United States General Accounting Office

GAO Report to the Chairman, Committee on

Economic and Educational Opportunities

House of Representatives

February 1995 BLOCK

GRANTS

Characteristics,

Experience, and

Lessons Learned

GAO/HEHS-95-74

GAO United States

General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

B-260302 

February 9, 1995

The Honorable William F. Goodling

Chairman, Committee on Economic and

 Educational Opportunities

House of Representatives

Dear Mr. Chairman:

The Congress has become increasingly interested in proposals to reduce

the potential fragmentation and duplication that the multitude of

categorical programs poses to states and localities. According to the

Advisory Commission on Intergovernmental Relations, in fiscal year 1993,

578 federal categorical programs with $182 billion in funding provided

assistance to states and localities.

Creating block grants from federal categorical programs is not a new idea.

In fact, a report by the Commission on the Organization of the Executive

Branch in 1949 concluded, “A system of grants should be established

based upon broad categories—such as highways, education, public

assistance, and public health—as contrasted with the present system of

extensive fragmentation.”1

 We have documented the proliferation of

categorical programs in numerous social service areas. For example, in the

employment training area, we found 163 federal programs administered by

15 departments, with appropriations of $20 billion for fiscal year 1995.2

 In

the youth development area, we found 46 federal programs administered

by 8 agencies, with appropriations of $5.3 billion specifically earmarked

for delinquent and at-risk youth3

 for fiscal year 1995. Similarly, we found

over 90 early childhood programs administered by 11 federal agencies.4

As agreed with your staff, this report summarizes information on federal

block grant programs, assesses the experience of the 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.

1

A Report to Congress on Federal-State Relations (Washington, D.C.: 1949) from George E. Peterson, et

al., The Reagan Block Grants: What Have We Learned? (Washington, D.C.: The Urban Institute Press,

1986).

2

Multiple Employment Training Programs: Major Overhaul Needed to Create a More Efficient,

Customer-Driven System (GAO/T-HEHS-95-70, Feb. 6, 1995).

3

Multiple Youth Programs (GAO/HEHS-95-60R, Jan. 19, 1995).

4

Early Childhood Programs: Multiple Programs and Overlapping Target Groups (GAO/HEHS-94-4FS,

Oct. 31, 1994).

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To do our work, we reviewed our earlier studies of the block grants

created in 1981 and their implementation in 13 states, and our more recent

work on block grant programs in the health, education, and social services

areas.5

 (See app. I for a more detailed discussion of our objectives, scope,

and methodology.)

Results in Brief A total of 15 block grant programs with funding of $32 billion are in effect

today, constituting a small portion of the total federal aid to

states—$206 billion for 593 programs in fiscal year 1993. As part of the

Omnibus Budget Reconciliation Act of 1981 (OBRA), 9 block grants were

created from about 50 of the 534 categorical programs in effect at that

time. This was the most recent and substantial effort to consolidate federal

programs and broaden program flexibility among states. OBRA created

block grants in the areas of health services, low-income home energy

assistance, substance abuse and mental health, social services, community

development, and community services.

In general, where states had operated programs, transition to block grants

was smoother as states relied on existing management and service

delivery systems. However, the transition was not as smooth for two block

grants—Low-Income Home Energy Assistance and Community

Services—because the categorical programs that the block grants replaced

had been almost entirely federally funded, or local service providers had

dealt directly with the federal agencies, largely bypassing the state. State

officials generally reported administrative efficiencies in managing block

grants as compared with categorical programs, although administrative

cost savings were difficult to quantify. Although states experienced a

12-percent funding reduction when the block grants were created, they

used a variety of approaches, such as using carry-over funds from the

categorical programs and adding state revenues, to help them offset the

funding reductions in the first several years.

Several concerns emerged over time. First, because initial funding

allocations were based on prior categorical grants, they were not

necessarily equitable. Second, problems persist in terms of the kinds of

information available for the Congress and program managers to

effectively oversee block grants. Third, state flexibility was reduced as

funding constraints were added to block grants over time.

5

Our look at the 1981 block grants, while extensive, covered 13 states that were not representative of

the nation as a whole.

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Our research suggests that three lessons can be drawn from the

experience with the 1981 block grants that would have value to the

Congress as it considers creating new block grants. First, there clearly is a

need to focus on accountability for results, and the Government

Performance and Results Act may provide such a framework. Second,

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. Finally, states

handled the transition to the 1981 block grants, but today’s challenges are

likely to be greater. The programs being considered for inclusion in block

grants not only are much larger but also, in some cases, such as Aid to

Families with Dependent Children, which provides cash assistance to the

poor, are fundamentally different from those programs included in the

1981 block grants.

Characteristics of the

1981 Block Grants

Block grants are broader in scope and offer greater state discretion in the

use of funds than categorical programs; in addition, block grants allocate

funding on the basis of a statutory formula. Block grants have been

associated with a variety of goals, including encouraging administrative

cost savings, decentralizing decisionmaking, promoting coordination,

spurring innovation, and providing opportunities to target funding.

However, block grants have historically accounted for only a small

proportion (11 percent) of grants to states and localities, as figure 1 shows.

Before OBRA created nine block grants in 1981, three block grants had been

created under President Nixon for community development, social

services, and employment and training. More recently, the Job Training

Partnership Act was passed in 1982, and the largest block grant program in

terms of funding, the Surface Transportation Program, was created in

1991. (See app. II for a more detailed discussion of block grants.)

Page 3 GAO/HEHS-95-74 Block Grants
B-260302 

Figure 1: Block Grants Are Small

Portion of All Grants Outlays in Billions of Dollars

0

50

100

150

200

1981

1984

1987

1989

1991

1993 (est.)

Fiscal Year

Categorical Grants

Block Grants

Note: Outlays for block grants include some broad-based grants. All outlays are in current dollars.

Source: U.S. Advisory Commission on Intergovernmental Relations.

OBRA Created Nine Block

Grants

Under OBRA, the administration of numerous federal domestic assistance

programs was substantially changed by consolidating more than 50

categorical grant programs and 3 existing block grants into 9 block grants

and shifting primary administrative responsibility for these programs to

the states. The OBRA block grants carried with them significantly reduced

federal data collection and reporting requirements as compared to the

previous categorical programs, although some minimal requirements were

maintained to protect federal interests. Overall, federal funding was

reduced by 12-percent, or about $1 billion, but varied by block grant. (See

app. III for a more detailed discussion of the 1981 block grants. App. VI

includes a bibliography on block grants.)

States were given broad discretion under the block grants to decide what

specific services and programs to provide, as long as they were directly

Page 4 GAO/HEHS-95-74 Block Grants
B-260302 

related to the goals of the grant program. Four of the block grants were for

health, three for social services, and one each for education and

community development.

The three block grants that were in place prior to OBRA but were modified

by OBRA were (1) the Health Incentives Grant for Comprehensive Public

Health, which was incorporated into the Preventive Health and Health

Services Block Grant; (2) the Title XX Block Grant, which was expanded

into the new Social Services Block Grant; and (3) the Community

Development Block Grant, which had been in existence since 1974. Under

OBRA, Community Development Block Grant funds for cities with a

population under 50,000 were given to the states to allocate. In two cases

(the Primary Care and Low-Income Home Energy Assistance Block

Grants), a single categorical program was transformed into a block grant.

Overall Federal Funding

Reduced

Overall federal funding for the block grants in 1982 was about 12 percent,

or $1 billion, below the 1981 level for the categorical programs, as table 1

shows. However, changes in federal funding levels for the block grants

varied by block grant—ranging from a $159 million, or 30-percent,

reduction in the Community Services Block Grant, to a $94 million, or

10-percent, increase in the Community Development Block Grant. The

Social Services Block Grant was reduced by the largest

amount—$591 million, representing a 20-percent reduction.

Page 5 GAO/HEHS-95-74 Block Grants
B-260302 

Table 1: Changes in Federal Funding

Levels Varied by 1981 Block Grant Dollars in thousands

Block grant

FY 1981

appropriations for

categorical

programs

FY 1982

appropriations for

block grants

Percent

change

Community Services $525,000 $366,000 –30

Alcohol, Drug Abuse, and Mental

Health Services 585,000 432,000 –26

Primary Care 327,000 247,000 –25

Social Services 2,991,000 2,400,000 –20

Maternal and Child Health 455,000 374,000 –18

Preventive Health and Health

Services 93,000 82,000 –12

Education (Chapter 2) 536,000 470,000 –12

Low-Income Home Energy

Assistance 1,850,000 1,875,000 +1

Community Development (Small

Cities) 926,000 1,020,000 +10

Total $8,288,000 $7,266,000 –12

Source: Early Observations on Block Grant Implementation (GAO/GGD-82-79, Aug. 24, 1982) and

Block Grants Brought Funding Changes and Adjustments to Program Priorities (GAO/HRD-85-33,

Feb. 11, 1985).

Funding and Other

Requirements Viewed as

Less Onerous

The funding and other federally imposed requirements attached to the

1981 block grants were generally viewed by states as less onerous than

under the prior categorical programs. Funding requirements were used to

(1) advance national objectives (for example, providing preventive health

care, or more specifically, to treat hypertension); (2) protect local service

providers who have historically played a role in service delivery; and

(3) maintain state contributions. Set-aside requirements and cost ceilings

were used to ensure certain services are provided. For example, the

Preventive Health and Health Services Block Grant required that

75 percent of its funding be used for hypertension. A limitation in the

Low-Income Home Energy Assistance Block Grant specified that no more

than 15 percent of funds be used for residential weatherization.

Pass-through requirements—notably the requirement that 90 percent of

1982 allocations under the Community Services Block Grant be awarded

to community action agencies—were used to protect local service

providers. The community action agencies were the primary service

providers under the prior categorical program. Finally, provisions were

Page 6 GAO/HEHS-95-74 Block Grants
B-260302 

included to maintain state involvement by preventing states from

substituting federal for state funds.

Data Collection and

Reporting Requirements

Reduced

Block grants carried with them significantly reduced federal data

collection and reporting requirements compared with categorical

programs. Under the categorical programs, states were required to comply

with specific procedures for each program, whereas the block grants had

only a single set of procedures, and the administration decided to largely

let the states interpret the compliance provisions in the statute. Federal

agencies were prohibited from imposing burdensome reporting

requirements and, for many of the block grants, states were allowed to

establish their own program reporting formats. However, some data

collection and reporting requirements were contained in each of the block

grants as a way to ensure some federal oversight in the administration of

block grants.6

 Block grants generally require the administering federal

agency to report to the Congress on program activities; provide program

assessment data, such as the number of clients served; or conduct

compliance reviews of state program operations. Basic reporting

requirements also exist for state agencies.

Experience Operating

Under the 1981 Block

Grants

In general, the transition from categorical programs to block grants

following the passage of OBRA was smooth, with states generally relying on

existing management and service delivery systems. Although some

continuity in funding was evident, states put their own imprint on the

programs. States used a number of mechanisms to offset federal

reductions for block grant programs. Block grant allocations were initially

based on allocations under the prior categorical programs and were not

sensitive to relative need, cost of providing services, or states’ ability to

pay, posing concerns regarding their equity. Steps have been taken to

improve program accountability, but problems such as noncomparable

data persist. Finally, the lack of information on program activities and

results may have contributed to the Congress’ adding funding constraints

to block grants over time. (See app. IV for a more detailed discussion of

the experience operating under the 1981 block grants.)

Transition to Block Grants

Smooth, Efficiencies

Experienced

For the most part, states were able to rely on existing management and

service delivery systems. States consolidated offices or took other steps to

coordinate related programs. For example, Florida’s categorical programs

6

Block Grants: Federal Data Collection Provisions (GAO/HRD-87-59FS, Feb. 24, 1987).

