Summary: Changes occurring in the U.S. system of intergovernmental relations are eroding local autonomy and centralizing authority. The erosion of state and local autonomy and centralization of authority appears to be accelerating as the combination of resource scarcity and the structure of federal grants are causing subtle, fundamental changes in the scope and role of state and local governments. The effects of federal grants on state and local budgets and priorities have become more pronounced due to the growing dependence on federal funds. By design, the federal grants system is a powerful mechanism for stimulating spending at all three levels of government. Largely, the grants system is predicated on the need to induce state and local government participation in the service of national programs and priorities. Thus, the federal government can act on an expanding agenda of national concerns without bearing the full fiscal impact or political risks associated with implementing controversial national policies. Traditional management constraints on state and local spending are not typically operative within federal grant programs. GAO has noted that grantees have little or no incentive to improve productivity in federally funded programs, because savings achieved through expenditure controls in federal grant programs largely accrue to the federal government. Federal grants can induce state and local governments to spend more than required for programs. The expenditure impact can be attributed to mandates, matching requirements, and maintenance of effort requirements that require additional spending as a condition for receiving grants. In addition to stimulating short-term spending, federal grants drive up future spending when new services create a clientele that continues to be dependent on the service regardless of the availability of federal funds. By increasing state and local reliance on federal grant programs, the state and local agendas become cluttered by programs of national but not necessarily local priority. During times of cutbacks, the national priority programs tend to be protected while locally funded programs suffer the brunt of cuts. From the local point of view, protected federal programs are wasteful because they support innovations and program initiatives considered frivolous by local citizens and public officials, especially when the basic service infrastructure of local government is being retrenched.
