Federal Block Grants and State Spending: The Alcohol, Drug Abuse, and Mental Health Block Grant and State Agency Behavior

With renewed interest in block grants as a way to channel federal funds to states, several questions arise about the effect of block grants on state spending. A central question about the block grant form of intergovernmental aid is whether states spend the funds on the intended services or use budgetary strategies to appear to be in compliance with maintenance-of-effort provisions but then reallocate block grant funds from the targeted program. We studied the effect of the Alcohol, Drug Abuse, and Mental Health block grant program on state substance abuse expenditures by analyzing spending data from the fifty states between fiscal years 1987 and 1992. Our findings suggest that this block grant has stimulated state spending, but this effect may be relevant only since 1990 and, in fact, differs among states.