legislators, and the 

general public. In this context, the data are not intended to provide deftitive measures of 

the success or failure of particular programs, but rather to facilitate more effective 

questioning about results. If the data are presented in ways that allow comparisons over 

time or across jurisdictions, then reviewers are likely to pose basic questions that seek 

explanations for the differences. 

Among the research and demonstration questions that could be posed are these: 

What kind of graphics and textual presentations are most effective in 

facilitating comparative analyses? 

Are there different approaches that are suitable for different audiences? 

What are the most effective ways of using “report cards” for grantees 

and/or service providers? 

What dissemination techniques show the most promise? 

Use Pe@ormance Data to Improve Performance and/or Refine Objectives 

In the continuous quality improvement approach to enhancing productivity, performance 

data are intended to stimulate discussion about better ways to reach desired ends and/or to 

a reexamination of what those ends should be. The data should be used on an ongoing 

basis by grantees to review and improve their own operations; they should not be viewed 

strictly as a mechanism for funders to assess the performance of grantees. 

21

Among the research and demonstration questions that could be posed are these: 

In what ways are grantees using performance data to review their 

operations? How do they facilitate collegial reviews? Reviews by broader 

publics? 

What are the major barriers they confront in trying to use these data to improve 

performance? How can they best address these barriers? 

What are the results? Are grantees making actual changes based on a review of 

performance data? What kind of changes are they making? 

The four main components cited above--identifying relevant indicators of performance, 

developing mechanisms for collecting performance data, presenting and disseminating 

performance data, and using such data to improve performance and/or refine objectives-­

involve scrutiny of what happens within the jurisdictions using block grants. As important 

as those internal dynamics are, they are not in themselves sufficient to afford the 

accountability mentioned in our central question. In that context, it is also important for 

PHS to examine approaches it could use to: 

Ensure Adequate Performance of Grantees 

Even with a block grant affording extensive discretion, a grantee must in some meaningful 

ways remain accountable to the Federal funders. At the same time, the Federal funders 

also have the obligation to carry out their stewardship responsibilities and yet remain true 

to the principles of a block grant. Again, there is little experience here that provides a 

usefid road map; knowledge must be gained by conducting an active research and 

demonstration effort in concert with block grant funding. 

Among the research and demonstration questions that could be posed are these: 

What is the potential of performance contracting? Are there viable mechanisms 

of providing more or less funding based on performance as measured by agreed 

upon indicators? 

How can the Federal government best ensure that performance data are accurate 

and consistent with established definitions? What kind of audits should be 

undertaken toward this end? 

What is the role for penalties in a performance based block grant system? 

Under what circumstances and how might they be used? 

The five strategy components offered above are presented in the context of future efforts 

that could be undertaken along with the provision of grants that give grantees substantial 

discretion in how the funds are to be used. For example, these ideas could be used in 

22

implementing the extensive program consolidation included in the Department’s Fiscal 

Year 1996 proposed budget for the Public Health Service (see page 2). 

To a limited extent, it might also be useful to look retrospectively at both block and 

categorical grant programs to identi~ any insights they offer to the establishment of block 

grant mechanisms which hold grantees accountable for performance. 

In this context, the Maternal and Child Health Block Grant Program could be a good 

candidate for inquiry. Among the changes to that program that Congress made in 1989 

were those calling for States to submit to PHS data that facilitate measurement of State 

progress in meeting “Year 2000 Objectives. ” Reviews of how individual States and PHS 

have responded to this mandate could be quite helpfi.d--in the sense of assessing the 

potential of performance indicators, the barriers faced in trying to use them, and the ways 

in which these barriers might be constructively addressed. 

23

COMMENTS ON THE DRAFT REPORT 

The Assistant Secretary for Planning and Evaluation reviewed the report and concurred 

without elaboration. The Public Health Service (PHS) also reviewed the report. Its 

comments appear in fill in appendix B. 

The PHS concurred with our recommendation. In so doing, it noted two actions it has 

undertaken that move in the direction of our recommendation. One is the “Performance 

Partnership Grants” program that has been proposed to Congress. The other is an 

initiative “to establish and use performance measures whether they are funded through the 

categorical or block grant mechanism. ” 

We recognize the relevance and importance of these actions. In tandem with them, we 

urge PHS to take maximum advantage of current research and demonstration opportunities 

available in order to promote better understandings on just how block grants and 

performance indicators can be usefully linked. In our report, we suggest in some detail 

directions that can be taken in that regard. 

The PHS suggested two technical changes, both of which we made in the final report. 

24

APPENDIX A 

ANNOTATED BIBLIOGRAPHY 

This bibliography includes three major sections: general literature on Federal grants, 

literature onthe Partnership for Health Act, andliterature on the 1981 block grants. This 

bibliography summarizes some of the major studies that have provided frameworks for 

thinking about the issues included inthebody of the report. 

GENERAL LITERATURE ON FEDERAL GRANTS 

1. Advisory Commission on Intergovernmental Relations, Block Grants: A Comparative 

Analysis, October 1977. 

Abstract: This report attempts to clari~ the confusion surrounding the design and 

administration of block grants. It is based on the ACIR’S assessments of the 

application of block grants to health, crime control, manpower, and community 

development. The report includes a description of the evolution of the block grant 

concept, its characteristics and objectives, and compares them to the reality of 

implementation. This report is intended to provide a foundation for 

recommendations on the appropriate use of the block grant by the Federal 

government. 

