The examples and perspective in this article deal primarily with the United States and do not represent a worldwide view of the subject. (December 2010) (Learn how and when to remove this template message)
In a fiscal federal form of government, a block grant is a large sum of money granted by the national government to a regional government with only general provisions as to the way it is to be spent, in contrast to a categorical grant, which has stricter and specific provisions on the way it is to be spent.
The national debate in the United States regarding the effectiveness of block grants has recently intensified as the United States Congress decides whether to convert Medicaid to a block grant program.
Since devolution in the United Kingdom was implemented in the late 1990s, creating the Scottish Parliament, Welsh Assembly and the Northern Ireland Assembly, the devolved governments of Scotland, Wales and Northern Ireland have been funded by block grants from the government of the United Kingdom because only a relatively small percentage of the tax revenue is collected by the devolved governments. Westminster provides a block grant for Transport for London reflecting the expense of operating the London Underground and the fact the London Authority is unable to raise a Transport Levy on Council Tax unlike other metropolitan counties in the UK (Though since 2012 the Mayor of London's Community Infrastructure Levy has been introduced allowing the Mayor to attach a levy on property development to serve a similar function).
Under the terms of the Scotland Act 2012, the block grant from the United Kingdom government to Scotland will be cut, but the Scottish Government will be able to collect an equivalent amount of income tax.
Since the 1970s, the United States government has provided large sums of money through block grants, under a policy that has come to be known as "devolutionary" or "New Federalism." Block grants replaced the previous policy of revenue sharing (1972-87).
According to the General Accounting Office, from 1980 to 2001, the number of federal block grant programs went from 450 to 700. The grants are aimed at a wide range of activities from education to healthcare, transportation, housing and counterterrorism.
The formulas for how much money states receive favors small states. Most grant programs have a minimum amount per state, usually 0.5% or 0.75% of the total money given to states in the program.
For instance, in 2003, under the state Homeland Security Grant Program and Critical Infrastructure Protection, the least populous state, Wyoming received $17.5 million and the most populous state, California, received $164 million. In fiscal year 2004, Wyoming was guaranteed to receive at least $15 million, California $133 million. Wyoming thus received $35.3 per person, California only $4.7 per person.
Similar patterns exist for other block grant formulas. An analysis exists in the book Sizing Up the Senate.
Additionally, individual states may provide block grants to their political subdivisions, such as counties, towns, and school districts.
Block grant advocates argue that local government officials are "closer to the people" than federal administrators, and in turn can better identify local needs. Thus, unlike a categorical grant under which the federal government decides where resources should be allocated, a block grant places these decisions in the hands of better-equipped local officials. Block grants are also arguably more cost-effective because they reduce federal administrative costs related to state and local government paperwork requirements. In addition, advocates maintain that block grants allow local governments to experiment with new approaches to solving various problems that other state and local officials can learn from. Such innovation would not be possible if funding were provided through restrictive categorical grants.
In contrast, critics of block grants argue that the flexibility block grant programs give to local governments diminishes the ability of federal administrators to evaluate the effectiveness of these programs, especially given that there are often no federal requirements for uniform program data collection across states. Opponents also claim that the lack of restriction regarding where local officials spend block grant funding can enable them to retarget resources away from communities with the greatest need, to communities with the greatest political influence. Furthermore, block grant critics assert that the funding for block grants is prone to diminish over time because it is more difficult to regenerate political support for broad-purpose, state-run programs, than for categorical programs focusing on specific purposes.
The figure demonstrates the impact of an education block grant on a town's budget constraint. According to microeconomic theory, the grant shifts the town's budget constraint outwards, enabling the town to spend more on both education and other goods, due to the income effect. While this increases the town's utility, it does not maximize the town's spending on education. Therefore, if the goal of a grant program is to encourage spending on a particular good, a categorical grant may be more effective in achieving this goal than a block grant, as most block grant critics would argue.
Despite the various theoretical arguments in favor of block grants, existing research has mainly found that block grants are generally ineffective in achieving policy goals.
According to a CBPP study, since 2000, funding for the 13 major low-income health, housing, and social services block grants has fallen by 37%, after adjusting for inflation and population growth. This sharp reduction in funding can be attributed to the basic structure of block grants. Since block grants are designed to give local governments broad flexibility over their use of federal funds, recipients can turn these grants into savings, or spend them on other matters. As a result, it is often difficult to track in detail how these funds are being used, and what greater impact they have, thus making block grants very vulnerable to funding reductions or freezes.
On the other hand, this drop in funding is not unique to block grants, and may be a part of a national trend in decreased grant funding. Research shows that since 2008, categorical grant funding has also decreased for 29 out of 50 states.
Evidence shows that the amount of basic assistance that block grants provide has also fallen, as local governments spend their federal funds on other purposes. For example, in 2015, only half of the funds received from the TANF (Temporary Assistance for Needy Families) block grant were spent on core welfare reform activities such as cash assistance, work activities, and child care. The rest of the funds were spent on a variety of different matters unrelated to the program.
While one justification for block grants is that they reduce administrative costs, there has been no empirical evidence for this reduction. In fact, researchers argue that these administrative costs do not disappear but are rather passed from the federal government to the recipient states.
Program Assessment Rating Tool (PART) is a set of questionnaires developed by the George W. Bush Administration to assess the efficacy of various federal funding programs. Out of the seven PART program types in 2008, block grants received the lowest average score, as 30% of block grant programs were rated "results not demonstrated," and 5% were rated "ineffective." However, block grant advocates argue that PART's strong weighting of program results in its calculations make it a poor measure for evaluating block grant performance. While PART examines how programs achieve a single outcome, many block grant programs contain multiple outcomes which are often contradictory to each other, and thus the overall impact of block grants may be underestimated.
On the other hand, there is limited research that suggests that block grants have a positive impact on policy outcomes. One study in the Netherlands evaluating the ADHA (Assistance in Daily Housekeeping Activities) block grant finds that for each additional euro of grant money given to local governments, 50 cents is spent on ADHA. Consequently, the authors argue that block grants can achieve important outcomes, and that categorical grants are not necessary to force spending on particular issues. However, block grant critics would likely argue that this 50% spending rate on ADHA is a sign of ineffectiveness, as it means that local governments are spending the rest of the funding on unrelated issues.