and responsive to State and local fiscal realities." After alluding to the Model Cities and Partnership for Health programs as possible prototypes, he went on to say, "In the coming year we will examine other areas of Federal aid to determine whether additional categorical grants can be combined to form a more effective tool for intergovernmental cooperation." 34

There appears to be a consensus on the general proposition that there are too many narrow grants. Budget Director Schultze emphasises that Federal aid"... is being provided through too many narrow categorical grant and loan programs. Our system of grants-in-aid has long been overly complex. "35 Noting the "excessive categorization," he graphically depicted our problem as needing to strike a reasonable middle ground between extending aid in "teaspoons" or in "buckets." 36 Selma Mushkin, in a recent address before the National Association of State Budget Officers, judged the present number of grants "excessive" whether the total was 100, 200, or 300. Sheer numbers alone cause States and communities considerable problems in simply "... sorting out what is available .." 37 These authorities are joined by similar complaints emanating from Capitol Hill, the National Governor's Conference, and elsewhere.

However, in moving from the general proposition that some reform is needed to particular measures, any semblance of unanimity quickly fades. The symmetrical lines of the old Hoover Commission grant edifice are soon eroded by a rash of qualifications and hedging. There appear to be significant obstacles in the path of wholesale reforms which would yield a grant system "... based on broad categories—such as highways, education, public assistance, and public health-as contrasted with the present system of extensive fragmentation." 38 The one shining example of progress in this direction, the Partnership for Health program, had a gestation period of some 17 years-being first proposed in almost its present form in 1949! 39 After some thought on this topic, and faced with the manifest lack of progress, the author was forced to concede that there must be something to say in favor of our much-maligned categorical aid system. Or, at least, one must judge that there are almost insurmountable obstacles to significant revisions in the present grant structure. (In this context, the outlook for more radical changes in the system is dark indeed!)

34 "The Budget Message of the President," The Budget of the United States Government— 1968, p. 34.

35 "Creative Federalism," op. cit., p. 390.

20 Ibid., pp. 410-411. One "horror" story will suffice to demonstrate the extent of overlapping and fragmentation which can exist in some Federal program areas. While there may be defensible reasons justifying the continued existence of such splintering, the area of health in the Department of Health, Education, and Welfare can be awesomely bewildering to the prospective recipient. For example, the bulk of health assistance programs are vested in the Public Health Service. Yet, four other HEW agencies are also involved in the health field the Social Security Administration, Vocational Rehabilitation Administration, Office of Education, and the Welfare Administration. Furthermore, within the Welfare Adminis tration, health programs are being carried out by two of its constituent elements: the Children's Bureau, and the Bureau of Family Services.

3 "Intergovernmental Fiscal Relations: Prescriptions," an address prepared for the 1966 Annual Meeting of the National Association of State Budget Officers, Hawaii (Aug. 4, 1966), p. 19.

3 Commission on Organization of the Executive Branch of the Government. Overseas Administration, Federal-State Relations, Federal Research, Report to Congress (March 1949), p. 36.

39 See Selma Mushkin. "Barriers to a System of Federal Grants-in-Aid," National Tas Journal (September 1960), pp. 193-198, for a discussion of this general topic. See, espe cially, p. 194 for the block health grant proposal.

A. Obstacles to generalized forms of assistance

The formidable problems lying in the path of general forms of aid are outlined below. Looking at the positive side, the list constitutes an impressive array of advantages to be claimed for categorical aids. (1) National needs.-There are certain objectives which take on national importance. Rather than undertaking these activities directly, the Federal Government frequently chooses to stimulate State and local efforts to meet those needs through the financial incentive provided by conditional grants. This is in accordance with our revealed preference for the benefits of a decentralized system of government. To be most effective, the aid stimulus should be applied to a restricted area of activity, increasing its attractiveness to prospective recipients. The common criticism that categorical aids "distort" State and local budgets only indicates that the incentive to action is effective, and that nationally defined goals are being pursued. Despite disclaimers to the contrary, no governmental unit is forced to subscribe to most of these services. There are still some assistance programs which a few States forego on the basis of principle. On the other hand, large-scale provision of generalized assistance would dilute the Nation's ability to focus on specific national needs.