Page 7 GAO/HEHS-95-74 Block Grants
B-260302 

had been administered by several bureaus within the state’s education

department; under the Education Block Grant all the responsibilities were

assigned to one bureau.

State officials generally found federal requirements placed on the states

under the block grants created in 1981 to be less burdensome than those

of the prior categorical programs. For example, state officials in Texas

said that before the Preventive Health and Health Services Block Grant,

the state was required to submit 90 copies of 5 categorical grant

applications. Moreover, states reported that reduced federal application

and reporting requirements had a positive effect on their management of

block grant programs. In addition, some state agencies were able to make

more productive use of their staffs as personnel devoted less time to

federal administrative requirements and more time to state-level program

activities.

Although states reported management efficiencies under the block grants,

they also experienced increased grant management responsibilities

because they had greater program flexibility and responsibility. It is not

possible to measure the net effect of these changes in state responsibilities

on the level of states’ administrative costs. In addition, cost changes could

not be quantified due to the absence of uniform state administrative cost

definitions and data, as well as a lack of comprehensive baseline data on

prior categorical programs.

States Offset Funding

Reductions Through

Variety of Mechanisms

States took a variety of approaches to help offset the 12-percent overall

federal funding reduction experienced when the categorical programs

were consolidated into the block grants. Together, these approaches

helped states replace much of the funding reductions during the first

several years. For example, some states carried over funding from the

prior categorical programs. This was possible because many prior

categorical grants were project grants that extended into fiscal year 1982.

States also offset federal funding reductions through transfers among

block grants. The 13 states transferred about $125 million among the block

grants in 1982 and 1983. About $112 million, or 90 percent, entailed moving

funds from the Low-Income Home Energy Assistance Block Grant to the

Social Services Block Grant. The transfer option was used infrequently

between other block grants, although it was allowed for most. States also

used their own funds to help offset reduced federal funding, but only for

certain block grants. In the vast majority of cases, the 13 states increased

their contribution to health-related or the Social Services Block Grant

Page 8 GAO/HEHS-95-74 Block Grants
B-260302 

programs—areas of long-standing state involvement—between 1981 and

1983.

Federal Funding

Allocations Based on Prior

Categorical Grants

Initially, most federal funding to states was distributed on the basis of

their share of funds received under the prior categorical programs in fiscal

year 1981. Such distributions may not be sensitive to populations in need,

the relative cost of services in each state, or states’ ability to fund program

costs.

With the exception of the Social Services Block Grant and Community

Development Block Grant, all block grants included a requirement that the

allocation of funds take into account what states received in previous

years in order to ease the transition to block grants. For example, under

the Alcohol, Drug Abuse, and Mental Health Services Block Grant, funds

were distributed among the states for mental health programs in the same

proportions as they were distributed in fiscal year 1981. For alcohol and

drug abuse programs, funds had to be distributed in the same proportions

as in fiscal year 1980.

Today, most block grants use formulas that more heavily weigh

beneficiary population and other need-based factors. For example, the

Community Development Block Grant uses a formula that reflects poverty,

overcrowding, age of housing, and other measures of urban deterioration.

The formula for the Job Training Partnership Act Block Grant considers

unemployment levels and the number of economically disadvantaged

people in the state. This formula is also used to distribute funds to local

service delivery areas. However, three block grants—Community Services,

Maternal and Child Health Services, and Preventive Health and Health

Services—are still largely tied to 1981 allocations.

Steps Taken to Improve

Accountability, but

Problems Persist

Block grants significantly reduced the reporting burden imposed by the

federal government on states compared with previous categorical

programs. However, states stepped in and assumed a greater role in

oversight of the programs, consistent with the block grant philosophy. The

13 states we visited generally reported that they were maintaining their

level of effort for data collection as under the prior categorical grants.

States tailored their efforts to better meet their own planning, budgetary,

and legislative needs. Given their new management responsibilities, states

sometimes increased reporting requirements for local service providers.

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However, the Congress, which maintained interest in the use of federal

funds, had limited information on program activities, services delivered,

and clients served. This was because there were fewer federal reporting

requirements, and states were given the flexibility to determine what and

how to report program information. Due to the lack of comparability of

information across states, state-by-state comparisons were difficult. In

response to this situation, model criteria and standardized forms were

developed in 1984 to help states collect uniform data, primarily through

voluntary cooperative efforts by the states. However, continued limitations

in data comparability reduced the usefulness of the data to serve the needs

of federal policymakers, such as for allocating federal funds, determining

the magnitude of needs among individual states, and comparing program

effectiveness among states.

Just as with data collection and reporting, the Congress became

concerned about financial accountability in the federal financial assistance

provided to state and local entities. With the passage of the 1984 Single

Audit Act, the Congress promoted more uniform, entitywide audit

coverage than was achieved under the previous grant-by-grant audit

approach. We have found the single audit approach has contributed to

improving financial management practices in state and local governments.

Systems for tracking federal funds have been improved, administrative

controls over federal programs have been strengthened, and oversight of

entities receiving federal funds has increased. However, the single audit

process is not well designed to assist federal agencies in program

oversight, according to our 1994 review.7

To illustrate, we found limitations with the usefulness of single audit

reports. For example, reports do not have to be issued until 13 months

after the end of the audit period, which many federal and state program

managers found too late to be useful. In addition, managers are not

required to report on the adequacy of their internal control structures,

which would assist auditors in evaluating the entity’s management of its

programs. In addition, the results of the audits are not being summarized

or compiled so that oversight officials and program managers can easily

access and analyze them to gain programwide perspectives and identify

leads for follow-on audit work or program oversight. Yet, we believe that

the Single Audit Act is an appropriate means of promoting financial

accountability for block grants, particularly if our recommended

improvements are implemented.

7

Single Audit Act: Refinements Can Improve Usefulness (GAO/AIMD-94-133, June 21, 1994).

Page 10 GAO/HEHS-95-74 Block Grants
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State Flexibility Reduced

Over Time as Funding

Constraints Added

Even though block grants were intended to increase state flexibility, over

time additional constraints were placed in these programs that had the

effect of “recategorizing” them. These constraints often took the form of

set-asides, requiring a minimum portion of funds to be used for a specific

purpose, and cost-ceilings, specifying a maximum portion of funds that

could be used for other purposes. This trend reduced state flexibility.

Many of these restrictions were imposed because of congressional

concern that states were not adequately meeting national needs.

In nine block grants, from fiscal years 1983 and 1991, the Congress added

new cost ceilings and set-asides or changed existing ones 58 times.8

Thirteen of these amendments added new cost ceilings or set-asides to 9 of

11 block grants we reviewed. Between fiscal years 1983 and 1991, the

portion of funds restricted under set-asides increased in three block grants

(Maternal and Child Health Services; Community Development, and

Education). For example, set-asides for the Maternal and Child Health

Services Block Grant restricted 60 percent of total funding (30 percent for

preventive and primary care services for children and 30 percent for

children with special health care needs).

Lessons Learned Our research suggests that three lessons can be drawn from the

experience with the 1981 block grants that would have value to the

Congress as it considers creating new block grants. First, there clearly is a

need to focus on accountability for results, and the Government

Performance and Results Act may provide such a framework. Second,

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. Finally, states

handled the transition to the 1981 block grants, but today’s challenges are

likely to be greater. The programs being considered for inclusion in block

grants not only are much larger but also, in some cases, such as Aid to

Families with Dependent Children, which provides cash assistance to the

poor, are fundamentally different from those programs included in the

1981 block grants. (See app. V for a more detailed discussion of lessons

learned.)

Need to Focus on

Accountability for Results

One of the principal goals of block grants is to shift responsibility for

programs from the federal government to the states. This includes priority

setting, program management, and, to a large extent, accountability.

8

Block Grants: Increases in Set-Asides and Cost Ceilings Since 1982 (GAO/HRD-92-58FS, July 27, 1992).

Page 11 GAO/HEHS-95-74 Block Grants
B-260302 

However, the Congress and federal agencies maintain an interest in the

use and effectiveness of federal funds. Paradoxically, accountability may

be critical to preserving state autonomy. When adequate program

information is lacking, the 1981 block grant experience demonstrates that

the Congress may become more prescriptive. For example, funding

constraints were added that limited state flexibility, and, in effect,

“recategorized” some of the block grants.

Across the government, we have recommended a shift in focus of federal

management and accountability toward program results and outcomes,

with correspondingly less emphasis on inputs and rigid adherence to rules.9

This focus on outcomes is particularly appropriate for block grants, given

their emphasis on providing states flexibility in determining the specific

problems they wish to address and the strategies they plan to employ to

address those problems. The flexibility block grants allow should be

reflected in the kinds of national information collected by federal

agencies. The Congress and agencies will need to decide the kinds and

nature of information needed to assess program results.

While the requirements in the Government Performance and Results Act

(GPRA) of 1993 (P.L. 103-62) apply to all federal programs, they also offer

an accountability framework for block grants. Consistent with the

philosophy underlying block grants, GPRA seeks to shift the focus of federal

management and accountability away from a preoccupation with inputs,

such as budget and staffing levels, and adherence to rigid processes to a

greater focus on outcomes and results. GPRA is in its early stages of

implementation, but by the turn of the century, annual reporting under this

act is expected to fill key information needs. Among other things, GPRA

requires every agency to establish indicators of performance, set annual

performance goals, and report on actual performance, in comparison with

these goals, each March beginning in the year 2000. Agencies are now

developing strategic plans (to be submitted by Sept. 30, 1997) articulating

the agency’s mission, goals, and objectives preparatory to meeting these

reporting requirements.

In addition, although the single audit process is not well designed to assist

federal agencies in program oversight, we believe that it is an appropriate

means of promoting financial accountability for block grants, particularly

if our recommended improvements are implemented.

9

Improving Government: Actions Needed to Sustain and Enhance Management Reforms

(GAO/T-OCG-94-1, Jan. 27, 1994) and Improving Government: Measuring Performance and Acting on

Proposals For Change (GAO/T-GGD-93-14, Mar. 23, 1993).

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Equitable Funding

Formulas Reflect Need and

Ability to Pay

The Congress will need to make tough decisions on block grant funding

formulas. Public attention is frequently focused on allocation formulas

because there will always be winners and losers. Three characteristics of

formulas to better target funds include factors that consider (1) state or

local need; (2) differences among states in the costs of providing services;

and (3) state or local ability to contribute to program costs. To the extent

possible, equitable formulas rely on current and accurate data that

measure need and ability to contribute. We have reported on the need for

better population data to better target funding to people who have a

greater need of services.10

Today’s Transition

Challenges Likely Greater

Than in 1981

The experience managing the 1981 block grants contributed to increased

state management expertise. Overall, states have become more capable of

responding to public service demands and initiating innovations during the

1980s and 1990s. Many factors account for strengthened state government.

Beginning in the 1960s and 1970s, states modernized their government

structures, hired more highly trained individuals, improved their financial

management practices, and diversified their revenue systems.11

State and local governments have also taken on an increasing share of the

responsibility for financing this country’s domestic expenditures. As figure

2 illustrates, state and local government expenditures have increased more

rapidly than federal grants-in-aid. Between 1978 and 1993, state and local

outlays increased dramatically, from $493 billion to $884 billion in

constant 1987 dollars.

10Federal Aid: Revising Poverty Statistics Affects Fairness of Allocation Formulas (GAO/HEHS-94-165,

May 20, 1994) and Federal Formula Programs: Outdated Population Data Used to Allocate Most Funds

(GAO/HRD-90-145, Sept. 27, 1990).

11Federal-State-Local Relations: Trends of the Past Decade and Emerging Issues (GAO/HRD-90-34,

Mar. 22, 1990). Other GAO work on intergovernmental trends includes State and Local Finances: Some

Jurisdictions Confronted by Short- and Long-Term Programs (GAO/HRD-94-1, Oct. 6, 1993) and

Intergovernmental Relations: Changing Patterns in State and Local Finances (GAO/HRD-92-87FS,

Mar. 31, 1992).

