Federal Aid to the States: An Analytical Examination of the Alternatives*

Abstract

NUMEROUS SUGGESTIONS HAVE BEEN MADE for increasing Federal Government assistance to the states in different ways in dealing with pressing domestic welfare and developmental programs. At the same time, many drawbacks and disadvantages of each of these alternatives have been identified, with the result that no single approach has obtained general support. The purpose of this study is to contribute to breaking the deadlock by arraying and objectively comparing the various alternative approaches to what might be described as a revised federalism. Hence, this study of the policy mix of federal aid to state and local governments attempts to achieve two objectives: (1) to examine the case for increased federal financial assistance to state governments and their subdivisions; and (2) to analyze as objectively as possible the major alternative ways of distributing the aid. The size and composition of federal aid in the coming years will be strongly influenced by two interrelated factors: (1) the public policies adopted to utilize the resources made available by a post-Vietnam military cutback; and (2) the growing public awareness of the fiscal between federal financial resources and state and local governmental program responsibilities. These two factors are closely related because federal programs designed to reduce the mismatch also represent possible alternative ways of offsetting the deflationary impacts of a reduction in military spending. Nature of a Likely Post-Vietnam Environment. At this point in time it is extremely difficult to speculate as to the precise nature of a cutback in United States defense spending following peace in Vietnam. If the general dimensions correspond to the Korean experience, it would be expected that spending would decline substantially after the cessation of hostilities but not down to the level prior to the conflict. As Vietnam outlays are now running at over $20 billion a year, a reduction of about $15 billion in United States military demand might be anticipated during