Reduce Funding for Certain Grants to State and Local Governments

Background

The federal government provided $675 billion in grants to state and local governments in 2017. Those grants redistribute resources among communities around the country, finance local projects that may have national benefits, encourage policy experimentation by state and local governments, and promote national priorities. Although federal grants to state and local governments fund a wide variety of programs, spending is concentrated in the areas of health care, income security, education, the environment, and transportation. The conditions that accompany those federal funds vary substantially: Some grant programs give state and local governments broad flexibility in spending federal funds, whereas others impose more stringent conditions.

Option

This option would reduce funding for a group of grants by 50 percent over two years. New funding would be decreased by 25 percent in 2020 and by 50 percent for the remaining years through 2028. (The grants are illustrative of those made by the federal government to state and local governments.) The option includes several changes that could be implemented individually or together. Those changes would reduce funding for the following programs:

• The Department of Energy's grants for energy conservation and weatherization through the Weatherization and Intergovernmental Programs Office.
• The Environmental Protection Agency's (EPA's) grants for wastewater and drinking water infrastructure, as well as other grants that help states implement federal water, air, waste, and chemical programs.
• The Department of Housing and Urban Development's Community Development Block Grant (CDBG) program.
• Certain Department of Education grants, like those for the 21st Century Community Learning Centers, which fund nonacademic programs that address the physical, emotional, and social well-being of students.
• Certain Department of Justice grants to nonprofit community organizations and state and local law enforcement agencies. Those grants include State and Local Law Enforcement Assistance programs, Juvenile Justice Programs, Community Oriented Policing Services grants, and grants administered through the Office on Violence Against Women.

More details on the individual grant programs appear in similar options presented in the Congressional Budget Office's March 2011 version of this report.

Effects on the Budget

If all of those reductions were put in place, federal spending would decline by $42 billion from 2020 through 2028, provided that federal appropriations were reduced accordingly. During the 10-year budget period, outlays would decline by less than budget authority because some spending for grant programs occurs in years after the year in which it is authorized. Grants made through the CDBG program are used by state and local governments over eight years, for example, the longest period for this group of grants. (More than 90 percent of those CDBG outlays occur within four years of funding.) EPA's grants for wastewater and drinking water infrastructure and the Department of Education's grants have the shortest spending period in this group, with outlays completed over the four years following funding.

If budget authority for this group of programs was reduced by more or less than 50 percent, a proportionate reduction in outlays would probably result. However, eliminating the programs completely would probably impose shutdown costs that would limit savings in the near term.

Relatively little uncertainty surrounds this option's estimated savings relative to CBO's baselines for the programs. (The formula block grants provided in the CDBG program, for example, are spent slowly but predictably.) Uncertainty about how actual appropriations will compare with CBO's baseline projections contributes to the overall uncertainty about this estimate, however.

Other Effects

The main argument for this option is that the concerns addressed by those grant programs are primarily local, so allowing state and local governments to decide whether to continue to pay for the programs would probably lead to a more efficient allocation of resources. According to that reasoning, if state and local governments had to bear the full costs of those activities, they might be more careful in weighing those costs against potential benefits when making spending decisions. In addition, federal funding might not always provide a net increase in spending for those activities because state and local governments might reduce their own funding of such programs in response to the availability of federal funds.

One argument against this option is that those grants support programs that the federal government prioritizes but that state and local governments may lack the incentive or funding to promote to the extent desirable from a national perspective. In fact, many state and local governments face fiscal constraints that might make it difficult for them to compensate for the loss of federal funds. In addition, reducing funding for grants that redistribute resources across jurisdictions could lead to more persistent inequities among communities or individuals. Less federal support could also limit the federal government's ability to encourage experimentation and innovation at the state and local levels and to learn from the different approaches taken to address a given policy issue.