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Figure 2: State Program Funding Is

Increasing Billions of Dollars

0

200

400

600

800

1000

1200

1978 1983 1988 1993

Year

Total State and Local Outlays

Federal Grants-in-Aid

Note: Federal grants in aid and state and local outlays are expressed in inflation-adjusted dollars

(1987=100).

Source: U.S. Advisory Commission on Intergovernmental Relations.

Many factors contribute to state fiscal conditions, not the least of which

are economic. In addition, state officials have expressed concern about

unfunded mandates imposed by the federal government. Practices such as

“off-budget” transactions could obscure the long-term impact of program

costs in some states. In addition, while states’ financial position has

improved on the whole,12 the fiscal gap between wealthier and poorer

states and localities remains significant, in part due to federal budget cuts.

We reported in 1993 that southeastern and southwestern states, because of

greater poverty rates and smaller taxable resources, generally were among

the weakest states in terms of fiscal capacity.

12The National Governors’ Association and the National Association of State Budget Officers, reported

that the steady growth of the economy has been favorable for state budgets. See The Fiscal Survey of

the States (Washington, D.C.: 1994).

Page 14 GAO/HEHS-95-74 Block Grants
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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. Nearly 100

programs in five areas—cash welfare, child welfare and abuse programs,

child care, food and nutrition, and social services—could be combined,

accounting for more than $75 billion of a total of about $200 billion in

federal grants to state and local governments. The categorical programs,

which were replaced by the OBRA block grants, accounted for only about

$6.5 billion of the $95 billion 1981 grant outlays.

In addition, the present block grant proposals include programs that are

fundamentally different from those included in the 1981 block grants. For

example, Aid to Families with Dependent Children (AFDC) provides direct

cash assistance to individuals. Given that states tend to cut services and

raise taxes during economic downturns to comply with balanced budget

requirements, these cash assistance programs could experience funding

reductions affecting vulnerable populations at a time when the AFDC

population is likely growing. At the same time, the needs to assist these

vulnerable populations would be increasing. In addition, some experts

suggest that states have not always maintained state funding for cash

assistance programs in times of fiscal strain.

Because the information presented in this report was largely based on

previously issued reports, we did not obtain agency comments. We are

sending copies of this report to the Director, Office of Management and

Budget; the Secretaries of Education, Health and Human Services, Labor,

and other federal departments; and other interested parties.

If you or your staff have any questions concerning this report, please call

me at (202) 512-7014. Major contributors to this report are listed in

appendix VII.

Sincerely yours,

Linda G. Morra

Director, Education and

 Employment Issues

Page 15 GAO/HEHS-95-74 Block Grants
Contents

Letter 1

Appendix I 

Objectives, Scope,

and Methodology

20

Appendix II 

Background on Block

Grants

21

Block Grant Features 21

Block Grant Goals 21

Block Grant History 22

Block Grants Today 24

Block Grants Are Small Proportion of All Grants 24

Appendix III 

Characteristics of the

1981 Block Grants

27

OBRA Created Nine Block Grants 27

Funding Requirements of 1981 Block Grants 29

Accountability Requirements of 1981 Block Grants 30

Appendix IV 

Experience Operating

Under the 1981 Block

Grants

32

Where States Had Operated Programs, Transition to Block Grants

Was Smoother

32

States Reported Administrative Efficiencies 34

States Offset Funding Reductions Through Variety of

Mechanisms

34

Federal Funding Allocations Based on Prior Categorical Grants 36

Steps Taken to Improve Accountability, but Problems Persisted 38

State Flexibility Reduced Over Time as Funding Constraints

Added

40

Appendix V 

Lessons Learned

42

The Congress Needs to Focus on Accountability for Results 42

Funding Formulas Should Reflect Need and Ability to Pay 44

States Handled the 1981 Block Grants; Today’s Challenges Likely

Greater

45

Page 16 GAO/HEHS-95-74 Block Grants
Contents

Appendix VI 

Selected Bibliography

of GAO Reports and

Other Studies on

Block Grants

48

GAO Reports on Overall Block Grant Implementation 48

GAO Reports on Selected Block Grants 49

Other Related GAO Reports 52

Other Studies Related to Block Grants 53

Appendix VII 

Major Contributors to

This Report

55

Tables Table 1: Changes in Federal Funding Levels Varied by 1981 Block

Grant

6

Table II.1: Block Grants in Fiscal Year 1993 26

Table III.1: Changes in Federal Funding Levels Varied by 1981

Block Grant

29

Figures Figure 1: Block Grants Are Small Portion of All Grants 4

Figure 2: State Program Funding Is Increasing 14

Figure II.1: Block Grants in Effect From 1966 to Present 24

Figure II.2: Block Grants Are Small Proportion of All Grants 25

Figure IV.I: Many Funding Constraints Added to Block Grants 41

Figure V.1: State Program Funding Is Increasing 46

Page 17 GAO/HEHS-95-74 Block Grants
Contents

Abbreviations

ACIR U.S. Advisory Commission on Intergovernmental Relations

ADMS Alcohol, Drug Abuse, and Mental Health Services Block

Grant

AFDC Aid to Families with Dependent Children

CDBG Community Development Block Grant

CETA Comprehensive Employment and Training Act

CSBG Community Services Block Grant

GPRA Government Performance and Results Act

HHS Department of Health and Human Services

JTPA Job Training Partnership Act

LIHEAP Low-Income Home Energy Assistance Block Grant

MCH Maternal and Child Health Services Block Grant

OBRA Omnibus Budget Reconciliation Act of 1981

OMB Office of Management and Budget

PHHS Preventive Health and Health Services Block Grant

PIC private industry council

SSBG Social Services Block Grant

Page 18 GAO/HEHS-95-74 Block Grants
Page 19 GAO/HEHS-95-74 Block Grants
Appendix I 

Objectives, Scope, and Methodology

To review the experience with block grants, we examined our past work

on the implementation of the block grants created by the Omnibus Budget

Reconciliation Act of 1981 (OBRA). The work consists of a series of reports

on each of the major block grants, which were released during the early to

mid-1980s, as well as several summary reports of these findings released in

1985.13

To update this work, we reviewed our more recent work on block grants

as part of our overall program oversight efforts, focusing on block grants

in the health, education, and social services areas. For example, in the

early 1990s, we issued reports on the administration of the Low-Income

Home Energy Assistance Block Grant (LIHEAP); drug treatment efforts

under the Alcohol, Drug Abuse, and Mental Health Services Block Grant

(ADMS); and oversight issues with respect to the Community Development

Block Grant (CDBG). In 1992, we also looked at the distribution of funds

under the Maternal and Child Health Services Block Grant (MCH). We have

closely tracked the implementation of the Job Training Partnership Act

(JTPA) Block Grant since its inception in 1982 and have looked at the Child

Care and Development Block Grant, created in 1990, in the context of our

other work on child care and early childhood programs. For a list of GAO

and other key reports on block grants, refer to appendix VI.

Our review of the implementation of the 1981 block grants was done in the

early to mid-1980s and was based on work in 13 states. These 13

states—California, Colorado, Florida, Iowa, Kentucky, Massachusetts,

Michigan, Mississippi, New York, Pennsylvania, Texas, Vermont, and

Washington—received about 46 percent of the 1983 national block grant

appropriations and accounted for about 48 percent of the nation’s

population. The results may not be projected to the nation as a whole,

although the 13 states represent a diverse cross section of the country.

While our more recent oversight work updates some of our understanding

of how block grants have been implemented, we have not done a

systematic review of block grants themselves since these earlier reports.

13Block Grants: Overview of Experiences to Date and Emerging Issues (GAO/HRD-85-46, Apr. 3, 1985);

State Rather Than Federal Policies Provided the Framework for Management Block Grants

(GAO/HRD-85-36, Mar. 15, 1985); Block Grants Brought Funding Changes and Adjustments to Program

Priorities (GAO/HRD-85-33, Feb. 11, 1985); A Summary and Comparison of the Legislative Provisions

of the Block Grants Created by the 1981 Omnibus Budget Reconciliation Act (GAO/IPE-83-2, Dec. 30,

1982); and Lessons Learned From Past Block Grants: Implications for Congressional Oversight

(GAO/IPE-82-8, Sept. 23, 1982). In addition, between 1983 and 1984, we issued a series of reports on 7

of the 9 block grants created by OBRA. The Primary Care Block Grant was not included because few

states had accepted the block grant; CDBG was not included in this series because we had done an

earlier study involving different states.

Page 20 GAO/HEHS-95-74 Block Grants
Appendix II 

Background on Block Grants

Block grants are broader in scope and offer greater state flexibility in the

use of funds than categorical programs. They have been associated with a

variety of goals, including encouraging administrative cost savings,

decentralizing decisionmaking, promoting coordination, spurring

innovation, and providing opportunity to target funding. Before OBRA

created nine block grants, three block grants had been created by

President Nixon for community development, social services, and

employment and training. More recently, the Job Training Partnership Act

was passed in 1982, and the largest block grant program in terms of

funding, the Surface Transportation Program, was created in 1991. Today,

a total of 15 block grants are in effect, although block grants today, as they

have historically, represent only a small proportion (about 11 percent) of

all grants-in-aid to states and localities.

Block Grant Features Block grants are a form of federal aid authorized for a wider range of

activities compared with categorical programs, which tend to be very

specific in scope. The recipients of block grants are given greater

flexibility to use funds based on their own priorities and to design

programs and allocate resources as they determine to be appropriate.

These recipients are typically general purpose governments at the state or

local level, as opposed to service providers (for example, community

action organizations).

Administrative, planning, fiscal, and other types of reporting requirements

are kept to the minimum amount necessary to ensure that national goals

are being accomplished. Federal aid is distributed on the basis of a

statutory formula, which results in narrowing the discretion of federal

administrators and providing a sense of fiscal certainty to recipients.

Block Grant Goals Block grants have been associated over the years with a variety of goals,

each of which has been realized to a greater or lesser degree depending

upon the specific block grant.

Block grant proponents argue that administrative cost savings would

occur as a by-product of authorizing funds in a broadly defined functional

area as block grants do, rather than in several narrowly specified

categories. These proponents say that block grants provide a single set of

requirements instead of numerous and possibly inconsistent planning,

organization, personnel, paperwork, and other requirements of categorical

programs.

Page 21 GAO/HEHS-95-74 Block Grants
Appendix II 

Background on Block Grants

Decisionmaking is decentralized in that state and local recipients are

encouraged to identify and rank their problems, develop plans and

programs to deal with them, allocate funds among various activities called

for by these plans and programs, and account for results. At the same time,

block grants can eliminate federal intradepartmental coordination

problems arising from numerous categorical grants in the same functional

area, as well as help state and local recipients better coordinate their

activities. Still another objective of the block grant is innovation—

recipients are free to use federal funds to launch activities that otherwise

could not be undertaken.

By distributing aid on the basis of a statutory formula, block grants aim to

better target federal funds on jurisdictions having the greatest need.

However, a critical concern about block grants is whether the measures

used—population, income, unemployment, housing, and overcrowding,

among others—are accurate indicators of need and can be made available

in a timely fashion. By contrast, a project-based categorical program

would emphasize grantsmanship in the acquisition of federal aid and

maximize the opportunities for federal administrators to influence grant

award decisions.

Block Grant History Three block grants were enacted in the mid-1970s under President Nixon.

These were the Comprehensive Employment and Training Act of 1974

(CETA);14 the Housing and Community Development Act, which instituted

CDBG; and Title XX of the Social Security Act.

