Question

ome states argue for block grants from the federal government to the states in lieu of federal money for expansion. What are the advantages and disadvantages of this argument?

Answer 1

Block Grants are given to the local governments by the federal government for broad purposes and it is upto the local government on how to utilise these funds. Federal government has no say in the utilisation of the block grants and the decision on which programs must be funded is taken by the local government. Each local government may decide on the allocation of the block grants as per their specific requirements. In addition to the funding from the federal government, local governments also have other sources of revenues, such as taxes, tolls, etc. Example of Block Grants can be the funds allocated for community development, etc.

On the other hand, Categorical Grants are exact opposite to the Block Grants. Categorical grants are the funds that are given to the local governments by the federal government for specific projects and purposes. The local governments cannot utilise the categorical grants for any other purposes except for the purpose for which it is allocated. Federal government can choose on when and to whom the categorical grant should be offered as per the attractiveness of their proposal plan. This points to the fact that unlike block grants, categorical grants are competitive in nature.

Number of state governors favors receiving federal block grants instead of the current system because the block grant policy got united with the decline for the need of the federal programs; states got the better flexibility in the matter of design and long term settlements for serving their population.

Advantages of block grants is that it allow local governments to choose which programs in their community to fund but it may happened that these governments are not able to identify where the money should be spent which the federal government may have better idea. On the other hand categorical grants are beneficial because the federal government is able to choose projects based on merit but not bound by a formula, as with block grants. Federal government may give fund those who deserve based on merit and applications. Block grants are that the federal government usually does not provide much control on how the money is spent. As a matter of fact local governments may use the money ineffectively; but because the money is allocated according to a formula, there is no accountable for failures. Categorical grants have also chance of failure but federal government has some merit or evidence to spend on specific projects.

In Revenue sharing, provinces or states unit’s sharing of part of its tax income to other units of with local governments, or national governments. Revenue sharing should impact on state and local governmental reform activities and its spending priorities, improving and expanding general revenue sharing.