2. Advisory Commission on Intergovernmental Relations, Summary and Concluding 

Observations, June 1978. 

Abstract: This is the final report of the ACIR’S 14-volume study of the 

intergovernmental grant system conducted between 1976 and 1978. This report: 

(1) summarizes the major findings, conclusions, and recommendations of the entire 

study, (2) analyzes the changes in the Federal grant system in terms of 

intergovernmental issues, (3) identifies the broad trends that characterize FederalState-local relations and speculates on the reasons for the trends, (4) interprets the 

long-term impact of these trends on American federalism, and (5) recommends a 

five-point intergovernmental strategy to meet the challenges of the current Federal 

grant system. 

3. Claude E. Barfield, Rethinking Federalism: Block Grants and Federal. State. and 

Local Responsibilities, American Enterprise Institute, 1981. 

Abstract: This monograph examines the administrative and political results that 

occur when categorical grants are consolidated into block grants. It addresses 

questio~ regarding the nature and function of American federalism in the 1980s, 

and suggests a framework for reordering Federal, State, and local priorities. This 

A-1 
monograph draws on other studies conducted by the GAO, ACIR, The Brookings 

Institution, The Urban Institute, and The National Governors Association that 

examine the impact of block grants on efficiency, decentralization, planning, 

coordination, and generalist control. Chapter four of this book, entitled 

“Evaluating Block Grants: The Previous Experience and Future Expectations, ” 

examines the administrative arguments behind the creation of block grants and is 

most relevant to this study. It proposes recommendations for the design of future 

block grant legislation. 

Important Points: 

Avoid vague language in the stated purpose of a block grant. Well-articulated


goals provide clearer direction to the States and allow for more accurate evaluation


later.


Allow the States to hold separate public hearings or to integrate the block grant


into their normal budgetary and legislative processes.


Include Congressional mandates for audits that conform to existing standards such


as OMB circulars or GAO Standards for Audits.


Set a Congressional limit on overhead for each block grant. This limitation would


allow flexibility for disparate administrative costs from the individual categorical


grants folded into the block grant and encourage States to watch for costly,


inefficient administration.


Speci& a uniform definition of low-income persons in order to target block grant


funds to the neediest populations.


4.	 Robert Agranoff and Leonard Robins, “How to Make Block Grants Work: An 

Intergovernmental Management Perspective, ” New England Journal of Human Services, 

Winter 1982. 

Abstract: This article describes the characteristics of block grants, outlines how 

they differ from categorical grants, and discusses past experiences with block 

grants. It outlines the implementation difficulties and recommends how to make 

block grants work on the national and State levels. It includes a discussion of 

national goals, accountability, adequate funding, regulatory requirements, program 

design and coordination, administrative systems, and planning and management. 

5. Lawrence D. Brown, James W. Fossett, and Kenneth T. Palmer, The Charuzing 

Politics of Federal Grants, The Brookings Institution, 1984. 

Abstract: This book recounts the history of the Federal grant system since the 

Johnson Administration. It explores the growth of Federal aid in the late 1960s 

and early 1970s and documents the efforts of successive presidents to rationalize 

the grant system and reduce Federal controls. This book represents the final 

chapter in a major Brookings Institution effort to evaluate the distributional, fiscal, 

programmatic, and political effects of Federal grants. It includes three essays: 

(1) Fossett’s essay synthesizes a series of case studies on the impact of Federal 

grants on selected urban areas; (2) Palmer’s essay explores the evolution of Federal 

A-2 
grant programs; and (3) Brown’s essay assesses the politics of devolution of 

Federal grants. 

6. U.S. General Accounting Office, Block Grants: Federal-State Cooperation in 

Developing Nationul Data Collection Strategies, 13RD-89-2, November 1988. (This 

citation and following abstract provided by the Public Health Service. ) 

Abstract: The GAO recommends that in considering future block grant data needs, 

the Congress may want to statutorily require the Secretary of Health and Human 

Services to develop a mode for State data exchange in consultation with appropriate 

associations of State and id officials to facilitate uniform data collection under 

the community services block grant. 

The GAO also recommends that the Secretary of Health and Human Services work 

with the States through the cooperative data collection efforts to increase data 

comparability under the energy assistance; community services; and alcohol, drug 

abuse, and mental health services block grants. 

7. U.S. General Accounting Office, Developing a Federal Drug Budget: Implementing 

the Anti-Dwg Abuse Act of 1988, GGD-9OO1O4,August 1990. (This citation and 

following abstract provided by the Public Health Service.) 

Abstract: There is no requirement that States provide expenditure data; so there is 

no way to determine the exact amount of funds expended on drug abuse, alcohol 

abuse or mental health. The GAO concludes that accounting for agency 

expenditures with sufficient precision to asses programs that Congress considers 

significant, such as anti-drug programs, is an important objective. 

Recommendation: Agencies with drug programs be encouraged to explore options 

that will provide better data with which to evaluate the effectiveness of their drug 

program expenditures. 

8. U.S. General Accounting Office, Alcohol, Drug Abuse, and Mental Health Services 

Block Grant: Women’s Set-Aside Does Not Assure Drug Treatment for Pregnant Women, 

HRD-91-80, May 1991. (This citation and following abstract provided by the Public 

Health Service.) 