CETA called for locally managed but federally funded job training and

public sector job creation programs. CDBG replaced categorical grant and

loan programs under which communities applied for funds on a

case-by-case basis. For the purpose of developing viable urban

communities by providing decent housing and expanding economic

opportunities, the block grant allowed communities two types of

grants—entitlement and discretionary, the latter for communities with

populations under 50,000. Title XX replaced prior social services programs

and set forth broad national goals such as helping people become

economically self-supporting; protecting children and adults from abuse,

neglect, and exploitation; and preventing and reducing inappropriate

institutional care.

14Some considered CETA a block grant in that it consolidated a number of categorical job training

programs and allocated funds by a statutory formula.

Page 22 GAO/HEHS-95-74 Block Grants
Appendix II 

Background on Block Grants

With the passage of OBRA under President Reagan, nine block grants were

created. The discretionary program under CDBG became the Small Cities

program. States were called on to administer this block grant program and

required to give priority to activities benefiting low- and moderate-income

families. The Title XX was expanded into the Social Services Block Grant

(SSBG), although because the initial block grant was already state

administered and very broad in scope, there were few changes as a

consequence of OBRA. In addition, OBRA created block grants in the areas of

health services, low-income energy assistance, substance abuse and

mental health, and community services, in addition to social services and

community development, as already mentioned.

In 1982, the JTPA Block Grant was created. JTPA emphasized state and local

government responsibility for administering federally funded job training

programs, and, unlike CETA, which it replaced, partnerships with the

private sector were established. Private industry councils (PIC), with a

majority of business representatives, oversaw the delivery of job training

programs at the local level. State job training coordinating councils also

included private sector representation. The premise was that private

sector leaders best understood what kinds of job training their

communities needed, and would bring a concern for efficiency and

performance.

The Surface Transportation Program, established by the Intermodal

Surface Transportation Efficiency Act of 1991, is currently the largest

block grant program, with $17.5 billion awarded in fiscal year 1993. The

act dramatically changed the structure of the Federal Highway

Administration’s programs, which had been based on federal aid by road

system—primary, secondary, urban, and rural. The Surface Transportation

Program allows states and localities to use funds for construction or

rehabilitation of virtually any kind of road. A portion of funds may also be

used for transit projects or other nontraditional highway uses.

Other block grants created after the 1981 block grants include the 1982

Federal Transit Capital and Operating Assistance Block Grant; the 1988

Projects for Assistance in Transition from Homelessness; and the 1990

Child Care and Development Block Grant.

One block grant, ADMS, was broken into two different block grants in 1992.

These block grants are the Community Health Services Block Grant and

the Prevention and Treatment of Substance Abuse Block Grant. Among

the block grants eliminated since 1981 are the Partnership for Health,

Page 23 GAO/HEHS-95-74 Block Grants
Appendix II 

Background on Block Grants

Community Youth Activity, Primary Care, Law Enforcement Assistance,

and Criminal Justice Assistance Block Grants.

Block Grants Today Today, a total of 15 block grants are in effect. These block grants and

dollars awarded in fiscal year 1993 awards appear in table II.1. Compared

with categorical grants, which number 578, there are far fewer block

grants. As figure II.1 demonstrates, the largest increase in block grants

occurred as a result of OBRA in 1981.15

Figure II.1: Block Grants in Effect From

1966 to Present Number of Block Grants

0

5

10

15

1966 1970 1980 1990 1993

Year

1

2

5

14

15

Source: U.S. Advisory Commission on Intergovernmental Relations (ACIR).

Block Grants Are

Small Proportion of

All Grants

Outlays for block grants have consistently been only a small fraction of

outlays for categorical grants. As figure II.2 illustrates, outlays for block

grants in fiscal year 1981 were only about 11 percent, or $10 billion, of

total federal grants to state and local governments of about $95 billion. In

fiscal year 1993, outlays for block grants were also about 11 percent, or

15Not all of the 1981 OBRA block grants were still in effect in 1990. Some, such as the Primary Care

Block Grant, had been eliminated. Other block grants, such as the Child Care and Development Block

Grant, were created between 1980 and 1990.

Page 24 GAO/HEHS-95-74 Block Grants
Appendix II 

Background on Block Grants

$22 billion, compared with total federal grants of $206 billion. About

$32 billion was awarded for block grants in 1993.

Figure II.2: Block Grants Are Small

Proportion of All Grants Outlays in Billions of Dollars

0

50

100

150

200

1981

1984

1987

1989

1991

1993 (est.)

Fiscal Year

Categorical Grants

Block Grants

Note: Outlays for block grants include some broad-based grants. All outlays are in current dollars.

Source: ACIR.

Page 25 GAO/HEHS-95-74 Block Grants
Appendix II 

Background on Block Grants

Table II.1: Block Grants in Fiscal Year

1993 Dollars in thousands

Block grant

FY 1993

award

Surface Transportation Program $17,548,164

(est.)

SSBG 2,800,000

CDBG/Entitlement Program 2,725,450

Federal Transit Capital and Operating Assistance 1,773,162

LIHEAP 1,346,030

Prevention and Treatment of Substance Abuse 1,130,509

CDBG/Small Cities Program 1,118,300

JTPA, Title II-A: Training Services for Disadvantaged Adults and Youth 1,045,021

Payments to States for Child Care Assistance (Child Care and Development

Block Grant) 892,711

MCH 557,939

Education 439,954

Community Services 372,000

Community Mental Health Services 277,919

Preventive Health and Health Services 143,306

Projects for Assistance in Transition from Homelessness 29,462

Total $32,199,927

Source: Catalogue of Federal Domestic Assistance, Office of Management and Budget (1994).

Dollars do not reflect budget obligations; they are grant awards for the fiscal year.

Page 26 GAO/HEHS-95-74 Block Grants
Appendix III 

Characteristics of the 1981 Block Grants

Under OBRA, the administration of numerous federal domestic assistance

programs was substantially changed by consolidating more than 50

categorical grant programs into 9 block grants and shifting primary

administrative responsibility for these programs to the states. Overall

federal funding was reduced by 12 percent, or about $1 billion, but varied

by block grant. The OBRA block grants carried with them significantly

reduced federal funding and data collection and reporting requirements as

compared to the previous categorical programs, although some minimal

requirements were maintained to protect federal interests.

OBRA Created Nine

Block Grants

Under OBRA of 1981, the administration of numerous federal domestic

assistance programs was substantially changed by consolidating more

than 50 categorical grant programs and 3 existing block grants into 9 block

grants and shifting primary administrative responsibility for these

programs to the states. However, 534 categorical programs were in effect

the same year this legislation passed, meaning there continued to be many

more categorical programs than were subsumed under the 1981 block

grants.

States were given flexibility under block grants to decide what specific

services and programs to provide as long as they were directly related to

the goals of the grant program. Four of the block grants were for health,

three for social services, and one each for education and community

development.

Three existing block grants were among the 9 block grants created. As

mentioned previously, these include Title XX, which was expanded into

SSBG, and CDBG, for which states were give the responsibility of

administering the Small Cities program. In addition, the Health Incentives

Grant for Comprehensive Public Health was incorporated into the

Preventive Health and Health Services Block Grant (PHHS). In two cases

(Primary Care and LIHEAP), a single categorical program was transformed

into a block grant.

The scope of block grants was much wider than the categorical grants that

were consolidated to form them. For example, Chapter 2 of the

Elementary and Secondary Education Act (the Education Block Grant)

funded state and local activities to improve elementary and secondary

education for children attending public and private schools. The 38

categorical programs that this Education Block Grant comprised included,

for example, several “Emergency School Aid Act” programs, “Civil Rights

Page 27 GAO/HEHS-95-74 Block Grants
Appendix III 

Characteristics of the 1981 Block Grants

Technical Assistance and Training,” and “Ethnic Heritage Studies

Program.”

Some block grants were wider in scope compared with others that were

more narrow. For example, the scope of LIHEAP—which covers assistance

to eligible households in meeting the costs of home energy—was quite

narrow, having essentially a single function. In contrast, the scope of the

Community Services Block Grant (CSBG) was to support efforts to

“ameliorate the causes of poverty,” including employment, education,

housing, emergency assistance, and other services.

Several block grants offered the flexibility to transfer funds to other block

grants, providing states the option to widen their scope even further. For

example, SSBG allowed a state to transfer up to 10 percent of its allotment

to the four health-related block grants or LIHEAP. Such flexibility to transfer

funds was offered in five of the block grants—SSBG, LIHEAP, ADMS, CSBG, and

PHHS.

Overall Federal Funding

Reduced

Overall federal funding for the block grants in 1982 was about 12 percent,

or $1 billion, below the 1981 level for the categorical programs, as

table III. 1 shows. However, changes in federal funding levels for the block

grants varied by block grant—ranging from a $159 million, or 30-percent,

reduction in the Community Services Block Grant, to a $94 million, or

10-percent, increase in CDBG. SSBG was reduced by the largest

amount—$591 million, representing a 20-percent reduction. Table III.1

compares the 1981 funding levels of the categorical programs with the

1982 funding levels when these categorical programs were consolidated

into block grants.

Page 28 GAO/HEHS-95-74 Block Grants
Appendix III 

Characteristics of the 1981 Block Grants

Table III.1: Changes in Federal Funding

Levels Varied by 1981 Block Grant Dollars in thousands

Block grant

FY 1981 appropriations

for categorical

programs

FY 1982 appropriations

for block grants

Percent

change

CSBG $525,000 $366,000 –30

ADMS 585,000 432,000 –26

Primary Care 327,000 247,000 –25

SSBG 2,991,000 2,400,000 –20

MCH 455,000 374,000 –18

PHHS 93,000 82,000 –12

Education 536,000 470,000 –12

LIHEAP 1,850,000 1,875,000 +1

CDBG (Small Cities) 926,000 1,020,000 +10

Total $8,288,000 $7,266,000 –12

Source: Early Observations on Block Grant Implementation (GAO/GGD-82-79, Aug. 24, 1982).

Funding

Requirements of 1981

Block Grants

The funding requirements attached to the block grants were generally

viewed by states as less onerous than under the displaced categorical

programs. However, the federal government used funding requirements to

(1) advance national objectives (for example, providing preventive health

care, or more specifically, to treat hypertension), (2) protect local

providers who have historically played a role in the delivery of services,

and (3) maintain state contributions.

Mechanisms contained in the block grants that protected federal interests

included (1) state matching requirements, (2) maintenance of effort or

nonsupplant provisions, (3) set-asides, (4) pass-through requirements, and

(5) cost ceilings. An illustration of each mechanism follows:

• State matching requirements were imposed to help maintain state program

contributions. CDBG required that states provide matching funds equal to at

least 10 percent of the block funds allocated. MCH required that each state

match every four federal dollars with three state dollars. The Primary Care

Block Grant required that states provide a 20-percent match of fiscal year

1983 funds and a 33-percent match of fiscal year 1984 funds. Many state

governments chose not, or were unable, to make the match for the

Primary Care Block Grant, leading to the termination of this program in

1986.

Page 29 GAO/HEHS-95-74 Block Grants
Appendix III 

Characteristics of the 1981 Block Grants

• A nonsupplant provision appeared in three block grants (Education, PHHS,

and ADMS), which prohibited states from using federal block grant funds to

supplant state and local government spending. The purpose of this

provision was to maintain state involvement by preventing states from

substituting federal for state funds.

• Set-asides require states and localities to use a specified minimum portion

of their grant for a particular purpose. PHHS included a set-aside in which

the states were required to provide at least 75 percent of fiscal year 1981

funds in fiscal year 1982 for hypertension and, for rape prevention, an

allocation based on state population of a total of at least $3 million each

fiscal year.

• Under pass-through requirements, state or local governments must

transfer a certain level of funds to subrecipients in order to protect local

providers who have historically played a role in the delivery of services.

CSBG required that states award not less than 90 percent of fiscal year 1982

funds to community action organizations or to programs or organizations

serving seasonal or migrant workers.

