The major functions for which federal transfers are made directly to local governments include education, housing and community redevelopment, waste treatment facilities, and airport construction (Hyman 1993). While all three fonns of conditional grants (closed-ended matching, open-ended matching, and nonmatching) are used, the most common form is closed ended matching grant.

The intervention of the federal government into state and local affairs through conditional grants is pervasive. In 1991, a law was passed to discourage drunken driving and voted to give money to states that established anti-drunk driving programs. The House specified everything _from_ the percent of blood-alcohol concentration that would be the criterion for intoxication to the length of time the drive's license would be suspended for a first offense. This is not atypical. According to one count, the federal government imposed more than one thousand spending mandates upon states and localities (Rosen 1995, p.537).

Since the early 1980s, a new form of transfer, block grants, became popular under the Reagan administration. Many categorical grants were consolidated into a few broad block grants, which are essentially non-matching conditional grants. Within a given "block" of programs, the recipient state and local governments have more flexibility in spending funds than with categorical grants. One example of a block grant program is the Job Training Partnership Act of 1982. This act provided funds from federal revenue to finance human resource training programs administered by state and local governments designed to be tailored to the particular needs of workers and employees in local labor markets (Hyman 1993). Despite the efforts of the Reagan administration, the categorical grant still remains the dominant means of transferring funds from the federal governmen **t** o state and local governments.

The fact the United States has a marked preference for conditional grants--and its corresponding bias against unconditional grants--has aroused the interests of many scholars. One reason that has been offered to explain the marked U.S preference for conditional grants is the peculia US problems of fiscally fragmented metropolitan areas, with concentrations of low-income people (often ethnically distinct) clustered in the decaying urban core as a result of the flight to the suburbs by the white middle class. It is argued that conditional grants are a better response to U.S. needs than are unconditional grants, because the major interregional disparities are not in taxes but in service levels. "Congress wants to focus on particular services rather than on the general level of service or tax capacity, a substantial portion of the remaining grant syslem is focused on very narrow purposes." (Davis and Lucker 1982, p.355) This view presupposes that the federal interest is in actually providing certain service levels, rather than merely the possibility of attaining such levels at average tax rate, as in the equalization systems of Canada and Australia (Bird, 1986, p.159).

# **2.2. Canada**<sup>**4**</sup>

Canada is a federation of ten provinces (British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland) and two _4_ This section is based on Broadway and Hubson (1993) and Shah (1995a).

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