Abstract: To better assure that the Congress is given a clear picture of how the 

funds for the women’s set-aside of the block grant is used, GAO recommends that 

the Secretary of Health and Human Services direct the Administrator of the 

Alcohol, Drug Abuse, and Mental Health Administration to specify annual 

reporting requirements for the States in a manner that allows for the national 

aggregation of reported data., States should be required to report on (1) all 

treatment programs for pregnant women and women with children and new or 

expanded treatment programs or services for women and (2) the number of drugabusing pregnant women and women with dependent children. 

A-3 
� 

� 

� 

9. U.S. General Accounting Office, Alcohol, Drug Abuse, and Mental Health Services 

Bock Grant: Drug Treatment Services Could be Improved by New Accountability Program, 

HRD-92-27, October 1991. (This citation and following abstract provided by the Public 

Health Service.) 

Abstract: This report indicates that the Federal government receives limited 

information on the results of the Federal investment in drug treatment services. 

Although most of the States reviewed monitor administrative processes, their 

review activities have not provided information on the quality and appropriateness 

of drug treatment. 

The GAO recommends that Congress direct the Secretary of Health and Human 

Services to: (1) establish reporting requirements for the States that will provide the 

Department with information to determine whether States are providing drug 

treatment program and services that are effective and (2) report to Congress by 

1995 on the progress of a State Systems Development Program initiated by the 

Department. 

10. Michael J. Rich, Federal Policymaking and the Poor: National Goals. Local 

Choices, and Distributional Outcomes, Princeton University Press, 1993. 

Abstract: This book examines the relationship between Federal decision-making


systems and the distributional impacts of public policies. The analysis focuses on


the roles that Federal, State, and local officials play in determining the uses of


Federal funds, and how, if at all, these roles change over time. The author


examines two main questions: (1) Are policy outcomes different when Federal


officials--as opposed to State and/or local officials--have greater influence


regarding the use of Federal program fi.mds? (2) Do Federal, State, and local


governments differ in their responsiveness to the needs of the poorest citizens?


This study offers a theoretical framework for analyzing the Federal grant system


with an emphasis on experience with the Community Development Block Grant


program.


Important Points:


The capacity of governments to target Federal funds to the poor vary greatly.


Government officials at all levels tend to spread program benefits widely as


opposed to concentrating them where needs are the greatest.


Benefit coalitions play an important role in shaping Federal program outcomes.


Targeting is greater when strong coalitions emerge to press government officials to


concentrate funds on “needyplaces and to needy people.


Benefit coalitions that include a strong Federal partner are more likely to be


successful in obtaining targeted policy outcomes at the local level.


11. Office of the Vice President, “Strengthening the Partnership in Intergovernmental 

Service Delivery, ” National Pe@ormunce Review, September 1993. 

A-4

Abstract: This report outlines the current state of intergovernmental relations and 

Federal grant making. It recommends how the Federal grant system should 

allocate money to States and localities. This report calls for a streamlined 

approach to intergovernmental partnership through a reduction in the number of 

categorical grants and a decrease in the amount of paperwork required for receipt 

of Federal grants. 

Important Points: �	 Federal mandates and regulations that accompany grant programs are cumbersome 

and costly to administer; they lack a coordinated implementation strategy between 

levels of government, and are not achieving their intended outcomes. �	 States and localities have limited ability to customize service delivery by 

integrating programs because of competing, often conflicting, Federal rules that 

accompany each grant program. �	 Massive reform of the existing system of intergovernmental grant-making is 

necessary. Federal grant programs should be consolidated into broad funding 

pools, organized around major goals and desired outcomes. The goals should 

include: streamlining administrative mechanisms, providing flexibility to account 

for regional differences and the diversity of needs, ensuring accountability by 

measuring performance and outcomes, and driving program design and 

mamgement down to the point of contact between government and the consumer. �	 The number of categorical grants should be reduced and the Federal government 

should work with States and localities to define a more viable Federal partnership 

that balances flexibility and accountability. 

12. Advisory Commission on Intergovernmental Relations, Characteristics of Federal 

Grant-in-Aid Programs to State and Local Governments: Grants Funded in FY 1993, 

January 1994. 

Abstract: This report is part of an ACIR series that has identified, counted, and 

examined the characteristics of Federal grant-in-aid programs since 1975. This 

report is its most recent effort to identify major changes in the basic features of the 

grant system. 

Important Points: � The total number of Federal grants to State and local governments increased from 

557 to 593 between 1991 and 1993. � Grant outlays rose to $206.4 billion in 1993 from $152 billion in 1991, an increase 

of 36 percent. � The largest number of new categorical grants were in health, education, training, 

employment, and social services. �	 Measured by outlays, Federal grants for health have expanded more significantly 

than any other area, rising from 9.1 percent of the total in FY 1975 to 

40.9 percent in FY 1993. � There were 15 block grants in 1993 compared to 578 categorical grants. 

A-5

�	 More than 70 percent of the money in the grant system has been distributed 

through categorical programs, while about 10-15 percent has been allocated to 

block grants. � Categorical grants continue to be the main avenue of Federal grant expansion. 

A-6

THE PARTNERSHIP FOR HEALTH ACT 

13. Leonard Robins, “The Impact of Converting Categorical into Block Grants: The 

Lessons from the 314(d) Block Grant in the Partnership for Health Act, ” Publius, Winter 

1976, pp. 49-70. 

Abstract: Data for this study were based primarily on 51 state health officials’ 

survey responses to a 21 page questionnaire administered during the spring and 

summer of 1971. All of the States responded to either the letter, the written 

questionnaire, or the phone questionnaire. 