• Cost ceilings require that states and localities spend no more than a

specified maximum percentage of their grant for a particular purpose or

group. LIHEAP included a cost ceiling of 15 percent of funds for residential

“weatherization” or for other energy-related home repairs.

Accountability

Requirements of 1981

Block Grants

The 1981 block grants carried with them significantly reduced federal data

collection and reporting requirements compared with categorical

programs. Under the categorical programs, states had to comply with

specific procedures for each program, whereas with block grants there

was one single set of procedures. Federal agencies were actually

prohibited from imposing “burdensome” reporting requirements.

Consistent with the philosophy of minimal federal involvement, the

administration decided to largely let the states interpret the compliance

provisions in the statute. This meant states, for the most part, determined

both form and content of block grant data collected and reported.

However, some data collection and reporting requirements were contained

in each of the block grants as a way to ensure some federal oversight in

the administration of block grants.16 From federal agencies, the block

grants generally required (1) a report to the Congress on program

activities, (2) program assessment data such as the number of clients

served, or (3) compliance reviews of state program operations. For

example, ADMS required the Department of Health and Human Services

16Block Grants: Federal Data Collection Provisions (GAO/HRD-87-59FS, Feb. 24, 1987).

Page 30 GAO/HEHS-95-74 Block Grants
Appendix III 

Characteristics of the 1981 Block Grants

(HHS) to provide agency reports to the Congress on activities and

recommendations; program assessments, which included data on clients,

services, and funding; and annual compliance reviews in several states.

From states agencies, the block grants generally required: (1) grant

applications, which included information on how the states plan to use

federal funds, (2) program reports describing the actual use of federal

funds, (3) fiscal expenditure reports providing a detailed picture of

expenditures within certain cost categories, and (4) financial and

compliance audits. For example, LIHEAP required states to provide annual

descriptions of intended use of funds, annual data on numbers and

incomes of households served, and annual audits.

In addition to these reporting requirements, states were required to

involve the public. Some block grants required states to solicit public

comments on their plans or reports describing the intended use of funds.

Some block grants also required that a public hearing be held on the

proposed use and distribution of funds. The Education Block Grant

required the state to establish an advisory committee.17

17The 13 states we visited not only met these federally mandated requirements but also provided other

forums to foster public involvement. See Public Involvement in Block Grant Decisions: Multiple

Opportunities Provided But Interest Groups Have Mixed Reactions to States’ Efforts (GAO-HRD-85-20,

Dec. 28, 1984).

Page 31 GAO/HEHS-95-74 Block Grants
Appendix IV 

Experience Operating Under the 1981 Block

Grants

Where states had operated programs, transition to block grants was

smoother as states relied on existing management and service delivery

systems. However, the transition to block grants was not as smooth for

LIHEAP and CSBG because of limited prior state involvement or state funding

of these programs. State officials generally reported administrative

efficiencies in managing block grants as compared with categorical

programs, although administrative cost savings were difficult to quantify.

Although states experienced a 12-percent federal funding reduction when

the 1981 block grants were created, they were able to offset these

reductions for the first several years through a variety of approaches, such

as carrying funding over from categorical grants.

Several concerns have emerged over time. First, initial funding allocations

were based on prior categorical grants in order to ease the transition to

block grants. Such distributions, however, may be inequitable because

they are not sensitive to populations in need, the relative cost of services

in each state, or states’ ability to fund program costs. Second, although the

Congress has taken steps to improve both data comparability and financial

accountability, problems persist in terms of the kinds of information

available for program managers to effectively oversee block grants. For

example, consistent national information on program changes, services

delivered, and clients served has not been available to the Congress

because of the lack of standardization in block grant reporting. Third, state

flexibility was reduced as funding constraints were added to block grants

over time. This runs counter to an important goal of block grants, which is

to increase state flexibility.

Where States Had

Operated Programs,

Transition to Block

Grants Was Smoother

Prior program experience helped states manage the 1981 block grants. For

the most part, states were able to rely on existing management and service

delivery systems. Proceeding from their role under the prior categorical

programs as well as their substantial financial commitment to certain

program areas, states had a service delivery structure in place through

which social services, health, and education programs were implemented.

Decisions on the use of social services, health, and education block grant

funds often reflected broader state goals and priorities for delivering

related services. In some cases, states consolidated offices or took other

steps to coordinate related programs, such as with the Education Block

Grant, in which 5 of 13 states merged offices. For example, Florida’s

categorical programs had been administered by several bureaus within the

state’s education department. Under the block grant, all responsibilities

were assigned to one bureau.

Page 32 GAO/HEHS-95-74 Block Grants
Appendix IV 

Experience Operating Under the 1981 Block

Grants

The exceptions to this were LIHEAP and CSBG. The categorical programs

that preceded these block grants were almost entirely federally funded. In

the case of CSBG, service providers had dealt primarily with federal

officials and had little contact with state administrators.

• With LIHEAP, planning processes were not well integrated with overall state

planning processes. Officials in 11 of the 13 states we visited indicated that

separate priorities were set for LIHEAP.

• With CSBG, not only was the planning process not well integrated, but the

state had to develop a new administrative structure. Five states had to

assign management of CSBG to new or different offices or change the status

of existing offices. States had to develop relationships with community

action agencies, whose continued participation in the block grant-funded

program was ensured by a 90-percent pass-through requirement.

Taking advantage of the flexibility that block grants offered them, states

began to put their own imprint on the use of funds. Although some

continuity in funding was evident, changes in funding patterns did emerge:

• Under MCH and PHHS, the states tended to provide greater support for

services to children with disabilities and reduce support for lead-based

paint poisoning prevention.

• Under SSBG, the states usually gave a higher priority to adult and child

protective services and home-based services, among other services. By

contrast, they often tightened eligibility standards for day care services.

Given the increased availability of federal child care funding from sources

other than the SSBG, states may decide to allocate fewer SSBG dollars to

child care in the future.18

• Under LIHEAP, most of the states increased funding for weatherization and

crisis assistance while decreasing expenditures for heating assistance.

More recently, we found that state actions differed significantly in

response to a decrease in federal funding of $619 million under the block

grant between fiscal years 1986 and 1989. Some states, for example, varied

in the extent to which they offset federal funding cuts with other sources

of funding.19

18Between 1988 and 1990, the Congress created four new child care programs for low-income families.

Title IV-A of the Social Security Act funds three programs that provide child care assistance for

families who are working toward economic self-sufficiency or who are at risk of welfare dependency.

The Child Care and Development Block Grant provides subsidies for the working poor to obtain child

care services.

19Low-Income Home Energy Assistance: States Cushioned Funding Cuts but Also Scaled Back Program

Benefits (GAO/HRD-91-13, Jan. 24, 1991).

Page 33 GAO/HEHS-95-74 Block Grants
Appendix IV 

Experience Operating Under the 1981 Block

Grants

• States’ imprint on their use of block grant funds was not evident with

ADMS. This was in part due to funding constraints added by the Congress

over time.20

States Reported

Administrative

Efficiencies

State officials generally found federal requirements placed on them by the

1981 block grants less burdensome than those of the prior state-operated

categorical programs. For example, state officials in Texas said that before

PHHS, the state was required to submit 90 copies of 5 categorical grant

applications. Moreover, states reported that reduced federal application

and reporting requirements had a positive effect on their management of

block grant programs. Also, some state agencies were able to make more

productive use of their staffs as personnel devoted less time to federal

administrative requirements and more time to state-level program

activities.

Although states realized considerable management efficiencies or

improvements under the block grants, they also experienced increased

grant management responsibilities through greater program discretion

devolved from the federal government. It is not possible to measure the

net effect of these competing forces on the level of states’ administrative

costs. In addition, cost changes could not be quantified because of the lack

of uniform state administrative cost definitions and data as well as a lack

of comprehensive baseline data on prior categorical programs.

States Offset Funding

Reductions Through

Variety of

Mechanisms

States took a variety of approaches to help offset the 12-percent overall

federal funding reductions experienced when the categorical programs

were consolidated into the 1981 block grants. For example, some states

carried over funding from the prior categorical programs. This was

possible because many prior categorical grants were project grants that

extended into fiscal year 1982. In the 13 states we visited, at least

57 percent of the 1981 categorical awards preceding the three health block

grants were available for expenditure in 1982—the first year of block grant

implementation. By 1983, however, carryover funding had declined to

7 percent of total expenditures. Carryover funding was not available under

SSBG or LIHEAP because the programs preceding them had been funded on a

formula basis, and funds were generally expended during the same fiscal

year in which they were awarded.

20We discuss the recategorization of block grants as a consequence of imposing additional funding

constraints later in this appendix.

Page 34 GAO/HEHS-95-74 Block Grants
Appendix IV 

Experience Operating Under the 1981 Block

Grants

States also offset federal funding reductions through transfers among

block grants. The 13 states transferred about $125 million among the block

grants in 1982 and 1983. About $112 million, or 90 percent, entailed moving

funds from LIHEAP to SSBG. This trend was influenced by the fact that SSBG

experienced the largest dollar reduction—about $591 million in 1982

alone—and did not benefit from overlapping categorical funding, while

LIHEAP received increased federal appropriations. The transfer option was

used infrequently between other block grants.

States also used their own funds to help offset reduced federal funding,

but only for certain block grants. In the vast majority of cases, the 13

states increased their contribution to health-related block grants or

SSBG—areas of long-standing state involvement. Although such increases

varied greatly from state to state, overall increases ranged from 9 percent

in PHHS to 24 percent in MCH between 1981 and 1983. Overall, expenditures

of state funds for programs supported with block grant moneys increased

between 1981 and 1983 in 85 percent of the cases in which the states we

visited had operated the health-related block grants and SSBG since their

initial availability in 1982.21 Aside from the health-related block grants and

SSBG, states did not make great use of their own revenues to offset reduced

federal funds.

Together, these approaches helped states replace much of the funding

reductions during the first several years. Three-fourths of the cases we

examined experienced increases in total program expenditures, although

once adjusted for inflation this dropped to one-fourth of all cases.22

Increased appropriations in 1983 through 1985, and for 1983 only, funds

made available under the Emergency Jobs Appropriations Act also helped

offset these reductions. Some block grants, however, did not do as well as

others. For example, some states did not restore funding for CSBG, which

may be due in part to the limited prior state involvement under the

categorical program preceding the block grant.23

21The health-related block grants include ADMS, MCS, and PHHS. The number of the 13 states

operating the block grants for the entire 2-year period were 11 each for MCH and PHHS, 12 for ADMS,

and 13 for SSBG, which is a total of 47 cases.

22We collected financial information on each of 7 block grants in 13 states. States did not always

operate each block grant, although we considered each block grant operated by an individual state to

represent one case.

23The responses of states to funding reductions in the 1981 block grants is profiled in Reagan and the

States, Richard P. Nathan, Fred C. Doolittle, and Associates (Princeton University Press, 1987). This

book profiles the effects of President Reagan’s policies for federal grant-in-aid in 14 states plus 40 local

governments within the sample states.

Page 35 GAO/HEHS-95-74 Block Grants
Appendix IV 

Experience Operating Under the 1981 Block

Grants

Federal Funding

Allocations Based on

Prior Categorical

Grants

Initially, most federal funding to states was distributed on the basis of the

state’s share of funds received under the prior categorical programs in

fiscal year 1981. We found that such distributions may be inequitable

because they are not sensitive to populations in need, the relative cost of

services in each state, or states’ ability to fund program costs.

With the exception of SSBG and CDBG, block grants included a requirement

that the allocation of funds take into account what states received in

previous years in order to ease the transition to block grants. For example,

under ADMS, funds had to be distributed among the states for mental health

programs in the same proportions as funds were distributed in fiscal year

1981. For alcohol and drug abuse programs, funds had to be distributed in

the same proportions as in fiscal year 1980.