Highly specific approaches to meeting national needs constitute one of the main reasons for the present fragmentation of Federal-aid programs. Few reformers will settle for a single "general" health grant, for example. Inevitably, someone will point to the overriding need for rore doctors, nurses, etc., and decide that we need a separate program for training health manpower. Looking at the complex problems of long-term funding, and the voter appeal inherent in construction projActs of any type, someone else will advocate separating construction from regular operations. Certainly, planning is also a unique activity which ought to be especially encouraged. As a result, fragmentation by function is overcome; fragmentation by object is rampant. The casual server may be hard-pressed to choose which of these two kinds of fragmentation is least confusing and inhibitive to effective programing at the State or local level.

Finally, the Kestnbaum Commission cited the national purposes often pursued through the use of Federal aids. "The National Government has used the grant-in-aid primarily to achieve some national obtive, not merely to help States and local governments finance their ivities.... When used effectively, the grant not only has increased the volume of State and local services, but also has promoted higher standards both in service and administration." 40

(2) Adjustment of "spillover" costs and benefits. In many State and local programs there are costs and/or benefits which accrue outside the bounds of the decisionmaking jurisdiction. As a result, analysis of the need and formulation of a program to meet it tend to become fragmented-and the true relationship between program costs and benefits is clouded. Consequently, there is some justification for a more mprehensive unit of government to evaluate the relative cost-benefit lance and provide grants to adjust the differences.11 The extent of

Op. cit., pp. 119, 126.

See Albert Breton. "A Theory of Government Grants." The Canadian Journal of Ecomics and Political Science (May 1965), pp. 175-187. He argues, for example, that a higher level of government and only a higher level of government can compute the arginal social utilities and the marginal social costs of the benefits that spill over the frontiers of jurisdictions and only that government can equalize them" (p. 183).

services also have a spillover of benefit to the whole society. Welfare services form another distinguishable group of the large in-between category. Here also the benefits accrue directly to recipients, but society is collectively benefited because provision of these services satisfies deeply felt humanitarian feelings. Moreover, linkage of individual benefit with individual payment would be absurd since the recipients are, by definition, without means. In short, finance by general taxation is inevitable and appropriate; Government provides the services as a collective duty.

How can these generalizations be applied in deciding between Federal or State-local provision of a particular government service? One which is rendered to the Nation as a whole (collectively)-defense, for example is clearly Federal; so also is one which, although noncollective, should be provided uniformly to individuals in all Statespostal services, for example. The outlook of each State and local government is, on the other hand, circumscribed; the services each provides are for individuals in a limited geographic area. Some variation of type and level of provision is acceptable, and even desirable. Sometimes, however, the benefits from a State or local service will spill over and have an impact outside its boundaries. Primary and secondary education is one obvious example. Although the spillover undoubtedly reaches beyond the boundaries of a locality or a State. this national interest has not until recently been recognized by Congress through Federal grants-in-aid. Provision is left mainly to local governments because direct benefits accrue to individuals in a locality and because local (and State) governments are strongly responsive and sensitive to the demands of citizens concerning details. The cost is provided through taxes levied at the local and to a smaller extent at the State level.

Public welfare services are another bundle of functions performed mainly at the State-local level of government. The benefits accrue directly to individuals; responsiveness of government to the variety of individual needs is vital; detailed administration is inevitable. The services are rendered mainly to needy persons, and, during the depres sion of the 1930's, the opinion emerged strongly that some minimun. level of provision should be achieved over the Nation. Since this would not result if the States were left to their own devices, Federal assistance by conditional grants was enacted. Thereby, State and local gov ernments were stimulated to offer welfare services, not indeed at a uniform level, but so that a minimum level for recipients was feasible even in poor States.

EXPENDITURES FOR CIVIL FUNCTIONS, 1902-63

What are the most important civil functions provided by Gover ment over the past sixty years, measured by the relative expenditure these have absorbed? Table 1-3 shows that four functions have e sistently accounted for about half the total. Education has alwa been far in the lead with highways a poor second. Expenditure f public welfare rose sharply in the 1930's, and remains substant:: although percentage expenditure has shrunk moderately.