Important Points: 

� The PHA increased administrative flexibility for State health officials. 

� State health planning agencies did not have a major influence on the PHA. State 

health planning agencies located in governors’ offices had even less influence over 

the block grant. 

� Congress did not significantly increase expenditures for the PHA, as initially 

promised. 

� The PHA’s influence diminished as new categorical health programs were created 

that logically cotdd have been made part of the block grant. � The block grant did not result in a reordering of State spending priorities. �	 The new administrative flexibility given State officials was insufficient to produce 

any substantive reordering of program priorities. 

14. Advisory Commission on Intergovernmental Relations, The Patinership for Health 

Act: Lessons from a Pioneering Block Grant, January 1977. 

Abstract: This report examines the Partnership for Health Act of 1966 to 

determine what lessons and insights it offers for the debate about block grants. 

Data for this study came from questionnaires completed by 50 State public health 

directors, interviews with State officials and representatives of interest groups, and 

discussions with academics specializing in intergovernmental relations. First, the 

study reviews the legislative history of this block grant, tracing the emergence of 

criticisms of the categorical approach to health grants. It includes an analysis of 

the expectations of consolidation and the legislative intent of this block grant. 

Second, it explores major features of the Federal administration of the block grant: 

organizatioml location, staffhg, and shifts in HEW and Administration policy. 

Third, it provides an overview of State administration and decision-making under 

the block grant including: patterns of public involvement, State flexibility, and 

State expenditure of block grant money. Finally, it concludes that the block grant 

is still the best intergovernmental approach to the public health area, and 

recommends that appropriately structured block grants replace categorical as the 

primary Federal funding mechanism. The appendix includes expenditure tables 

and in-depth analyses of six State case studies. 

A-7

� 

� 

� 

� 

� 

15. Carl W. Stenbergand David B. Walker, “TheBlockG rant: Lessons from Two Early 

Experiments, ” Publius, Spring 1977. 

Abstract: This article begins with a brief description of the evolution of the block


grant concept andtien identifies andcompares the characteristics of the instrument


with the realities after almost 10 years of implementation of the Partnership for


Health Act (PHA) and the Safe Streets Act.


Important Points:


The PHA ftmded a broad functional area at first, but over time, Congress


authorized additional categorical health programs that detracted from its flexible


servicing goals.


The PHA’s influence and scope were curtailed by its small fiscal magnitude when


compared to the aggregate of Federal public health grants or to the total State-1ocal ~


direct expenditures.


The PHA increased recipient discretion to the point where State dominance


fostered Federal disinterest in the block grant.


The States were the dominant players in the implementation of PHA.


The PHA served as a “gap filler” rather than a “launching pad” for new initiatives.


16. U.S. General Accounting Office, Lessons Learned From Past Block Grants: 

Implications for Congressional Oversight, IPE-82-8, 23 September 1982. 

Abstract: This study examined the five pre-1981 block grants--Partnership for 

Health, Omnibus Crime Control and Safe Streets Act, Comprehensive Employment 

and Training Act, Community Development Block Grant, and Title XX Social 

Services--and compared them to the provisions of the OBRA 1981 block grants. It 

focuses on: (1) how block grants attempted to balance competing goals of 

flexibility and accountability, (2) whether the poor and other disadvantaged groups 

have been served equally under bIock grants and categorical programs, (3) whether 

block grants yielded administrative savings, and (4) what evaluative information 

has been available to Congress under block grants. 

A-8

� 

� 

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OBRA 1981 BLOCK GRANTS


17. George Peterson, etal., The Rea~an Block Grants, The Urban Institute, 1986. 

Abstract: This book examines the impact of the seven health and human service 

block grants passed by Congress in 1981. It places the block grants in policy and 

budgetary perspective to extract lessons for grant design after five years’ 

implementation experience. The data for this study are drawn from a survey of 

State spending and program adjustments in 18 States from FY 1981 through FY 

1984. Each chapter is devoted to examining a different program area and explores 

how the following issues were affected by the shift from categorical to block 

grants: State versus national program priorities, State replacement of funds, 

administrative changes after the block grant, and State-1ocal relations. 

Important Points: 

The Maternal and Child Health (MCH) block grant gave States greater flexibility 

to determine program priorities, services, and providers, and at the same time 

allowed States to streamline administrative tasks. This flexibility was tempered by 

Federal funding cuts. 

States made few significant structural changes in response to the MCH block grant. 

The most substantial change was in the creation of “mini-blocks” delegating 

program responsibility to the local governments. 

Despite Federal budget cuts, most States found the resources necessary in their 

own treasuries to sustain MCH program spending. 

Although State officials felt that consolidation of categorical programs enhanced 

administrative efficiency, they could not provide estimates of administrative 

savings. 

Almost all of the States surveyed adjusted their Preventive Health and Health 

Services (PHHS) block grant program mix. 

States gave counties greater responsibility for PHHS services and distributed funds 

for these programs more evenly across the State. 

Some States found initial PHHS implementation time consuming and expensive, but 

most reported that the block grant eventually lightened their paperwork. 

Because States often do not provide PHHS services themselves, they provided little 

information about specific changes in service delivery under PHHS. 

The Alcohol, Drug Abuse, and Mental Health Services (ADMHS) block grant 

limited some Federal-State program duplication. 

The elimination of the Federal alcohol and drug reporting requirements enhanced 

the potential for administrative savings. 