Today, most block grants use formulas that more heavily weigh

beneficiary population and other need-related factors. For example, CDBG

uses a formula that reflects poverty, overcrowding, age of housing, and

other measures of urban deterioration. The formula for JTPA considers

unemployment levels and the number of economically disadvantaged

persons in the state. This formula is also used to distribute funds to local

service delivery areas. However, three block grants—CSBG, MCH, and

PHHS—are still largely tied to 1981 allocations.

Difficulties posed in developing funding formulas that allocate on the basis

of need, relative cost of services, and ability to pay are illustrated here:

• Because of concern that funds were not distributed equitably under ADMS,

the Congress mandated that HHS conduct a study of alternative formulas

that considered need-related factors, and in 1982 the Secretary of HHS

reported on several formula options that would more fairly distribute

funds. Legislative amendments in 1988, for instance, introduced the use of

new indicators of need: (1) the number of people in specific age groups as

proxies for populations at risk for drug abuse, alcohol abuse, and mental

health disorders and (2) state total taxable resources as a proxy for its

capacity to fund program services from state resources. These

amendments also called for phasing out the distribution of funds based on

categorical grant distribution. We examined the formula in 1990, finding

that the formula’s urban population factor overstates the magnitude of

drug use in urban as compared with rural areas and that a provision that

Page 36 GAO/HEHS-95-74 Block Grants
Appendix IV 

Experience Operating Under the 1981 Block

Grants

protects states from losing funding below their 1984 levels causes a

mismatch between needs and actual funding.24

• Under MCH, funds continue to be distributed primarily on the basis of funds

received in fiscal year 1981 under the previous categorical programs. Only

when funding exceeds the amount appropriated in fiscal year 1983 are

additional funds allotted in proportion to the number of persons under age

18 that are in poverty. We found that economic and demographic changes

are not adequately reflected in the current allocation, resulting in

problems of equity. We developed a formula by which equity is improved

for both beneficiaries and taxpayers that includes, for example, a measure

for at-risk children.25

In keeping with the desire to maximize state flexibility, most block grant

statutes did not prescribe how states should distribute funds to substate

entities. Only the Education and the newer JTPA Block Grants prescribe

how states should distribute funds to local service providers.26 For

example, the Education Block Grant requires states to distribute funds to

local educational authorities using a formula that considers relative

enrollment and adjusts per pupil allocations upward to account for large

enrollments of students whose education imposes a higher than average

cost—generally students from high-risk groups. Although this formula was

prescribed, states were given the discretion to decide which factors to

consider in determining who were high-cost students.

Where the law did not prescribe such distribution, some states developed

their own formulas. In a 1982 study, we identified nine states that

developed formulas to distribute CSBG funds to local service providers

based in part on poverty, leading to reductions in funding to many

community action agencies compared with the funding these agencies

received under the prior categorical programs. Mississippi developed a

formula to distribute ADMS funds to community mental health centers

based on factors such as population density and per capita income.

24Drug Treatment: Targeting Aid to States Using Urban Population as Indicator of Drug Use

(GAO/HRD-91-17, Nov. 27, 1990).

25Maternal and Child Health: Block Grant Funds Should Be Distributed More Equitably

(GAO/HRD-92-5, Apr. 2, 1992).

26We are not referring here to pass-through requirements under which states must transfer a certain

level of funds to subrecipients. For example, CSBG included a pass-through requirement that not less

than 90 percent of funds be awarded to community action organizations.

Page 37 GAO/HEHS-95-74 Block Grants
Appendix IV 

Experience Operating Under the 1981 Block

Grants

Steps Taken to

Improve

Accountability, but

Problems Persisted

Block grants significantly reduced the reporting burden imposed by the

federal government on states as compared to the previous categorical

programs. However, states stepped in and assumed a greater role in

oversight of programs, consistent with the block grant philosophy. The 13

states we visited generally reported that they were maintaining their prior

level of effort for data collection under the categorical grants. States

tailored their efforts to better meet their own planning, budgetary, and

legislative needs. Given their new responsibilities, states sometimes

passed on reporting requirements to local service providers.27

However, the Congress, which maintained interest in the use of federal

funds, had limited information on program activities, services delivered,

and clients served. This was because there were fewer federal reporting

requirements, and states were given the flexibility to determine what and

how to report program information. In addition, due to the lack of

comparability of information across states, state-by-state comparisons

were difficult. Federal evaluation efforts were hampered because of this

diminished ability to assess the cumulative effects of block grants across

the nation.

In response to this situation, model criteria and standardized forms for

some block grants were developed in 1984 to help states collect uniform

data, primarily through voluntary cooperative efforts. We examined the

data collection strategies of four block grants to assess the viability of this

approach.28 Problems identified included the following:

• States reported little data on the characteristics of clients served under the

Education Block Grant, and LIHEAP data on households receiving

assistance to weatherize their homes were not always readily accessible to

state cash assistance agencies.

• Because of the broad range of activities under CSBG and the Education

Block Grant, it is highly likely that the same clients served by more than

one activity were counted twice.

• In 1991, we examined reporting problems under ADMS. Because HHS did not

specify what information states must provide, the Congress did not have

information it needed to determine whether a set-aside for women’s

27For example, Mississippi developed new data collection and reporting procedures for providers

under some of the health-related block grants. Massachusetts developed a performance assessment

tool for evaluating subgrantees under LIHEAP, allowing state administrators to identify and replace

ineffective subgrantees. In Vermont and Iowa, the state legislatures imposed greater reporting

requirements for some of the health-related block grants in order to improve accountability.

28Block Grants: Federal-State Cooperation in Developing National Data Collection Strategies

(GAO/HRD-89-2, Nov. 29, 1988).

Page 38 GAO/HEHS-95-74 Block Grants
Appendix IV 

Experience Operating Under the 1981 Block

Grants

services had been effective in addressing treatment needs of pregnant

women and mothers with young children. In another 1991 report, we

found state annual reports varied significantly in the information provided

on drug treatment services, making comparisons or assessments of

federally supported drug treatment services difficult. In addition, many

states did not provide information in a uniform format when they applied

for funds.29

Generally, the data were timely, and most officials in the six states we

included in our review perceived the collection efforts to be less

burdensome than reporting under categorical programs. However, the

limitations in data comparability reduce the usefulness of the data to serve

the needs of federal policymakers, such as allocating federal funds,

determining the magnitude of needs among individual states, and

comparing program effectiveness among states.

Just as with data collection and reporting, the Congress became

concerned about financial accountability in the federal financial assistance

provided to state and local entities. With the 1984 Single Audit Act, the

Congress promoted more uniform, entitywide audit coverage than was

achieved under the previous grant-by-grant audit approach. The single

audit process has contributed to improving financial management

practices of state and local officials we interviewed. These officials

reported that they, among other things, have improved systems for

tracking federal funds, strengthened administrative controls over federal

programs, and increased oversight of entities to which they distribute

federal funds.

Even though state and local financial management practices have been

improved, a number of issues burden the single audit process, hinder the

usefulness of its reports, and limit its impact, according to our 1994

report.30 Specifically, criteria for determining which entities and programs

are to be audited are based solely on dollar amounts. This approach has

the advantage of subjecting a high percentage of federal funds to audit, but

it does not necessarily focus audit resources on the programs identified as

being high risk. For example, even though the Office of Management and

Budget (OMB) has identified Federal Transit Administration grants as being

29ADMS Block Grant: Women’s Set-Aside Does Not Assure Drug Treatment for Pregnant Women

(GAO/HRD-91-80, May 6, 1991) and ADMS Block Grant: Drug Treatment Services Could Be Improved

by New Accountability Program (GAO/HRD-92-27, Oct. 17, 1991).

30Single Audit Act: Refinements Can Improve Usefulness (GAO/AIMD-94-133, June 21, 1994).

Page 39 GAO/HEHS-95-74 Block Grants
Appendix IV 

Experience Operating Under the 1981 Block

Grants

high risk, we found in our review of single audit reports that only a small

percentage of the grants to transit authorities were required to be audited.

The usefulness of single audit reports for program oversight is limited in

several ways. Reports do not have to be issued until 13 months after the

end of the audit period, which many federal and state program managers

we surveyed found was too late to be useful. Audited entities’ managers

are not required to report on the adequacy of their internal control

structures, which would assist auditor’s in evaluating an entity’s

management of its programs. In addition, the results of the audits are not

being summarized or compiled so that oversight officials and program

managers can easily access and analyze them to gain programwide

perspectives and identify leads for follow-on audit work or program

oversight.

State Flexibility

Reduced Over Time as

Funding Constraints

Added

Even though block grants were intended to provide flexibility to the states,

over time constraints were added which had the effect of “recategorizing”

them. These constraints often took the forms of set-asides, requiring a

minimum portion of funds be used for a specific purpose, and cost

ceilings, specifying a maximum portion of funds that could be used for

other purposes. This trend reduced state flexibility. Many of these

restrictions were imposed as a result of congressional concern that states

were not adequately meeting national needs.

In nine block grants from fiscal years 1983 and 1991, the Congress added

new cost ceilings and set-asides or changed existing ones 58 times, as

figure IV.I illustrates.31 Thirteen of these amendments added new cost

ceilings or set-asides to 9 of 11 block grants we reviewed. Between fiscal

years 1983 and 1991, the portion of funds restricted under set-asides

increased in three block grants—MCH, CDBG, and Education. For example,

set-asides for MCH restricted 60 percent of total funding (30 percent for

preventive and primary care services for children and 30 percent for

children with special health care needs).

However, during the same period the portion of restricted funds under two

block grants—ADMS and PHHS—decreased. In addition, 5 of the 11 block

grants we examined permitted states to obtain waivers from some cost

ceilings or set-asides if the state could justify that this amount of funds

was not needed for the purpose specified in the set-aside.

31Block Grants: Increases in Set-Asides and Cost Ceilings Since 1982 (GAO/HRD-92-58FS, July 27,

1992).

Page 40 GAO/HEHS-95-74 Block Grants
Appendix IV 

Experience Operating Under the 1981 Block

Grants

Figure IV.I: Many Funding Constraints

Added to Block Grants Total Amendments to Change Set-Asides and Cost Ceilings, FY83-91

0

5

10

15

ADMS

CDBG

Federal Transit Act

CSBG

MCH

JTPA

LIHEAP

PHHS

Education

Block Grant

17

9

8

6

5 5

3 3

2

Page 41 GAO/HEHS-95-74 Block Grants
Appendix V 

Lessons Learned

Three lessons can be drawn from the experience with the 1981 block

grants. These are the following: (1) The Congress needs to focus on

accountability for results in its oversight of the block grants. The

Government Performance and Results Act provides a framework for this

and is consistent with the goal of block grants to provide flexibility to the

states. (2) Funding formulas 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. (3) States handled the

1981 block grants, but today’s challenges are likely to be greater. The

programs being considered for inclusion in block grants not only are much

larger but also are fundamentally different than those programs included

in the 1981 block grants.

The Congress Needs

to Focus on

Accountability for

Results

One of the principal goals of block grants is to shift responsibility for

programs from the federal government to the states. This includes priority

setting, program management, and, to a large extent, accountability.

However, the Congress and federal agencies maintain an interest in the

use and effectiveness of federal funds. Paradoxically, accountability is

critical to preserving state flexibility. When adequate program information

is lacking, the 1981 block grant experience demonstrates that the Congress

may become more prescriptive. For example, funding constraints were

added that limited state flexibility, and, in effect, “recategorized” some of

the block grants.

We have recommended a shift in focus of federal management and

accountability toward program results and outcomes, with

correspondingly less emphasis on inputs and rigid adherence to rules.32

This focus on outcomes over inputs is particularly appropriate for block

grants given their emphasis on providing states flexibility in determining

specific problems to address and strategies for addressing them. The

flexibility block grants allow should be reflected in the kinds of national

information collected by federal agencies. The Congress and federal

agencies will need to decide the kinds and nature of information needed to

assess program results.

