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Federalism in Practice

History of Federalism

Federalism in Practice, page 2

page 1 of 2

Money plays a key role in the federal government’s relationship with the states. Congress gives money to the states, for example, but stipulates how this money should be used in order to force the states to cooperate with federal policies.

Federal Aid to the States

Since World War II, states have come to rely heavily on federal money. Likewise, the national government has also relied on the states to administer some federal policies, a practice called fiscal federalism. The term grants-in-aid refers to the federal government giving money to the states for a particular purpose. There are two general types of grants-in-aid:

  1. Block grants: Money given for a fairly broad purpose with few strings attached.
  2. Categorical grants: Money given for a specific purpose that comes with restrictions concerning how the money should be spent. There are two types of categorical grants:
  • Project grants: Money states apply for by submitting specific project proposals
  • Formula grants: Money given to states according to a mathematical formula

Example: When the Republicans retook Congress in 1994, they changed many federal grants into block grants. Instead of giving money to states to buy textbooks or repair schools, for example, Congress gave states blocks of money to spend on education in any way the states saw fit.

Federal Pressure on the States

The federal government uses a number of tactics to compel states to follow its policies and guidelines. Congress can order states to comply but usually applies pressure more subtly by threatening to withhold funds from disobedient states.

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