Summary: As federal assistance has grown to comprise 25 percent of state and local expenditures, the impact of federal grant program constraints and conditions on state and local management and finances has become more pronounced. The need for improved intergovernmental cooperation and coordination becomes critical and should serve as the impetus for improvements in the massive federal aid system. Every possible effort must be made to make better use of scarce public resources. The categorical grant system has fostered an unwieldy and fragmented system for delivering public services. Management problems exist at the state and local level as grantees attempt to reconcile grant programs with separate and, at times, conflicting standards and requirements. Localities facing budget reductions most often choose to continue their matching contributions to retain federal grant funds while disproportionately cutting services funded solely from local revenues. Congress should use matching requirements more sparingly and only where a specific federal interest can be articulated. Maintenance of effort requirements need to be made more flexible to avoid penalizing or inhibiting bona fide state and local budget reductions. To raise funds needed for compliance, state and local governments can either raise taxes or distort their budgetary priorities by taking money away from state and local services not affected by federal mandates. There is a need to examine ways in which scarce federal dollars are allocated among states and localities. There is an increased need for management control and accountability. GAO advocated increased state and local oversight of federal programs to better promote the accountability of these programs and improve productivity. Insufficient oversight can result in expensive duplication, conflict, and overlap betweeen federally funded and state funded programs serving similar objectives. Recently proposed legislation contains positive steps toward removing the barriers retarding state and local productivity. OMB should take the lead to implement a government-wide approach for accumulating, analyzing, and disseminating data on the financial and staff resources used in administering federal assistance programs.