States did not take full advantage of the flexibility available under the ADMHS 

block grant. 

A-9

� 

� 

� 

� 

� 

� 

� 

� 

� 

� 

� 

� 

� 

� 

� 

18. U.S. General Accounting Office, Maternal and Child Heaith Block Grant: Program 

Changes Emerging Understate Administration, HRD-84-35, 7 May 1984. 

Abstract: This report is part ofthe GAO series that looked at13 States’ 

experiences with block grant implementation. It focuses on the Maternal and Child 

HeaIth block grant which consisted of eight former categorical programs. 

Important Points: 

St&es continued to support programs similar to those funded under the former


categorical programs.


States assigned higher priority to programs in areas where they had considerable


previous involvement.


Due to Federal budget cuts, States shouldered a greater share of the program funds


in order to maintain services.


States’ health agencies carried out block grant responsibilities, and some reported


management improvements as a result of the block grant.


Most State officials rated the block grant more flexible and desirable than


categorical.


About half the interest groups surveyed preferred the prior categorical approach to


the block grant.


19. U.S. General Accounting Office, States Use Added Flexibility Oflered by the 

Preventive Health and Health Services Block Grant, HRD-84-41, 8 May 1984. 

Abstract: This report is part of the GAO series that looked at 13 States’ 

experiences with block grant implementation. It focuses on the Preventive Health 

and Health Services block grant which consolidated seven former categorical 

programs into one block. 

Important Points: 

While PHHS accounted for less than 3 percent of States’ total health budgets, it


represented about 30 percent of financing for broader State preventive health


programs.


Carryover funds from former categorical programs helped offset the reduced


Federal funding for PHHS.


The services offered under the PHHS block grant were essentially the same as


those fimded under prior categorical programs.


States slightly modified program priorities to better reflect their concerns.


Changes at the service provider Ievel were not directly linked to the shift from


categorical to block grant fimding. They may have been influenced by escalating


costs and changes in other sources of funding.


States successfully carried out their expanded management role.


States increased public participation and involvement of State elected officials.


State executive and legislative officials liked the increased flexibility of block


grants and preferred them to the prior categorical approach.


Most interest groups preferred the categorical approach over block grants.


A-10 
� 

� 

� 

� 

� 

� 

�	 All groups surveyed believed that the advantages of block grants were tempered by 

the Federal fimding cuts. 

20. U.S. General Accounting Office, States Have Made Few Changes in Implementing 

the Alcohol, Drug Abuse, and Mental Health Services Block Grant, HRD-84-52, 6 June 

1984. 

Abstract: This report is part of the GAO series that looked at 13 States’ 

experiences with block grant implementation. It focuses on the Alcohol, Drug 

Abuse, and Mental Health Services (ADMHS) block grant that consolidated 

10 categorical programs into one block. 

Important Points: 

Carryover funds from previous categorical grants mitigated Federal funding cuts


and allowed States to sustain service levels into 1982.


Program changes occurred at the service provider level, but were attributed to


evolving community needs or changes “in total funding rather than the shift to the


block grant approach.


State agencies carried out their expanded management responsibilities and reported


implementing administrative improvements.


States reported increased involvement by legislatures and governors’ offices and


sought public input through hearings.


State officials rated the block grant program as more desirable than the categorical


approach.


Half of the interest groups surveyed preferred the prior categorical approach over


the block grants.


21. U.S. General Accounting Office, Block Grants Brought Funding Changes and 

Adjustments to Program Priorities, HRD-85-33, 11 February 1985. 

Abstract: This report is part of the series of GAO studies that looked at 13 States’ 

experience with block grant implementation. It examines how States used their 

expanded decision-making authority and reacted to changes in the level of Federal 

finding. 

Important Points: � States obtained greater decision-making authority to set program priorities and 

determine the use of funds than they had under the categorical programs. 

� States’ increased programmatic discretion was tempered by requirements that they 

continue to find the same grantees as under categorical. 

� States took advantage of available carryover funds from the prior categorical funds 

to mitigate the Federal funding reductions. 

� States exercised their new discretion to transfer funds among block grants. �	 To maintain service levels, States increased the use of their own funds to replace 

Federal funding cuts. 

A-11

� 

� 

� 

� 

� 

� 

� Program areas that were funded under the categorical programs continued to 

receive support under the block grants. 

� Some minor changes in funding patterns emerged as States began to put their 

imprint on program priorities. 

22. U.S. General Accounting Office, State Rather than Federal Policies Provided the 

Framework for A4anaging Block Grants, HRD-85-36, 15 March 1985. 

Abstract: This report is part of the GAO series that looked at 13 States’ 

experiences with block grant implementation. It describes trends in States’ 

planning and management of block grant programs. 

Important Points: 

Decisions on how to use block grants were linked to broader decisions on related


State programs for health.


More than half of the State program officials reported that block grants led to


improvements in planning and budgeting, and increased their flexibility to better


allow them to integrate Federal and State activities.


Some States consolidated offices or integrated service delivery under related


programs--particularly under the ADMHS block grant.


Due to their prior involvement in categorical health programs, States generally did


not change their levels of monitoring when they shifted to block grants.


States were given discretion to determine the form and content of block grant data


collected. As a result, the information reported to the Federal government was


inconsistent across the States and difilcult to evaluate.


