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A grant-in-aid is the transfer of money from one level of government to another for a specific purpose and subject to substantive and procedural conditions found in the authorizing legislation and administrative regulations. These requirements, or “strings,” refer to both the substance of the grant (for example, eligible uses of funds, matching requirements, and maintenance of prior spending levels) and the procedures by which grant funds are to be expended (for example, opportunities for citizen participation, nondiscrimination in program activities, and consideration of environmental impacts of major projects).

Though there are many dimensions to grants-in-aid, three are of special importance. First is the extent to which recipient jurisdictions have discretion over the use of grant funds. Categorical grants allow the least amount of discretion, with spending limited to a specific category or program area (for example, construction of a senior citizens’ center but not rehabilitation of an existing facility or the provision of services inside the facility). Block grants permit a broader array of services and activities, but are generally confined to a specific substantive policy area such as community development, health, or employment and training. General purpose grants provide unrestricted assistance to recipient jurisdictions.

A second key dimension of grants-in-aid is the manner in which funding is allocated. Formula grants provide funding on the basis of a prescribed formula to jurisdictions that are entitled to assistance. Project grants are awarded on a competitive basis and the amount awarded is discretionary, though often the authorizing statute or administrative regulation establishes a minimum and maximum grant award.

A third important feature of grants-in-aid is the duties and responsibilities of recipient governments. Some grant programs require recipient jurisdictions to provide matching funding, and the match rate may vary widely across programs. Some programs also require recipient jurisdictions to demonstrate maintenance of effort, that is, recipient governments must maintain spending at prior levels (or a prescribed portion of prior levels) to ensure that grant funds do not supplant previous spending by state or local governments. Administrative responsibilities also vary. Some recipient jurisdictions may decide to directly administer grant funds through existing departments and agencies, or alternatively recipients may opt to contract with subgrantees, such as nonprofit organizations, to provide some or all of the services and activities to be financed with grant funds. Programs also vary widely in terms of their application and reporting requirements.

Grants-in-aid may be used for a variety of purposes. For example, the federal government may decide it wants to encourage state and local governments to become more engaged in a specific policy area such as affordable housing or education for the disadvantaged. Grants may also be used to ensure that a minimum service level is attained for a specific service (e.g., equal grants to each state for vocational education) or to promote equalization of resources across jurisdictions (e.g., larger grants to poorer jurisdictions and smaller grants to more affluent ones). Grants are also used at times to promote economic stabilization (such as countercyclical spending on public works to stimulate the economy during times of recession) or to provide relief in response to special hardships such as natural disasters. Grants-in-aid are frequently used to demonstrate or test out new ideas for addressing important public problems and have also been used to encourage comprehensive planning and coordination at varying levels of geography ranging from neighborhoods to multistate regions.

Grants-in-aid have been the primary means through which the federal government has pursued its domestic policy objectives for the past fifty years. The 2004 edition of the Catalog of Federal Domestic Assistance (U.S. General Services Administration 2004) identifies nearly 1,200 federal grant programs, about half of which include grants to state and local governments. The remainder includes a variety of programs that provide direct support to nonprofit organizations or individuals for activities such as research, training, and education. Most grant-in-aid programs are relatively modest in size. A recent analysis by David Beam and Timothy Conlan (2002) reported that the twenty largest grant programs accounted for 78 percent of federal grant outlays in 1998; the share of outlays for the remaining 571 programs was only 22 percent.

In fiscal 2004, federal grant-in-aid outlays totaled $406 billion, or about 18 percent of all federal outlays and equivalent to 25 percent of total state and local government expenditures. Federal grants grew steadily during the 1960s and 1970s as many new programs were added that expanded federal involvement into a range of new policy areas such as education, employment and training, health, natural resources, and the environment. Spending slowed in the 1980s and even declined in 1982 and 1987 as the Reagan administration took aggressive actions to curtail federal spending and devolve a variety of responsibilities to state and local governments. The growth in grant outlays since 1990 has been driven primarily by increases in the Medicaid program, which have risen from $41 billion in 1990 (30 percent of grant outlays) to $176 billion in 2004 (43 percent).

Scholars and analysts who study grant-in-aid programs have tended to focus on three types of effects of grant programs: fiscal effects, for example, to what extent do increases or decreases in federal aid lead to increases or reductions in state and local spending; programmatic effects, or how do federal grants influence the amount and type of services provided by recipient jurisdictions; and institutional effects, or how do federal grants alter the organizational structure and decision-making processes of state and local governments?

Grants-in-aid have been the primary means through which intergovernmental cooperation and conflict have been played out in domestic affairs. As Richard Nathan, who has closely studied many of the largest federal grant programs for more than thirty years, has observed, “[A] grant-in-aid is the product of a political bargaining process, not just in Washington where the grant is created, but also at the state and local levels where it is executed” (Nathan 1983, 48). He adds that “the best way to think about this process is that there is a horizontal policy bargaining process, which consists of decision making about policy goals and instruments for the country as a whole, and a vertical dimension, involving the way in which a particular grant is defined and executed by individual recipient jurisdictions” (48). To heed Nathan’s observations, anyone interested in learning about the dynamics of a particular policy area ought to look very closely at the major grant programs in that area.


David R. Beam and Timothy J. Conlan, “Grants,” in The Tools of Government, ed. Lester M. Salamon, 340–80 (New York: Oxford University Press, 2002); Richard P. Nathan, “State and Local Governments under Federal Grants: Toward a Predictive Theory,” Political Science Quarterly 98 (Spring 1983); Paul E. Peterson, Barry G. Rabe, and Kenneth K. Wong, When Federalism Works (Washington, DC: Brookings Institution, 1986); Jeffrey L. Pressman and Aaron Wildavsky, Federal Programs and City Politics (Berkeley: University of California Press, 1975); U.S. General Services Administration, Catalog of Federal Domestic Assistance (Washington, DC: U.S. GSA, annually); U.S. Office of Management and Budget, “Aid to State and Local Governments,” in Budget of the United States Government: Analytical Perspectives 47–57 (Washington, DC: U.S. OMB, issued annually); and Deil S. Wright, Federal Grants-in-Aid: Perspectives and Alternatives (Washington, DC: American Enterprise Institute, 1968).

Michael J. Rich

Last updated: 2006

SEE ALSO: Block Grants; Categorical Grants; Education; Formula Grants; Housing; Local Government; Matching Requirements; Medicaid; Project Grants; Reagan, Ronald