While the requirements in the Government Performance and Results Act of

1993 (GPRA) (P.L. 103-62) apply to all federal programs, they also offer an

accountability framework for block grants. Consistent with the philosophy

underlying block grants, GPRA seeks to shift the focus of federal

32Improving Government: Actions Needed to Sustain and Enhance Management Reforms

(GAO/T-OGC-94-1, Jan. 27, 1994) and Improving Government: Measuring Performance and Acting on

Proposals for Change (GAO/T-GGD-93-14, Mar. 23, 1993).

Page 42 GAO/HEHS-95-74 Block Grants
Appendix V 

Lessons Learned

management and accountability away from a preoccupation with inputs,

such as budget and staffing levels, and adherence to rigid processes to a

greater focus on outcomes and results.33

By the turn of the century, annual reporting under this act is expected to

fill key information gaps. Among other things, GPRA requires every agency

to establish indicators of performance, set annual performance goals, and

report on actual performance in comparison with these goals each March

beginning in the year 2000. Agencies are now developing strategic plans

(to be submitted by September 30, 1997) articulating the agency’s mission,

goals, and objectives preparatory to meeting these reporting requirements.

Even though GPRA is intended to focus agencies on program results, much

work, however, lies ahead. Even in the case of JTPA, in which there has

been an emphasis on program outcomes, we have found that most

agencies do not collect information on participant outcomes, nor do they

conduct studies of program effectiveness.34 At the same time, there is little

evidence of greater reliance on block grants since the 1981 block grants

were created. Categorical programs continue to grow, up to almost 600 in

fiscal year 1993. We have more recently reported on the problems created

with the existence of numerous programs or funding streams in three

program areas—youth development, employment and training, and early

childhood.35

Even though state and local financial management practices have been

improved with the Single Audit Act, a number of issues burden the single

audit process, hinder the usefulness of its reports, and limit its impact. We

have made recommendations to enhance the single audit process and to

33In addition to data for measuring program results, the kinds of uniform data needed for reporting and

evaluation purposes should be determined through discussions between agencies and the Congress.

We have suggested the kinds of information that could help the Congress to make decisions about

programs it oversees in Program Evaluation: Improving the Flow of Information to the Congress

(GAO/PEMD-95-1, Jan. 30, 1995).

34Multiple Employment Training Programs: Basic Program Data Often Missing (GAO/T-HEHS-94-239,

Sept. 28, 1994).

35We found 46 youth development programs administered by 8 federal agencies targeting delinquents

and at-risk youths, with fiscal year 1995 appropriations of $5.3 billion in Multiple Youth Programs

(GAO/HEHS-95-60R, Jan. 19, 1995). We also reported that $20 billion in fiscal year 1995 went to 163

employment training programs administered by 15 departments. See Multiple Employment Training

Programs: Major Overhaul Needed to Create a More Efficient Customer-Driven System

(GAO/T-HEHS-95-70, Feb. 6, 1995). Similarly, we identified over 90 early childhood programs in 11

federal agencies and 20 offices, with 34 programs alone in which education and child care were key to

program mission. See Early Childhood Programs: Multiple Programs and Overlapping Target Groups

(GAO/HEHS-95-4FS, Oct. 31, 1994).

Page 43 GAO/HEHS-95-74 Block Grants
Appendix V 

Lessons Learned

make it more useful for program oversight.36 We believe, however, that the

Single Audit Act is an appropriate means of promoting financial

accountability for block grants, particularly if our recommended

improvements are implemented.

Funding Formulas

Should Reflect Need

and Ability to Pay

Even if block grants were created to give state governments more

responsibility in the management of programs, the federal government will

continue to be challenged by the distribution of funds among the states

and localities. Public debate is likely to focus on formulas given there will

always be winners and losers.

Three characteristics of formulas that better target funds include factors

that consider (1) state or local need, (2) differences among states in the

costs of providing services, and (3) state or local ability to contribute to

program costs. To the extent possible, equitable formulas rely on current

and accurate data that measure need and ability to contribute. We have

reported on the need for better population data to better target funding to

people who have a greater need of services.37

We have examined the formulas that govern distribution of funds for MCH

as well as other social service programs such as the Older American Act

programs.38 In advising on the revisions to MCH, we recommended that 3

factors be included in the formula: concentration of at-risk children to

help determine level of need; the effective tax rate to reflect states’ ability

to pay; and costs of providing health services, including labor, office

space, supplies, and drugs. We also suggested ways to phase in formulas to

keep the disruption of services to a minimum.

36Single Audit Act: Refinements Can Improve Usefulness (GAO-AIMD-94-133, June 21, 1994). In this

report, we make recommendations to modify criteria used to select entities and federal programs for

audit, such as the inclusion of criteria that reflects risk. We also recommended that single audit reports

be transmitted to the appropriate federal agency or state or local government no later than 9 months

after the end of the fiscal year under audit. We have also recommended that entities receiving

$50 million or more in federal assistance must report on the extent to which the entity has in place

internal controls, and that single audit reports include a summary of the auditor’s determinations in

order that the reports are more helpful to program managers.

37Federal Aid: Revising Poverty Statistics Affects Fairness of Allocation Formulas (GAO/HEHS-94-165,

May 20, 1994) and Federal Formula Programs: Outdated Population Data Used to Allocate Most Funds

(GAO/HRD-90-145, Sept. 27, 1990).

38Maternal and Child Health: Block Grant Funds Should Be Distributed More Equitably

(GAO/HRD-92-5, Apr. 2, 1992) and Older Americans Act: Funding Formula Could Better Reflect State

Needs (GAO/HEHS-94-41, May 12, 1994).

Page 44 GAO/HEHS-95-74 Block Grants
Appendix V 

Lessons Learned

States Handled the

1981 Block Grants;

Today’s Challenges

Likely Greater

During the buildup of the federal grant programs, the federal government

viewed state and local governments as convenient administrative units for

advancing federal objectives. State and local governments were seen as

lacking the policy commitment and the administrative and financial

capacity to address the domestic agenda. During the 1970s, the opposition

to using state and local governments as mere administrative units grew,

culminating in the Reagan administration’s New Federalism policy, which

focused on shifting leadership of the domestic policy agenda away from

the federal government and toward states. By cutting the direct

federal-to-local linkages, this policy also encouraged local governments to

strengthen their relationships with their respective states.

States as a whole have become more capable of responding to public

service demands and initiating innovations during the 1990s. Many factors

account for strengthened state government. Beginning in the 1960s and

1970s, states modernized their government structures, hired more highly

trained individuals, improved their financial management practices, and

diversified their revenue systems.39

State and local governments have also taken on an increasing share of the

responsibility for financing the country’s domestic expenditures. Changing

priorities, tax cuts, and mounting deficits drove federal policymakers to

cut budget and tax subsidies to both states and localities. These cuts fell

more heavily on localities, however, because the federal government

placed substantial importance on “safety net” programs in health and

welfare that help the poor, which generally are supported by federal-state

partnerships. In contrast, the federal government placed less importance

on other “nonsafety net” programs such as infrastructure and economic

development, which generally are federal-local partnerships. Growth in

spending by state governments also reflects rising health care costs as well

as officials’ choices favoring new or expanded services and programs.

As figure V.1 illustrates, state and local governments’ expenditures have

increased more rapidly, while federal grants-in-aid represent a smaller

proportion of total state and local expenditure burden. Between 1978 and

1993, state and local outlays increased dramatically, from $493 billion to

$884 billion in constant 1987 dollars. With their growing fiscal

responsibilities, states have reevaluated their spending priorities and

39Federal-State-Local Relations: Trends of the Past Decade and Emerging Issues (GAO/HRD-90-34,

Mar. 22, 1990). Other reports we have issued on intergovernmental trends are State and Local

Finances: Some Jurisdictions Confronted by Short-and Long-Term Problems (GAO/HRD-94-1, Oct. 6,

1993) and Intergovernmental Relations: Changing Patterns in State and Local Finances

(GAO/HRD-92-87FS, Mar. 31, 1992).

Page 45 GAO/HEHS-95-74 Block Grants
Appendix V 

Lessons Learned

undertaken actions to control program growth, cut some services, and

increase revenues—by raising taxes and imposing user fees, for example.

The continued use of these state budget practices, combined with a

growing economy, have improved the overall financial condition of state

governments.40

Figure V.1: State Program Funding Is

Increasing Billions of Dollars

0

200

400

600

800

1000

1200

1978 1983 1988 1993

Year

Total State and Local Outlays

Federal Grants-in-Aid

Note: Federal grants-in-aid and state and local outlays are expressed in inflation adjusted dollars

(1987=100).

Source: ACIR.

Many factors contribute to state fiscal conditions, not the least of which

are economic recessions, since most states do not possess the power to

deficit spend. In addition, state officials have expressed concern about

40In 1994, the National Governors’ Association and the National Association of State Budget Officers

reported that the steady growth of the economy has been favorable for state budgets. State financial

conditions have improved substantially as illustrated by the growth in year-end balances to an

estimated 3.5 percent of expenditures in 1995 from 1.1 percent in 1991. See The Fiscal Survey of the

States (Washington, D.C.: 1984).

Page 46 GAO/HEHS-95-74 Block Grants
Appendix V 

Lessons Learned

unfunded mandates imposed by the federal government. Practices such as

“off-budget” transactions could obscure the long-term impact of program

costs in some states. In addition, while states’ financial position has

improved on the whole, the fiscal gap between wealthier and poorer states

and localities remains significant, in part due to federal budget cuts. We

reported in 1993 that southeastern and southwestern states, because of

greater poverty rates and smaller taxable resources, generally were among

the weakest states in terms of fiscal capacity.41

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, particularly if such

proposals are accompanied by federal funding cuts. Nearly 100 programs

in five areas—cash welfare, child welfare and abuse programs, child care,

food and nutrition, and social services—could be combined, accounting

for more than $75 billion of a total of about $200 billion in federal grants to

state and local governments. Comparatively, the categorical programs,

which were replaced by the OBRA block grants, accounted for only about

$6.5 billion of the $95 billion in 1981 outlays.

In addition, these block grant proposals include programs that are

fundamentally different than those included in the 1981 block grants. For

example, Aid to Families with Dependent Children provides direct cash

assistance to individuals. Given that states tend to cut services and raise

taxes during economic downturns to comply with balanced budget

requirements, these cash assistance programs could experience funding

reductions, which could impact vulnerable populations at the same time

their number are likely to increase. In addition, some experts suggest that

states have not always maintained state funding for cash assistance

programs in times of fiscal strain.

41State and Local Finances: Some Jurisdictions Confronted by Short- and Long-Term Problems

(GAO/HRD-94-1, Oct. 6, 1993).

Page 47 GAO/HEHS-95-74 Block Grants
Appendix VI 

Selected Bibliography of GAO Reports and

Other Studies on Block Grants

The following bibliography lists selected GAO reports on block grants

created by the Omnibus Budget Reconciliation Act of 1981 and subsequent

reports pertaining to implementation of block grant programs. In addition,

the bibliography includes studies published by other acknowledged

experts in intergovernmental relations.

GAO Reports on

Overall Block Grant

Implementation

Block Grants: Increases in Set-Asides and Cost Ceilings Since 1982

(GAO/HRD-92-58FS, July 27, 1992).

Block Grants: Federal-State Cooperation in Developing National Data

Collection Strategies (GAO/HRD-89-2, Nov. 29, 1988).

Block Grants: Federal Data Collection Provisions (GAO/HRD-87-59FS, Feb. 24,

1987).

Block Grants: Overview of Experiences to Date and Emerging Issues

(GAO/HRD-85-46, Apr. 3, 1985).

State Rather Than Federal Policies Provided the Framework for Managing

Block Grants (GAO/HRD-85-36, Mar. 15, 1985).