States in 68 percent of cases reported that block grants reduced the time and effort


devoted to Federal applications and reporting. Sixty-seven percent of States


surveyed claimed that block grants prompted them to standardize or alter their


administrative procedures.


23. U.S. General Accounting Office, Block Grants: Overview of Experiences to Date and 

Emerging Issues, HRD-85-46, 3 April 1985. 

Abstract: This report is part of the series of GAO studies examining block grant 

implementation in 13 States. This report assesses whether the objectives of block 

grants were met through implementation. The goals of block grants were: (1) to 

focus program responsibility and management accountability with States, (2) to 

increase public involvement in the decision-making process, (3) to improve service 

delivery through better integration of Federal and State programs, and (4) to 

promote mamgement improvements and save money. 

A-12

Important Points: � States adapted quickly to their new role due to their prior involvement with many 

of the categorical programs. � All of the States surveyed used hearing and comment processes to obtain public 

input. � Initially, States emphasized program continuity, but over time changes emerged. 

� States reported management improvements prompted by the block grants. . � Administrative savings cannot be determined due to the dearth of information. � More than half of the interest groups surveyed preferred the categorical approach 

over block grants. � Eighty percent of governors, State legislators, and State program officials believed 

that the block grant approach was more desirable. 

24. Richard P. Nathan and Fred C. Doolittle, “Federal Grants: Giving and Taking 

Away, ” Political Science Quatierly, Vol. 100, No. 1, Spring 1985. 

Abstract: This article examines how State and local governments respond to 

Federal aid policy changes with an emphasis on the OBRA 1981 block grants. It 

offers some generalizations about the conditions under which Federal aid 

replacement is most likely to occur. 

Important Points: �	 Replacement is most likely to occur when the community ideology is pro-spending 

and the fiscal condition of the jurisdiction is strong enough to replace Federal 

funding cuts. �	 Federally aided programs most likely to benefit by replacement are those with 

traditional or longstanding State and local involvement that have a politically strong 

constituency. For example, health programs did better in these terms than other 

programs for the poor. � There was more replacement at the State level than at the local level. � There is a strong tendency for recipient governments to resist using Federal aid to 

substitute for their own funds because of fear of sanctions. 

25. U.S. General Accounting Office, Block Grants: Characteristics, Experience, and 

Lessons Learned, HEHS-95-74, February 1995. 

Abstract: This report summarizes information on federal block grant programs, 

assesses the experience of States operating under them and identifies lessons 

learned that can be useful to the Congress as it considers creating a new set of 

block grants. 

Important Points: �	 OBRA of 1981 created nine block grants from about 50 categorical programs. The 

fi.mding and other federally imposed requirements attached to the block grants were 

generally viewed by States as less onerous than under the displaced categorical 

programs. 

A-13 
�	 Where States had operated programs, the transition from categorical programs to 

block grants was smoother. 

�	 States took a variety of approaches to help offset the overall federal funding 

reductions experienced when the categorical programs were consolidated into the 

1981 block grants. �	 Funding allocations based on distributions under prior categorical programs may be 

inequitable because they do not reflect need, ability to pay, and variations in the 

cost of providing services. � Even though block grants were intended to provide flexibility to the States, over 

time constraints were added which had the effect of “recategorizing” them. 

� The Congress needs to focus on accountability for results, and the Government 

Performance and Results Act may provide such a framework. �	 New block grant proposals include programs that are much more expansive than 

block grants created in 1981 and could present a greater challenge for the States to 

both implement and finance. �	 Today, a total of 15 block grants are in effect. Compared with categorical grants, 

which number 578, there are far fewer block grants. 

A-14

APPENDIX B 

In this appendix, 

Service. 

COMMENTS ON THE DRAFT REPORT 

we present in fill the comments we received from the Public Health 

B-1 
*.9 $,awcr, 

% 

8 

J?” 4 DEPARTMENTOF ~EALTH& HUMANSERVICES Public Health sem~e 

i L 

‘N,h,a 

Washington DC Z(MOI 

Jm 141995 

TO: Inspector General, OS 

FROM: Assistant Secretary for Health 

SUBJECT :	 Office of Inspector General (OIG) Draft Report ‘Federal 

Approaches to Funding Public Programs, ‘(OEI-01-94-00160 

Attached are the Public Health Se~ice comments on the Subject 

report. We concur with the report’s recommendation. Our 

response describes the action that we have taken or plan to take 

to implement this recommendation, 

@&&’
 LPhilip R. Lee, M.D.


Attachment


B-2

PUBLIC HEALTH SERVICE (PHS 1 COMMENTS ON THE OFFICE OF 

ZNSPECTOR GENERAL (OIGI DRAFT REPORT “I?EDEIWL APPROAC13ESTO 

FUNDIZ?GPUBLIC GI#MSr “ OEX-01-94-00160 

OIG Recommendation 

The Publlc Health Se~ice should develop a strategy to use


performance Lndi.caters in ways that will allow grantees
 substantial discretion i.n using Federal funds and? at the same


time, held them sufficiently accountable for their


performance.


PHS Co~ent


We concur. In December 1994 the PHS began to develop a new 

form of grant program with the potential to bring about major 

changes i.rt l?ecieral-State relationships. It was des~gned to 

move the focus of funding to allow for much gzeater


flexibility on the part of States to coordinate and target


resources to meet local needs, while providing for


accountability for the results of State expenditures using


Federal funds and insuring that broad Federal priorities are


addre6sed. This program, entitled “Performance Partnershf.p


Grants,” has been proposed to Congress as a way of


consolidating existing categorical and block grant programs


related to substance abuse, mental health semices for adults


with serious mental illness and children with serious


emotional disturbances, immunization, AIDS/TB/sexually


transmitted diseases, chronic diseases, and preventive


services.


