The federal government provided $607 billion in grants to state and local governments in federal fiscal 2011, according to a report released yesterday by the Congressional Budget Office (CBO). Federal funds to states and localities make up 17 percent of federal outlays, four percent of gross domestic product (GDP) and roughly 25 percent of spending by state and local governments that year. Since 1980, federal spending on state and local government grants has fluctuated. Breaking down federal outlays on intergovernmental grants in fiscal 2011 by program category, health programs comprised the largest share at $293 billion (48 percent), followed by income security programs at $114 billion (19 percent), education programs at $89 billion (15 percent), transportation programs at $61 billion (10 percent) and other programs at $50 billion (8 percent). In addition to examining trends in federal outlays on intergovernmental grants, the report explains the economic and social rationales behind federal grants to states and localities and the decisions the federal government makes regarding how to distribute grants. The analysis also explores the use of matching requirements and maintenance-of-effort (MOE) provisions by the federal government to try to influence spending by state and local governments, as well as the potential costs and benefits of these approaches. The report concludes by considering the advantages and disadvantages of modifying federal grant programs, either through altering spending levels or through adjusting the level of federal control over grant-funded activities.

Link: Report