TABLE 1-3.-Percentage distribution of general expenditure for civil functions by all levels of Government, selected years, 1902-63

What shifts have occurred in the past sixty years in the level of government providing the most important civil functions? When Federal grants (intergovernmental transfers) are regarded as spent by State and local governments (which make the final disbursements), the shift appears to be very slight. (See Chart 1-5, Section A.) Except for health and hospitals, the State and local relative share is about the same in 1963 as it was in 1902.11

This approach conceals the growth of Federal grants in recent decades. By grants, the Federal level has absorbed part of the financial cost of certain functions (and it has also stimulated their performance). To emphasize the importance of grants, in Section B of Chart 1-5 intergovernmental transfers are regarded as spent by the originating level of government. The large contribution made by the Federal Government in grants for highways and welfare becomes apparent; the Federal contribution to health is also substantial. Nonetheless, the shift in sixty years is not great. And the extent of Federal direction which accompanied expansion of its grants was modest.

An overlapping of governmental activities now exists. Performance of certain functions remains at the State and local level, but the Federal Government participates in finances and, by specifying conditions for receipt of grants, gives a modicum of national direction. A mélange of Federal grants has emerged, modifying federalism without changing its essential characteristics.

APOLOGIA FOR FEDERALISM

The situation is, then, that the expansion of Federal power, so forceful a trend in the 1930's has not continued; federalism has demonstrated a renewed vitality. The States are, so it seems, geographic units that can handle many functions more flexibly, and therefore more in accord with heterogeneous citizen demands, than the National Government. State boundaries must be accepted as immutable, and while the States are diverse in population, resources, and area, this diversity is no greater than that of many sovereign nations and not

"On Inspection, it turns out that 57 percent of Federal spending in 1963 for health and bospitals is for veterans. A few surprising shifts over the sixty years prove to have simple and episodic explanations. For instance, the drop in the State-local share of highway expenditure in 1938 is explained by WPA spending; the drop in the State-local share of expenditure for education in 1948 is explained by the surge of Federal G.I. benefits.

sanctions would never be applied because of their controversial nature, is only to recognize another political obstacle in the path of adopting more "flexible" forms of assistance.

B. Concluding observations

What conclusions can be drawn from this rather pessimistic assessment of the outlook for substantial reforms in the categorical aid system? First, and most obvious, is the conclusion that any changes in such a structure are difficult to obtain. A reasonable corollary would be that the extent of opposition to such change is directly proportional to the scale of the reform (i.e., "radical" changes stand the least chance of approval; incremental revisions enjoy a more favorable prognosis). In short, holistic approaches are unsuited to pluralistic politics. (In this regard, "tax-sharing" proposals which would completely supplant the existing categorical aid structure may foreclose the adoption of any form of such general assistance-by serving as a catalytic agent for consolidating the diverse opposing forces.)

Secondly, despite these obstacles, some reform is both necessary and possible. To be effective, these proposals must be appropriate to the actual problems encountered and in harmony with existing political "styles" (i.e., at least appear to be incremental). Without wanting to sound overly sanguine about the chances for favorable evolution in the system, the author believes the factors cited in an earlier section document a movement in the right direction. Moreover, the political obstacles in the way of more comprehensive measures, and some of the advantages of categorical assistance, make the prospect of evolution (rather than revolution) somewhat more bearable and a great deal more likely.

There are a number of areas which would bear further exploration as avenues of such a manageable reform package:

(1) Marginal consolidation.-There is some latitude for combining additional categorical grant programs. However, most of the prospects appear to be in one agency-the Department of Health, Education, and Welfare. The Department and the Budget Bureau are now examining those programs to see what can be accomplished. In the other functional areas, the number of separate programs does not seem nearly so overwhelming.49

(2) Single grant authority for demonstration and research.-Dr. Selma Mushkin's proposal to group innovative grants into a single grant for each department is an interesting possibility.50 Since most of the 226 project grants are of this nature, consolidation would eliminate nearly half of the total number of grant authorizations. Furthermore, the purposes of such research and demonstration could then be broadened to encompass an entire program area, while not sacrificing the ability to focus funds on specific problems.

After subtracting project grants, the following number of aid programs remain :

On the same basis, programs for health, labor, and welfare totaled 56, and education had 34 programs.

50 Mushkin, ". . . Prescriptions . . .," p. 21.