Block-Grant Mania: A Way to Cut Aid to the Working Poor?

Margy Waller
Margy Waller Visiting Fellow, Economic Studies and Metropolitan Policy, The Brookings Institution

July 28, 2003

NOT A FEW politicians and editorial writers have commented that the tax cuts passed in the last few years will eventually create enormous pressure to reduce costs (read “make cuts”) in Medicare and Social Security. But there’s another more immediate transformation under way.

A quick look at administration recommendations reveals a trend: Here a block grant, there a block grant, everywhere a new state block grant. From health care to Head Start, food stamps to affordable housing, and on to transportation and job training – it’s a policy one-note.

Block grants shift oversight and administration from the federal government to states. Flexibility is often the justification (and the bribe) for this change.

Are block grants good policy? And what do they have to do with saving some federal bling-bling for tax cuts anyway?

First off, this is not a new idea.

The first proposal for block grants came back in 1949. One study suggests the idea died because recipients were concerned about losing funding. (Cue the op-ed foreshadowing music now.)

But proponents pressed on, and the first block grant was enacted in 1966 under LBJ. More followed in the Nixon, Reagan and Bush I administrations.

Many block-grant proposals supported by the “Contract with America” Republicans after the midterm elections in 1994. The most famous of these – welfare reform – became law in 1996.

What have we learned from these block grants? States and localities appreciate the opportunity to appropriate federal dollars in ways that meet local needs. But whatever else happens, turning federally managed funding into a block grant seems to lead to fewer dollars and services.

Over time, Congress loses interest in funding that some other level of government controls. Or members retain interest by adding new strings and requirements to block grants, effectively limiting the flexibility that was the sweetener in the first place. Often Congress cuts funding and reduces local control at the same time.

Take a recent example: Congress and President Clinton gave states new flexibility to design welfare-to-work programs, but eliminated the guaranteed funding for cash assistance and transitional child care. The parties negotiated an agreement that set the appropriation where it had been when caseloads were large, and even added some money for child care. Then they froze the funding for six years. This seemed a decent deal to governors, as long as caseloads dropped.

Caseloads did go down: more than 50 percent after 1996. But the implicit promise of the law was to “make work pay,” and states used the newly freed-up block grants to provide child care and transportation and other supports to working poor families.

SO, IN reality, these aren’t welfare block grants at all anymore – they are grants for working families and those transitioning from welfare to work.

But now that these “working family” grants are up for reconsideration in Congress, the administration and some in Congress are proposing new state mandates and no funding increase.

Rent, salaries and other costs go up – so services must be reduced unless spending increases cover the cost of inflation and new mandates. And there is still a significant unmet need for child care and other work supports.

Block grants have never been necessary for the goals of local flexibility and program consolidation. Funding can be combined and local officials granted more authority over programs while the feds remain responsible for monitoring outcomes to ensure that national priorities are met.

So, why do block grants return to the debate decade after decade? Urban Institute scholars wrote during the welfare debate in 1995 that some Republicans and conservatives believe block grants are a way to reduce or even eliminate federal funding for “certain purposes.”

History suggests it’s not at all outrageous to view this year’s many block grant proposals as part of a strategy to reduce federal investment in services for working poor families.