In addition, the Health Resources and Services Administration


(HRSA) has an initiative underway to establish and utilize


performance measures to demonstrate the effectiveness Of


programs whether they are funded through the categorical or


block grant mechanism, The HRSA is presently evaluating


measurable goals of performance that can be reported as a part


of the budgetary process for the clusters and other program


activities within the agency. It is expected that this will


result i.n an association of funding decisions with explicit


performance indicators.


Technical Comments


We offer the following technical comments for OIG’S


consideration.


Paae 2, third paraaraph, third sentence states that the


President’s Fiscal Year 1996 Budget proposed that 50 programs


in the Health Resources and Services Administration be lumped


into 3. This should be corrected to state that “50 programs


be lumped into 9,”


B-3

Paae 5, uaraurauh followina first bullet: Block grant 

spending in 1993 is given in 1975 “constant dollars” as 

$17.6 billion. It could be useful, especially for noneconomists, to show this amount also in 1993 actual dollars


($32 billion).


B-4

APPENDIX C 

ENDNOTES 

1. Office of the Vice President, Strengthening the Patinei-ship in Intergovernmental 

Service Delivery, Washington, DC, 1993. 

2.	 Michael Reagan and Jon Sanzone, The New Federalism, Oxford University Press, 

1981, p. 57. 

3. Advisory Commission on Intergovernmental Relations (ACIR), Characteristics of 

Federal Grant-in-Aid Programs to State and Local Governments: Grants Funded FY 

1993, January 1994. 

4. Ibid. 

5. Ibid. 

6. Ibid., pp. 1-7. In actual dollars, the 1993 total was $32 billion. 

7. ACIR, The Partnership for Health Act: Lessons from a Pioneering Block Grant, 

January 1977, p. 5. 

8. ACIR, Improving Grants Management, February 1977, p. 3. 

9. ACIR, Block Grants: A Comparative Analysis, October 1977, p. 6. 

10. ACIR, Summary and Concluding Observations on the Intergovernmental Grant 

System, June 1978, p. 40. 

11. ACIR, Zle Pan?nershipfor Health Act: Lessons From a Pioneering Block Grant, 

January 1977. 

12. Ibid., p, 6. 

13. ACIR, Summqand Concluding Obsewations onthe Intergovernmental Granl 

System, June 1978, p. 4. 

14. Michael J. Rich, Federal Policymaking and the Poor: National Goals, Local Choices. 

and Distributional Outcomes, Princeton University Press, 1990. 

15. ACIR, Fiscal Balance, 1977, p. 153. 

16. Michael J. Rich, Federal PolicvmakinE and the Poor: National Goals. Local 

Choices, and Distributional Outcomes. 

17. Reagan and Sanzone, The New Federalism, p. 79, 

c-1 
18. ACIR, Sum~qand Concluding Obsewations onthe Intergovernmenlai Grant 

System, June 1978, p. 4. 

19. ACIR, Improving Federal Gran~sManagement, February 1977, p. 3. 

20. ACIR, Summqand Concluding Obsewations onthe Intergovernmental Grant 

System, June 1978, p. 6. 

21. Ibid. 

22. ACHl, l%e PatinershipforHealth Act: Lessonsfiom a Pioneering Block Grant, 

January 1977, p.6. 

23. Carl W. Stenbergand David B. Walker, “TheBlockG rant: Lessons from Two 

Early Experiments,” Publius, Spring 1977. 

24. ACHl, The Partnership for Health Act: Lessons jioma Pioneering Block Grant, 

January 1977. 

25. George Peterson, etal. The Rea~an Block Grants, The Urban Insti~te, 1986, 

p. 3. 

26. Reagan and Sanzone, The New Federalism, p. 128. 

27. Ibid., p. 122. 

28.	 Claude E. Barfield, Rethinking Federalism: Block Grants and Federal. State. and 

Local Res~onsibilities, American Enterprise Institute, 1981, pp. 20-21. 

29. George Peterson, etal., The Rea~an Block Grants, The Urban Institute, 1986, 

p. 4. 

30. Ibid. 

31. Ibid., pp. 28-29. 

32. Department of Health and Human Services, Administration for Children and 

Families, SumnuwyofActionson Waiver Applications, 1994. 

33. Claude E. Batileld, Rethinkin~ Federalism, p. 44. 

34. U.S. General Accounting Office, Block Grants: Overview of fiperiences to Date 

and Emerging Zssues, HRD-85-46, 3 April 1985, pp. 17-21. 

35. ACIR, Block Grants:A ComparativeAnalysis, October 1977. 

36. U.S. General Accounting Office, State Rather Than Federal Policies Provided the 

Framework fori14anaging Block Grants, HRD-85-36, 15 March 1985, pp. 44-46. 

c-2

37. U.S. General Accounting Office, States Have Made Few Changes in Implementing 

the Alcohol, Drug Abuse, and Mental Health Services Block Grant, ERD-84-52, 6 June 

1984, pp. 43-44. 

38. Ibid. 

39.	 U.S. General Accounting Office, Matemland Child Health Block Grant: Program 

Change sEmerging Under State Administration, HRD-84-35,7 May 1984. 