Block Grants Brought Funding Changes and Adjustments to Program

Priorities (GAO/HRD-85-33, Feb. 11, 1985).

Public Involvement in Block Grant Decisions: Multiple Opportunities

Provided But Interest Groups Have Mixed Reactions to State Efforts

(GAO/HRD-85-20, Dec. 28, 1984).

Federal Agencies’ Block Grant Civil Rights Enforcement Efforts: A Status

Report (GAO/HRD-84-82, Sept. 28, 1984).

A Summary and Comparison of the Legislative Provisions of the Block

Grants Created by the 1981 Omnibus Budget Reconciliation Act

(GAO/IPE-83-2, Dec. 30, 1982).

Lessons Learned From Past Block Grants: Implications For Congressional

Oversight (GAO/IPE-82-8, Sept. 23, 1982).

Early Observations on Block Grant Implementation (GAO/GGD-82-79, Aug. 24,

1982).

Page 48 GAO/HEHS-95-74 Block Grants
Appendix VI 

Selected Bibliography of GAO Reports and

Other Studies on Block Grants

Allocation of Funds for Block Grants With Optional Transition Periods

(GAO/HRD-82-65, Mar. 26, 1982).

GAO Reports on

Selected Block Grants

Maternal and Child Health

Services

Maternal and Child Health: Block Grant Funds Should Be Distributed More

Equitably (GAO/HRD-92-5, Apr. 2, 1992).

Maternal and Child Health Block Grant: Program Changes Emerging

Under State Administration (GAO/HRD-84-35, May 7, 1984).

Preventive Health and

Health Services

States Use Added Flexibility Offered by the Preventive Health and Health

Services Block Grant (GAO/HRD-84-41, May 8, 1984).

Social Services States Use Several Strategies to Cope With Funding Reductions Under

Social Services Block Grant (GAO/HRD-84-68, Aug. 9, 1984).

Low-Income Home Energy

Assistance Program

Low-Income Home Energy Assistance: States Cushioned Funding Cuts But

Also Scaled Back Program Benefits (GAO/HRD-91-13, Jan. 24, 1991).

Low-Income Home Energy Assistance: A Program Overview

(GAO/HRD-91-1BR, Oct. 23, 1990).

Low-Income Home Energy Assistance: Legislative Changes Could Result in

Better Program Management (GAO/HRD-90-165, Sept. 7, 1990).

States Fund an Expanded Range of Activities Under Low-Income Home

Energy Assistance Block Grant (GAO/HRD-84-64, June 27, 1984).

Alcohol, Drug Abuse, and

Mental Health Services

Drug Use Among Youth: No Simple Answers to Guide Prevention

(GAO/HRD-94-24, Dec. 29, 1993).

ADMS Block Grant: Drug Treatment Services Could Be Improved by New

Accountability Program (GAO/HRD-92-27, Oct. 17, 1991).

Page 49 GAO/HEHS-95-74 Block Grants
Appendix VI 

Selected Bibliography of GAO Reports and

Other Studies on Block Grants

ADMS Block Grant: Women’s Set-Aside Does Not Assure Drug Treatment

for Pregnant Women (GAO/HRD-91-80, May 6, 1991).

Drug Treatment: Targeting Aid to States Using Urban Population as

Indicator of Drug Use (GAO/HRD-91-17, Nov. 27, 1990).

Block Grants: Federal Set-Asides for Substance Abuse and Mental Health

Services (GAO/HRD-88-17, Oct. 14, 1987).

States Have Made Few Changes in Implementing the Alcohol, Drug Abuse,

and Mental Health Services Block Grant (GAO/HRD-84-52, June 6, 1984).

Community Services Community Services: Block Grant Helps Address Local Social Service

Needs (GAO/HRD-86-91, May 7, 1986).

Community Services Block Grant: New State Role Brings Program and

Administrative Changes (GAO/HRD-84-76, Sept. 28, 1984).

Elementary and Secondary

Education (Chapter 2)

Education Block Grant: How Funds Reserved for State Efforts in

California and Washington Are Used (GAO/HRD-86-94, May 13, 1986).

Education Block Grant Alters State Role and Provides Greater Local

Discretion (GAO/HRD-85-18, Nov. 19, 1984).

Job Training and

Partnership Act

Multiple Employment Training Programs: Major Overhaul Needed to

Create a More Efficient, Customer-Driven System (GAO/T-HEHS-95-70, Feb. 6,

1995).

Multiple Employment Training Programs: Overlap Among Programs Raises

Questions About Efficiency (GAO/HEHS-94-193, July 11, 1994).

Multiple Employment Training Programs: Most Federal Agencies Do Not

Know If Their Programs Are Working Effectively (GAO/HEHS-94-88, March 2,

1994).

Job Training Partnership Act: Racial and Gender Disparities in Services

(GAO/HRD-91-148, Sept. 20, 1991).

Page 50 GAO/HEHS-95-74 Block Grants
Appendix VI 

Selected Bibliography of GAO Reports and

Other Studies on Block Grants

Job Training Partnership Act: Inadequate Oversight Leaves Program

Vulnerable to Waste, Abuse, and Mismanagement (GAO/HRD-91-97, July 30,

1991).

Job Training Partnership Act: Services and Outcomes for Participants With

Differing Needs (GAO/HRD-89-52, June 9, 1989).

Job Training Partnership Act: Summer Youth Programs Increase Emphasis

on Education (GAO/HRD-87-101BR, June 30, 1987).

Dislocated Workers: Exemplary Local Projects Under the Job Training

Partnership Act (GAO/HRD-87-70BR, Apr. 8, 1987).

Dislocated Workers: Local Programs and Outcomes Under the Job

Training Partnership Act (GAO/HRD-87-41, Mar. 5, 1987).

Job Training Partnership Act: Data Collection Efforts and Needs

(GAO/HRD-86-69BR, Mar. 31, 1986).

The Job Training Partnership Act: An Analysis of Support Cost Limits and

Participant Characteristics (GAO/HRD-86-16, Nov. 6, 1985).

Job Training Partnership Act: Initial Implementation of Program for

Disadvantaged Youth and Adults (GAO/HRD-85-4, Mar. 4, 1985).

Transportation Transportation Infrastructure: Highway Program Consolidation

(GAO/RCED-91-198, Aug. 16, 1991).

Transportation Infrastructure: States Benefit From Block Grant Flexibility

(GAO/RCED-90-126, June 8, 1990).

20 Years of Federal Mass Transit Assistance: How Has Mass Transit

Changed? (GAO/RCED-85-61, Sept. 18, 1985).

Urban Mass Transportation Administration’s New Formula Grant Program:

Operating Flexibility and Process Simplification (GAO/RCED-85-79, July 15,

1985).

UMTA Needs Better Assurance That Grantees Comply With Selected

Federal Requirements (GAO/RCED-85-26, Feb. 19, 1985).

Page 51 GAO/HEHS-95-74 Block Grants
Appendix VI 

Selected Bibliography of GAO Reports and

Other Studies on Block Grants

Community Development Community Development: Comprehensive Approaches Address Multiple

Needs But Are Challenging to Implement (GAO/RCED/HEHS-95-69, Feb. 8,

1995).

Community Development: Block Grant Economic Development Activities

Reflect Local Priorities (GAO/RCED-94-108, Feb. 17, 1994).

Community Development: Oversight of Block Grant Monitoring Needs

Improvement (GAO/RCED-91-23, Jan. 30, 1991).

States Are Making Good Progress in Implementing the Small Cities

Community Development Block Grant Program (GAO/RCED-83-186, Sept. 8,

1983).

Rental Rehabilitation With Limited Federal Involvement: Who is Doing It?

At What Cost? Who Benefits? (GAO/RCED-83-148, July 11, 1983).

Block Grants for Housing: A Study of Local Experiences and Attitudes

(GAO/RCED-83-21, GAO/RCED-83-21A, Dec. 13, 1982).

HUD Needs to Better Determine Extent of Community Block Grants’

Lower Income Benefits (GAO/RCED-83-15, Nov. 3, 1982).

The Community Development Block Grant Program Can Be More

Effective in Revitalizing the Nation’s Cities (GAO/RCED-81-76, Apr. 30, 1981).

Other Related GAO

Reports

Program Evaluation: Improving the Flow of Information to the Congress

(GAO/PEMD-95-1, Jan. 30, 1995).

Multiple Youth Programs (GAO/HEHS-95-60R, Jan. 19, 1995).

Early Childhood Programs: Multiple Programs and Overlapping Target

Groups (GAO/HEHS-94-4FS, Oct. 31, 1994).

Single Audit: Refinements Can Improve Usefulness (GAO/AIMD-94-133,

June 21, 1994).

Federal Aid: Revising Poverty Statistics Affects Fairness of Allocation

Formulas (GAO/HEHS-94-165, May 20, 1994).

Page 52 GAO/HEHS-95-74 Block Grants
Appendix VI 

Selected Bibliography of GAO Reports and

Other Studies on Block Grants

Older Americans Act: Funding Formula Could Better Reflect State Needs

(GAO/HEHS-94-41, May 12, 1994).

Improving Government: Actions Needed to Sustain and Enhance

Management Reforms (GAO/T-OCG-94-1, Jan. 27, 1994).

State and Local Finances: Some Jurisdictions Confronted by Short- and

Long-Term Problems (GAO/HRD-94-1, Oct. 6, 1993).

Improving Government: Measuring Performance and Acting on Proposals

for Change (GAO/T-GGD-93-14, Mar. 23, 1993).

Intergovernmental Relations: Changing Patterns in State-Local Finances

(GAO/HRD-92-87FS, Mar. 31, 1992).

Federal Formula Programs: Outdated Population Data Used to Allocate

Most Funds (GAO/HRD-90-145, Sept. 27, 1990).

Federal-State-Local Relations: Trends of the Past Decade and Emerging

Issues (GAO/HRD-90-34, Mar. 22, 1990).

Other Studies Related

to Block Grants

Liner, E. Blaine ed. A Decade of Devolution: Perspectives on State-Local

Relations. Washington, D.C.: The Urban Institute Press, 1989.

Nathan, Richard P. and Fred C. Doolittle. The Consequences of Cuts: The

Effects of the Reagan Domestic Program on State and Local Governments.

Princeton, NJ: Princeton Urban and Regional Research Center, 1983.

Nathan, Richard P. and Doolittle. Fred C., Reagan and the States.

Princeton, NJ: Princeton University Press, 1987.

National Governors’ Association and the National Association of State

Budget Officers. The Fiscal Survey of the States. Washington, D.C.: 1994.

Palmer, John L. and Isabel V. Sawhill, eds. The Reagan Experiment. The

Urban Institute Press, Washington, D.C.: 1982.

Peterson, George E., et al. The Reagan Block Grants: What Have We

Learned? Washington, D.C.: The Urban Institute Press, 1986.

Page 53 GAO/HEHS-95-74 Block Grants
Appendix VI 

Selected Bibliography of GAO Reports and

Other Studies on Block Grants

Peterson, Paul E., Barry G. Rabe and Kenneth K. Wong. When Federalism

Works. Washington, D.C.: The Brookings Institution, 1986.

U.S. Advisory Commission on Intergovernmental Relations. Significant

Features of Fiscal Federalism. Washington, D.C.: 1994).

Page 54 GAO/HEHS-95-74 Block Grants
Appendix VII 

Major Contributors to This Report

Sigurd R. Nilsen, Assistant Director, (202) 512-7003

Jacquelyn B. Werth, Evaluator-in-Charge, (202) 512-7070

Mark Eaton Ward, Senior Evaluator

Joel Marus, Evaluator

David D. Bellis, Senior Evaluator

John Vocino, Senior Evaluator

(205284) Page 55 GAO/HEHS-95-74 Block Grants
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