Block Grants

When I read The Coming Crisis of Big Government I gained a measure of hope that there might be some possibility left for averting the crisis of our soon-to-balloon costs for social security and Medicare. One of the central examples in the article relate to the use of block grants to restructure some of the programs.

Ferrara emphasizes the shocking success of the 1996 reforms of the old Aid to Families with Dependent Children (AFDC) welfare program. Based on concepts developed by my long-time friend and Reagan welfare guru, the late Robert Carleson, AFDC was “block granted” back to the states. This means the share of Federal spending on the program was sent back to each state to be used for a new welfare program designed by each state based upon required work for the able bodied.

The key is that the Federal block grant for each state is finite and does not vary depending on how much the state spends. If the state welfare program costs more the state must pay for the extra expense. If the state welfare program costs less then the state keeps the savings.

The required work for the able bodied has been powerful in moving people off the welfare rolls. But even more powerful have been the new incentives for state bureaucrats resulting from the finite block grants. Under the old system, where Federal funds were increased to match whatever the state spent, signing up new welfare recipients at the state level meant bringing more Federal funds to the state. But with the state itself paying for any extra expenses, or keeping any savings, state bureaucrats moved aggressively to get welfare recipients into jobs.

I agree that matching funds methods of financing federal programs only encourages program growth – the states have great incentive to stretch their budgets by putting everything they can think of toward 2 for 1 programs (for every state dollar they spend they have two dollars to spend because of federal matching – at least for 1 to 1 matching programs). The block grant method was apparently useful for welfare, but states are naturally going to balk at the idea of having their budgets limited when their needs feel unlimited.

I also wonder how well block grants will work with other programs such as transportation funding? Here in the Wasatch front we are keenly aware of the need for more funding for roads and transit. Would block grants encourage the state to spend their money on the best solutions, or would they simply shortchange our burgeoning needs?

So here’s the question – do you think that block grants are a widely applicable tool to control the growth of government spending, or do we need to come up with more tools in order to close the lid again on this Pandora’s box?

About David

David is the father of 8 extremely organized children (4 girls / 4 boys) who is constantly seeking answers to tough questions related to parenting, education and politics while moonlighting for 40 hours each week as a technology professional. He also enjoys cooking, gardening, and sports.
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2 Responses to Block Grants

  1. Reach Upward says:

    That depends on how the block grants are structured. But in general, block grants have got to be better than our current approach to programs like transportation and Medicare.

    The current approach essentially assumes that the federal government has unlimited resources, although, we all know this is not the case. Our federal politicians give lip service to balanced budgets and they badmouth the federal deficit. But then they spend like drunken sailors as if there is no logical limit to federal spending. State officials act as accomplices because they are incentivized to do so.

    Check out the programitis in our education system. The feds offer a chunk of cash for a specific type of pogram if the state (or even district) will pony up matching funds. Many of these programs do not produce verifiable positive impacts on actual educational outcomes. But they do build bureaucratic staff at the state and district levels that become endlessly self-perpetuating.

    Most conservatives thought at the time of the 1996 welfare reform that it would be a model for continuous future reforms. But it’s like the GOP gave up on this kind of thing. Even if they didn’t think they could get more of it done during Clinton’s second term, they had more than ample opportunity from 2000-06. Instead, they expanded many cash-dumping programs.

    So, while I think block grants in many programs might be great and would recognize the realities of limited resources, I am not hopeful that political will exists to do anything about it. Nor am I convinced that the electorate is very concerned about the growth and expansion of government at all.

  2. David says:

    While there is a logical limit to federal spending (that limit being whatever the government gets in tax revenues) the only real limit to federal spending is what the electorate is willing to accept. The great danger is that so many people are fully invested in the idea that more federal spending is a benefit to the nation so we watch the federal budget balloon.

    I could have written you last paragraph word for word. Block grants appear to be a good idea that nobody seems willing to work for.

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