40. George Peterson, et al., The Rea~an Block Grants. 

41. Ibid., p. 118, 

42. U.S. General Accounting Office, States Use Added Flexibility O#ered @the 

Preventive Health and Health Sewices Block Grant, H~-84-41,8 May 1984, p. 57. 

43, George Peterson, etal., The Rea~an Block Grants, p. 118. 

44. U.S. General Accounting Office, Lessons Learnedfiom Past Block Grants: 

Implications for Congressional Oversight, IPE-82-8, 23 September 1982, p. 64. 

45.	 ACIR, The Partnership for Health Act: Lessons fioma Pioneering Block Grant, 

1977. 

46. Ibid., pp. 150, 192. 

47. U.S. General Accounting Office, Lessons Learned From Past Block Grants: 

Implications for Congressional Over;ight, IPE-82-8, 23 September 1982, p. 54. 

48. Claude E. Barfleld, Rethinkiruz Federalism, p. 35. 

49. George Peterson, et al., The Rea~an Block Grants, 1986, p. 1. 

50. Ibid., p. 24. 

51. Department of Health and Human Services, Office of Inspector General, Services 

Integration: ATwenty Year Retrospective, 0EI-Ol-91-00580, January 1991. 

52. ACIR, The Partnership for Health Act: Lessons from aPioneering Block Grant, 

January 1977, p. 88. 

53. ACIR, Summaqand Concluding Observations, June 1978. 

54. Zbid., pp. 126-127. 

55. George Peterson, et al., The Rea~an Block Grants. 

56.	 U.S. General Accounting Office, Maternal and Child Health Block Grant: Program 

Changes Emerging Under State Administration, HRD-84-35, 7 May 1984, p. 9. 

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57. U.S. General Accounting Office, States Use Added Flexibilip Ofered by the 

Preventive Health and Health Services Block Grant, IIRD-84-41, 8 May 1984, p. 8. 

58. ACIR, 77zePartnership for Health Act: Lessons fioma Pioneering Block Grant, 

January 1977, p. 80. 

59. Ibid. 

60.	 Leonard Robins, ''The Impact of Converting Categorical into Block Grants: The 

bssomfrom tie314(d) Block Grant inthe Patinership for Healti Act,'' Publius, Winter 

1976, p. 67. 

61. Ibid. p.68. 

62. Claude E. Barlleld, Rethinking Federalism, p. 44. 

63. U.S. General Accounting Office, Block Grants Brought Funding Changes and 

Adjustments to Program Priorities, HRD-85-33, 11 February 1985. 

64. Ibid., p. 1. 

65.	 U.S. General Accounting Office, Maternal and Child Health Block Grant: Program 

Changes Emerging Understate Administration, HRD-84-35,7 May 1984, p. 43. 

66. George Peterson, et al., The Rea~an Block Grants, 1986, p. 17. 

67. Ibid., p. 116. 

68. Ibid. 

69.	 George Peterson, etal., The ReaEan Block Grants, The Urbm Instimte, 1986, pp. 

124-128. 

70. U.S. General Accounting Office, Lessons Learnedfiom Past Block Grants: 

Implicationsfor C’ongressional Oversight, IPE-82-8, 23 September 1982, pp. 73-74. 

71. ACIR, l%e Patinershipfor Health Act: Lessonsfiom a Pioneering Block Grant, 

January 1977, p. 127. 

72. George Peterson, et al., The Rea~an B1ock Grants. 

73. Richard P. Nathan and FredC. Doolittle, “FederalGrants: Giving and Taking 

Away, ” Political Science Quarterly, Vol. 100, No. 1, Spring 1985. 

74.	 ACIR, Summ.aq and Concluding Observations on the Intergovernmental Grant 

System, June 1978, p. 40. 

75. Ibid., p.41. 

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76. Richard Nathan, “StateandLocalG overnmentsU nderFederalG rants,” Political


Science Quanerly, Vol. 98., No. 1, Spring 1983.


77. Nathan and Doolittle, “FederalGrants: Giving and Taking Away.”


78. Nathan, “State and Local Governments Under FederaI Grants. ”


79. Stenberg and Walker, “The Block Grant: Lessons from Two Early Experiments, ”


p. 37.


80. Ibid., p. 56.


81. U.S. GeneralAccounttig Office, Lessons Learned from Pat Block Grants:


Implications for Congressional Oversight, IPE-82-8, 23 September 1982, p. 34.


82. Ibid.


83. George Peterson, et al., The Reagan Block Grants, p. 18.


84. ACIR, Zbe Partnership for Health Act: Lessons from a Pioneering Block Grant,


January 1977, p. 98.


85. George Peterson, The Reagan Block Grants, p. 20.


86. U.S. General Accounttig Office, Block Grants Brought Funding Cbnges and


Adjustments to Program Priorities, HRD-85-33, 11 February 1985, p. 48.


87. Ibid., p. 49.


88. Ibid.


89. Ibid., p.50.


90. Atthebeginning ofthis report, wenoted the Vice President’s National Performance


Review, theincreaskg number of Stiterequests for Federal waivers, and the 1994


political campaigns and elections as such forces. To those might be added broader forces


such as (1) the widespread movement in corporations to reduce central planning and


management staffs while delegating additional authority and responsibility to the front


lines and (2) the information technology revolution which makes it increasingly possible to


make such delegations while top management can stay attuned to the performance of the


organization on a real-time basis.


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